Is globalization going in reverse?

by on April 27, 2015 at 2:16 am in Current Affairs, Economics, History | Permalink

Jeffrey Rothfeder has a very good piece on that question, here is one excerpt:

Somewhat surprisingly, cross-border capital flows are equally anemic. Despite the common perception that multinationals these days manufacture their products anywhere but the West, global foreign direct investment (which reflects the amount that companies earmark for doing business in other countries) has fallen to a mere 2 percent of global GDP from 4 percent before the recession.

Still, the most tangible metric that belies the Pollyannaish depictions of globalization is corporate financial performance, which is also a window into the fundamentals of local economies. Although most companies don’t separate out geographical earnings, revenue comparisons provide an apt picture — and few multinationals can boast big returns in global markets.

There is much more to the argument, do read the whole thing.

1 Steve Sailer April 27, 2015 at 2:22 am

Is the analyst adjusting for multinationals’ increasingly aggressive Evado Tax book-cooking? For example, Microsoft used to admit to the IRS that it was a software company based in the United States and paid corporate income tax accordingly. But in the last half dozen or so years, Microsoft has nominally transformed itself into an industrial giant that makes billions pressing CD-ROMs in Ireland, Singapore, and Puerto Rico, and has a money-losing R&D operation in Redmond.

2 JVM April 27, 2015 at 3:30 am

“makes billions pressing CD-ROMs”

CD-whatnows?!?!

3 Steve Sailer April 27, 2015 at 3:41 am

In the fine print of Microsoft’s July 21, 2011 press release, you can find:

“Our effective tax rates for the fourth quarters of fiscal years 2011 and 2010 were approximately 7% and 25%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore and Puerto Rico, which are subject to lower income tax rates.”

http://isteve.blogspot.com/2011/07/how-microsoft-does-it.html

4 Kris April 27, 2015 at 8:49 am

Looking at it from another perspective, if Microsoft pays its R&D staff such high salaries that its entire US operations is a loss-making venture, then the IRS must be collecting huge amounts of income taxes too.

But really, 7% is shockingly low for a company that is as profitable as Microsoft. Do you know what the equivalent numbers are for the 2012-15 period?

5 sort_of_knowledgeable April 27, 2015 at 11:12 am

That 2011 quarter 7% tax rate is an aberration. The last 3 years income statements from yahoo finance has income before tax in the 20 billion range and tax in the 5 billion range and tax rate abound 20%.

Note in the same press release
“Our effective tax rates for fiscal years 2011 and 2010 were approximately 18% and 25%, respectively”

6 dirk April 27, 2015 at 2:56 am

Doesn’t take a multinational to buy components made elsewhere.

7 Philippe Legrain April 27, 2015 at 3:48 am

You might find own piece stimulating on why the future of globalisation is in doubt: http://www.capx.co/the-future-of-globalisation-is-in-doubt/

8 Thor April 27, 2015 at 9:38 pm

+1

9 Marko April 27, 2015 at 4:32 am

The full-court press for TPP is on.

Did the Koch Bros send out a memo , or what ?

10 Steve Sailer April 27, 2015 at 6:35 am

George H.W. Bush’s NAFTA intentionally impoverished many Mexican corn-farming peons to benefit affluent American corn farmers. The first Bush Administration knew this would cause a big increase in attempts at illegal immigration and did little to stifle it.

The Bush dynasty has long been in the business of electing a new people to elect the Mexicanized branch of the Bush dynasty — either Jeb or his mestizo son George P. Bush.

11 msgkings April 27, 2015 at 12:05 pm

Oy vey, NAFTA was about corn, who knew?

See that over the shark tank? It’s Steve Sailer on a motorcycle!

12 Steve Sailer April 27, 2015 at 6:29 am

The subtext to the Washington Post article appears to be that most of the world interprets “globalization” not like American elite do — We send our manufacturing jobs to you — but like South Korean elites do — You send your manufacturing jobs to us.

It’s kind of hard to blame the world for imitating South Korea rather than the U.S.

13 Kris April 27, 2015 at 8:57 am

Jobs are one side of the coin; goods another. There is an implicit quid pro quo involved in globalization; developed countries might lose some jobs, but they get much cheaper goods in return. If globalization were reversed, those jobs might return, but the goods might be unaffordable to low-income people. There’s always a tradeoff.

14 ladderff April 27, 2015 at 10:25 am

I used to buy this line but it’s not even close to the whole story. Debt and financial manipulation are relevant here.

15 rayward April 27, 2015 at 6:57 am

Again, this is consistent with the view expressed by Cowen and Thiel in their dialogue. In a world awash with capital, where is it going? The rate of return on productive capital in the developing world, even though it may be higher than in the developed world, cannot compete with the allure of safe sovereign debt instruments and speculative financial assets. Sure, trade barriers have increased, and foreign investors face added risks due to discrimination, or worse. But at bottom the failure to realize the expected benefit of globalization is the result of depressed demand: “But equally problematic is that the growth of the middle class in China and most other developing economies has been slow.” Yes, it’s been slow because inequality has been rising within developing countries as fast as, or faster than, inequality has been rising within developed countries. Inequality is a good thing, but at some level it becomes a bad thing, or worse, a terrible thing. The beauty of capitalism and markets is that they correct excesses and imbalances, if allowed. Unfortunately, the correction is often by blunt instrument, so governments and central banks usually intervene to soften the harshness of the correction. Usually. One side of the political spectrum refuses to view excessive inequality as an economic issue, preferring instead to defend it as all that’s right and good in the world. But consider: if American firms decide that the promise of globalization exceeds the promise, they can simply reopen shuttered factories here. But what do the people and firms in developing countries do if the unrealized promise of globalization leaves them disillusioned about capitalism and markets?

16 collin April 27, 2015 at 8:15 am

The Doom, Doom! of the global economy is for the most part not government decisions nor policy but made by corporate boardrooms. So I am not sure why you bothers you so much. (Pettis might call it The Great Rebalancing and it has not moved that much. In our office we have seen some positions on shored mostly because we train some new employees.) It seems a natural reaction to lower US/Developed world wages and higher third world wages with manufacturing increasingly automated.

Is the biggest reason our imports have gone down is increased drilling in the United States? (In reality imports from China has gone up.)

What is

17 Axa April 27, 2015 at 9:08 am

No one said it was easy. Profit margins may be lower overseas, but what if the only way to grow is to go beyond the border? Toyota couldn’t grow to No 1 serving it’s local market. Nestlé would be an anonymous family business by the size of it’s local market. Perhaps US businesses can be thankful of NAFTA. A 470 million people market without leaving home. Others are not that lucky.

18 Ray Lopez April 27, 2015 at 12:04 pm

Ho-hum, boring. Simply a rehash of how domestic companies use politics to keep out foreign competition. USA does same thing to a degree. Also it’s a simple consequence of the aftereffects of the Great Recession. As for less people migration, that’s good for me because as a Westerner in the Philippines I can date a girl less than half my age–with less competition from Westerners my age.

19 msgkings April 27, 2015 at 12:29 pm

Aren’t you married to her yet? Or does she have to graduate high school first?

20 Cooper April 27, 2015 at 2:32 pm

Isn’t the trade data suggesting that growth in trade is mostly occurring within regional trading blocs?

The passage of NAFTA massively increased trade between the three countries. http://www.supplychain247.com/images/article/nafta_at_20_chart.png

The same is happening in Europe. Between the 1980s and right up until the Great Recession the largest growth areas for trade were for countries within the Eurozone trading with each other. It’s only very recently that Chinese demand for German capital goods and French/Italian luxury products has begun making a dent in intraregional trade.

21 John April 27, 2015 at 9:05 pm

One factor that gets lost in the discussion is the fact that multi-nationals are often prone to pointless expansion across all markets.

Look at HSBC’s broad failures in numerous markets, with almost all of its financial success derived from a handful of its core businesses in East Asia. HSBC basically globalized recklessly as part of a needless pissing contest with other major banks, only to learn that its best business was always its core business in its core market.

Beyond HSBC, look at how many units Citi has been killing off. Again, a company that thought it needed to have a finger in every pie on the whole planet.

I don’t think that globalization is inherently a failed idea. I do, however, think that the decision to globalize a major business is often not rooted in solid numbers and has more to do with idiot CEOs trying on their own version of playing the Great Game.

When you think about how the last era of globalization came to an end, WWI, the parallel situation of idiot leaders playing the Great Game seems almost too obvious.

22 Ronald Brak April 27, 2015 at 11:04 pm

The United States has decreasing total oil use, and until recently at least, rapidly increasing domestic production. Also the cost of the oil it imports had a large decrease not that long ago. (The US still imports a huge amount of oil. There are some weird people who pretend it doesn’t. They are weird.) And that’s going to be a major driver in reducing foreign trade as a percentage of GDP for the United States. Assuming of course that’s what the article is about. I got bored after a few paragraphs.

23 Tom Warner April 28, 2015 at 4:25 am

Weak rec, I have to say. This is a poorly thought through mish-mash of unrelated anecdotes.

And as for the claim that global FDI has fallen as a share of global GDP, that’s just outright deceptive. Global FDI/GDP averaged 2.7% in 1999-2008, using UNCTAD and IMF data, and averaged 2.1% in 2009-2013. There was only one year when it got near 4%, in 2000, when it spiked to 4.3%. The highest figure since then was 3.5% in 2007.

I think if you look at the data it’s obvious that rapid real growth and real appreciation among EMs was driving up nominal dollar global GDP faster than nominal dollar global FDI, which originates overwhelmingly from DMs, could possibly keep up with.

http://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?sy=1980&ey=2020&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=31&pr1.y=13&c=001&s=NGDPD&grp=1&a=1

http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=88

The preliminary FDI data for 2014 shows it flat overall outside the US and down into the US due to Vodafone’s divestment (FDI flows are counted net of divestment).

http://unctad.org/en/PublicationsLibrary/webdiaeia2015d1_en.pdf

24 Imrul May 3, 2015 at 4:56 pm

I don’t know but there are not good signs at present for us, but for me it’s not any issue since I am working with a high quality company OctaFX, it has epic setup where I am able to get latest news and analysis for free and having such facility always make trading much easier for me and so far following this has provided me results in range of 80%, so that’s really outstanding and something I seriously enjoy working with them.

Comments on this entry are closed.

Previous post:

Next post: