The New Global Economy: Who Has Been The Winners And Losers?
off, we want to offer a comment: EXPATRIATION
IS GLOBALIZATION ON A VERY PERSONAL LEVEL. And
we want you to think about and remember that statement as you
read this and some of our other articles as well.
They used to say go west young man. Now they say go global. They might be telling you to go somewhere else pretty soon, but I shall refrain from going off topic. In any event, what a word: Globalization. It even sort sounds like a noble word. Well, it is to some extent. The problem is they did not tell you both sides of the story. You see, globalization is really an idea that correlates to the free market theory of economics. Which is to say, in the free capitalistic market, there are winners - and there are losers. There are people, or countries that will make money, and there is going to be some negative fallout as well. What? They never told you that? What else have they not told you?
Well, the truth is that Ross Perot did tell you. Bush (the father, not the son) said all is good with globalization. Clinton said: Well there is some good things about globalization, and some negative, but more good than negative. Come again? Well, he forgot to highlight that in free markets, it is certainly true that when all things are equal, capital (and jobs) will flow to where it gets the best return, the lowest labor costs, the lowest taxation rates and so on. Remember, capitalism is about profit and efficiency. You cannot have it both ways. You cannot expect everyone to open their markets to you, or reduce their import tariffs for you and there not be any benefit going the other way. This is what it is all about. So, the truth of the matter is, politicians do not like to tell the entire story - just the positive highlighted parts they think the people want to hear. And by the way, this is not and of itself a criticism of globalization or the free market, but for sure many people are not aware of all aspects of it, and therefore not prepared.
An interesting book on the subject is: ONE WORLD READY OR NOT: THE MANIC LOGIC OF GLOBAL CAPITALISM by William Greider. One review of the book says that: The world is in the midst of an industrial and economic revolution more far-reaching than the one that transformed Europe and North America in the 19th century. According to William Greider, this revolution is a juggernaut that neither multinational corporations nor governments can control. While huge amounts of wealth are being generated, there is a downside, too: social dislocation; economic uncertainty; and the oldest, rawest form of exploitation--that of the weak by the strong.
Regardless, we do think that a truly libertarian free market is the way to go. In addition, globalization is part of that. We have made the argument before that the former Soviet Union, China and Vietnam has now turned their own economies to capitalism in order to save their respective nations from further ruin. And in 2016 we all know how well socialism has fared in Venezuela – do we not? We had asked the question before, what will the so-called capitalistic free market social welfare state democracies do to save themselves? The answer is given from the mouths of the leaders of these countries directly – Globalization. However, as we have already stated, they talk the talk, but not the walk. Liberals have jumped on the bandwagon claiming globalization is good for society in that a rising tide lifts all boats. Stated another way, the manner is which they have attempted to sell it to other liberal constituents is that it will help the worlds poor get out of poverty and increase their standard of living. This is the sales pitch, and there are some economic arguments to support this claim (in theory). The conservatives and the business community stay mum and go along with the liberal argument even though that is not their own agenda. Conservatives and business people are concerned about markets, commerce and profits - not social justice in and of itself as an end goal. US corporations want access to these other growing markets because they know that is where the growth is. The US, economically speaking, is on the decline (whether someone wants to accept this or not). New sales growth is going to come from these emerging markets, and they want in. Plus, they of course want a better deal in terms of relocating manufacturing and jobs to these lower cost labor markets as well, which they have been slowly doing for more than a decade now anyway.
The problem is that even though they talk about free markets and so on, the reality is, they are still struggling with how to unravel the Socialist and Keynesian ideas from the practical execution of daily government life. Politicians, being what they are, will cater to the masses and populist thinking. Which means they will try to coordinate both, but just like oil and water - these things do not mix well (and why many problems will fester going forward in our opinion). In fact, they are now so desperate they are inventing what we like to call voodoo economic theorems, which goes down the darkest of roads of Keynesian dogma. Keynes as a fictional evil wizard from the Harry Potter series. Negative interest, banking bail-ins, and quantitative easing were never part of even the original Keynesian rule book, as bad as that was. Now we have something off the charts in terms of new economic black magic. However, our fear or concern is how they will reconcile these distinctive philosophies and how the average citizen will be effected going forward because surely the man on the street will suffer from such experiments in alchemy.
How about some good news? Well, if corporations are allowed to seek out other jurisdictions for lower costs and a better deal - then who is to say you cannot do the same? For one, the politicians do say you cannot - but only if you are one of the middle-class they plan on milking going forward. Of course they do not say this outright, but rather through taxation policies, restriction on the movement of capital, taxation of capital invested abroad, asset reporting (FATCA), etcetera. Corporations are permitted through various tax loopholes; legal write-offs and so on, to go elsewhere and even shelter corporate income from US taxation (even though US corporate income taxes are really at an all time low). Individual private citizens like yourself, however, seem to be another matter, at least as far as the politicians are concerned. But, you cannot stop progress. People will go where they want regardless - it cannot be stopped (even though there is no doubt the politicians may try). This is the unintended fallout of globalization that the politicians never imagined, which is to say the globalization also of one segment they thought they had captive - individual citizens.
Many middle class people from the US and Europe have already figured some of these things out for themselves. Which is to say, why not consider selling assets in a high tax or high cost of living jurisdiction and moving to a low tax, low cost of living jurisdiction? This is what free markets encourage, do they not? Why is it that large corporations have to be the only citizens taking advantage? Expatriation, or the idea of moving to another country really is just another form of globalization at work, albeit on a very personal level. The same applies to such topics as offshore banking and the like as well. This is the one very real and practical possible solution and choice you do have. Which is to say, you can get away or relocate to another country that DOES operate somewhat on truer means in terms of the free market, private property rights and other forms of true libertarian thinking - without the trappings of an old socialist or welfare state to contend with. Many of these countries did not have the explicit intent to coming to this conclusion, but arrived there just the same anyway - in part because they never developed the welfare state monster others have. They could never afford to do it in the past, and now that maybe they can on some small level - the US pulled the rug out and is going the other way. The US used to tell developing countries - Do what we have done, become like us in terms of social security and all the other social welfare programs we put into place. At the same time, putting a restriction on government spending in these nations when the IMF or some other US controlled institution went in. So, it is quite amusing in some respects that because of these events, many of these developed countries do not have a welfare state to dismantle nor the payment obligations affiliated with it. Many might have high levels of foreign debt, but certainly not all. In addition, if the western democracies continue with plans to forgive debt of many of these countries, then these developing countries will certainly be in good shape going forward. So, maybe the time is here to think about going to where the future growth will be, and not harp on the good old days where it once was.
IN TOO DEEP: WITHOUT PAINLESS OPTIONS
We have come to the conclusion that the idea of native middle-class citizens wanting to leave the co-called wealthier home country has taken the politicians by stark surprise. Some liberal politicians are in a panic over the idea, looking for even more ways to tax and impede the flow of money out of the high tax welfare state (they could care less if you go, what they really are worried about is your taxable assets that become non taxable and maybe untouchable once they drift off into the abyss known as offshore - or into another country). And thus the reason for FATCA and other such initiatives.
Once again, it can be very difficult to say for sure what route will be taken, but none of the options, in our opinion, will be favorable to those in the middle rung of society. For example, if they cut social security payments to the new retirees (and if you do not have much of a private pension saved up) - you will have a problem. If they raise income or other kinds of social contribution taxes - then obviously not a positive situation either with even more money taken away from your paycheck. If they leave things the way they are and continue to borrow money like there is no tomorrow - another negative scenario for the upcoming generations. If they simply print more money to pay off all this debt and obligations - then we have a devaluation of the currency and inflation. They may try to further restrict the flow of capital out of the country, either outright or by taxing a transfer that is made outside of the country - not a pleasant idea either. If they back out of the social welfare paradigm altogether and let things settle out naturally without interference, for certain you will have social unrest and whole load of upset people in the society - and that is not a pleasant thing to look forward to either. Do you really want to have to hire a private security guard to accompany you to go food shopping? You may need to if the last scenario is the case.
There is indeed no easy way out or positive solution on the horizon that we can see. What do you think will be done? More importantly, what do you want to do today in order to safeguard your own family so you are protected no matter what? We think it obvious, if it comes to a choice between social unrest versus inflation, that inflation will win out. If it comes to a choice between letting the few suffer who do have private pensions or savings (and who may not have gotten themselves into trouble with excessive debt) versus letting the other group suffer the consequences of having been unwise with their own personal finances, you can bet what choice will be made there. If 1933 in America is a teacher of anything, it is this.
In any event, the next question is where to go or where could be better? Well, just take a look at countries that do not or will not have these kinds of problems. In some cases, it might be nations that did get into trouble before, such as Argentina or Thailand, that have already gone through the difficult process of adjustment. In Thailand we have the example of a former very wealthy real estate developer that is now selling sandwiches on the street. Yet, interestingly enough, he has said it was his own fault. I was too greedy and I wanted more and more success, he claims. I allowed myself to become duped into borrowing money to finance a huge real estate project that now sits vacant and uncompleted. Banks, just like drug dealers attempting to coax a new junkie, encouraged him to get into trouble. It is not their fault, but rather my own. Now I sell sandwiches, and my dream is to become the Thai equivalent of McDonalds in Thailand, says the former millionaire that has decided to keep going and not give up. Similarly in Argentina, economic difficulties have forced Argentinians to learn some very important lessons as well. Barter had become one of the primary tax-free underground forms of economic activity in Argentina, and it works. It allows people to live and survive. Banks had tightened lending to such an extent that almost ALL real estate purchases were (and still are to some extent) done with cash, no mortgages. Today, in 2016, things are somewhat better economically both in Thailand and Argentina, but the people have not forgotten and are surely more conservative with their own finances as a result. They also do not put blind faith in politicians anymore either - and the people do now pay attention. I wonder how well Americans might handle such a situation in their own country if it came to pass? Will they behave as calmly and politely as the citizens of Thailand during the previous Asian financial crisis? Will they lash out against the government as was done in Argentina - or will they lash out at each other, maybe accepting the rhetoric from politicians that all is the fault of the Arabs, Oil or whatever else?
The above are just two examples, but there really is a long list of other countries that have not gotten themselves into problems, simply because they could not afford to – literally. Which is to say, often enough the case where real estate bubble scenarios and bloated welfare bureaucracies do not exist are those very same emerging markets that Americans were always taught to be terrible, poor and dangerous places. Nations, that by chance or circumstance are actually more Libertarian economically and socially.
In short, do you really understand the cold reality of political choices, economics, and how decisions other might make could affect you? If you do you not, then perhaps you should. If you were that politician, what would you do and if so, what are the possible results? Everything is cause and effect. You can do something politically or economically to try and solve one problem if you are a government leader, but also this creates a problem or situation for someone else. What is more likely to happen, knowing what you know? There is no getting around it. Life is a matter of choices. And like all choices, there are a number of possible outcomes, both positive and negative. The question remains: How will possible future remedies for the problems at hand affect you? Will they be in your favor, or will they be negative? If negative, what do you want to do about it? What can you do in order to protect your own future and that of your family? The situation is not hopeless, on the contrary in fact. You may not be able to control what politicians do (or do not) and you certainly may not be able to control what central banker do either, but you can control your own destiny. So, get cracking. Hopefully this article will get you motivated enough to think, to read and to act.
About The Author: This article was written by John Schroder of Ascot Advisory Services. John's firm has been helping clients in the Dominican Republic for the last 17 years with residency application services, naturalized citizenship filing, banking assistance and legal services pertaining to real estate (title transfers, legal representation at closing, sales contract review). You can contact him by telephone at 809-756-1917 or click the about the author link above to reach a contact page to send an email directly.