1. Column: Globalisation comes home

Column: Globalisation comes home

Ideally nation states should maximise global income while securing their nation’s share in it

By: | Published: April 11, 2016 6:14 AM

Imagine the scene. A foreign multinational decides to shut down a large plant whose workers are the bread and butter for the town. The Government is urged to nationalise but lacks the money and the guts to do it. Ministers are pleading with the powerful multinational, to relent..Even as it shuts down the plant, the multinational, is buying other firms in the same industry but in other towns. There has to be a big March of all the anti-capitalist forces to resist this.

But the multinational is from a Third World country and the plant being shut down in the territory of a rich country. What is more ironic, the rich country used to be the master of the Third World country.

None of this helps us understand the problem of Tata Steel. A multinational is just a company operating in multiple locations some of which are cross-border. Why should that matter? It only matters because nation states have to put the welfare of their own citizens (as they perceive it) above that of the rest of the world. They should, if they are well-governed, treat domestic and foreign owned companies symmetrically but that may be asking for a lot. Ideally they should be maximising global income while securing their nation’s share in it.

When the latest phase of globalisation began in the late eighties, imperialism had disappeared in most places. But the Leninist rhetoric remained. Multinationals came from the North and the countries they were trying to ‘invade’ economically were in the South. So the economic relationship was described in terms of the old rhetoric of exploitation by the strong of the weak. Read any report of UNCTAD and you will see the fear of multinationals (presumed to be from North) affecting the welfare of Third World countries adversely unless safeguards are built in. But then the process of globalisation itself strengthened the companies of the South.

So there were by the eighties, South Korean multinationals following upon Japanese and then some Brazilian, Mexican ones locating themselves in the North. When the Asian crisis happened in 1997, British trade unions began to take interest in the Asian economic crisis as their members were employed by a South Korean company. Globalisation had sowed the seeds of the subversion of the North-South divide much more effectively than the Bolshevik Revolution ever did.

Tata’s case is fascinating because of the complex inter-layering of several levels of the political and economic problems within and across countries. Imagine the UK Prime Minister’s problem. He faces a Referendum about Brexit where any policy failure on his part would be seen (without rhyme or reason) as a vote for Brexit. The largest of the Tata Steel plants is located in Port Talbot which is in Wales where the Conservative Party does not have a single MP. So he faces hostile parties representing Wales in British Parliament as well as in the Welsh Assembly.

In Westminster, his party has for a long time been against nationalisation or even industrial subsidy. Even the Labour Party when in power had given up on its love of public ownership. What is more his Chancellor of the Exchequer wants to cut public spending and reduce borrowing. The choices for Cameron are between the relative merits of (a) begging Tata to stay with a small bribe (b) finding a buyer who could take the problem away for a medium sized bribe (c) swallow hard and nationalise (d) suffer the burden of unemployment on a large scale in Wales which is a region of high unemployment.

For Tata the issues are the balance sheet consequences of staying on against selling at a loss and asking whether the loss of a high quality steel producer requires replacement with the purchase of another as we hear rumours about ThyseenKrupps and Tata coming together in Germany. This is vital for the global value chain that TISCO is part of. Tata is also the largest employer of manufacturing workers in UK. The workers at Jaguar Land Rover have declared solidarity with their fellow Tata employees of Tata Steel .

Such problems will multiply not decrease. The rich countries of OECD are declining in relative terms vis-a-vis the emerging economies. They rely on the emerging economies for trade and investment more than they ever did before. The powerful new companies will be from these emerging economies. Savings will come from the poorer emerging economies to supply the rich countries which dis-save. Assets of the rich countries will have to be sold to pay for their trade deficit.

Globalisation is the process which will continue to allow such adjustments smoothly. Of course, political pressures in the rich countries may make globalisation unworkable. That is after all what Donald Trump or Bernie Sanders are about.

The author is a prominent economist and Labour peer

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