Allow me to begin this column with an apology: I'm now going to sound like an economics wonk. Yikes. Economics. Growth rates, GDP, trade flows – that's the exciting stuff. And then it gets tedious. Anyone up for a quick primer in supply and demand coefficients of elasticity or Gini coefficients (a measure of income inequalities)? I'd rather have a root canal than write about that stuff.
But, as we all know, root canals are sometimes necessary. And, unfortunately, so are concerns about the global economy occasionally essential to help explain some painful news about our industry, identify the problems, and offer solutions.
Here's my fear: we're entering into a period of lower global demand for consumer goods. Something broke a few years ago – and that was globalization. Like a machine needing maintenance, the apparatus that supposedly greased the gears of international commerce – globalization – eventually began to show signs of wear with the crankshaft turning slower. As a result, global growth, the most direct means of measuring overall global economic performance, has stumbled.
As any IMF (International Monetary fund) or WTO (World Trade Organization) report will tell you, growth is essential for countries to maximise their economic potential, as growth is critical for expanding trade – which in turn helps so many countries to grow their economies. And with lower growth comes lower spending by consumers.
Some readers may assume that I'll blame Trump or Brexit for this slowdown. But actually, to condemn those misses the point. They are symptoms of far more significant problems. Of course one could point to the Great Recession of 2010, but even there it was more a symptom of systemic problems than a one-off event.
Indeed, politicians of every ilk have for too long relied on ideology instead of being practical about how to maintain the global system of commerce in the first place. They forgot – or chose to ignore – that globalization needs tending.
After all, global trade, open markets, currency and investment flows can't be expected to happen without undesired consequences unless there's some degree of fundamental re-evaluation. The underpinnings and assumptions about the system of global trade need to be tweaked occasionally, or imbalances in the machinery of globalisation will creep into the system, which is where we are today.
And that brings me back to growth.
Weakening global growth
Globally, economic growth has been slowing since the mid-90s. Take a look at the following chart which tracks global GDP growth since the advent of the WTO:
Allow me to digress. Once upon a time, as a representative of the US textile industry at the WTO negotiations in the early 1990s, I remember being told by members of my government that acceptance of the WTO was the only way to lift the world's economy out of the low-growth and inflationary period of the 1970s. Only, as the chart above shows, the growth of GDP has slowed over time, not increased.
More so, government negotiators laboured to reach a grand bargain: trade barriers would be reduced or eliminated, which would encourage the expansion of new industry in the developing world, while in turn providing developed world consumers with lower-cost merchandise from which to purchase. This was the essential goal of the WTO – winners all around.
There were no other options, so said our government negotiating team. Free and open markets were the mantra, while precious little effort was made to address what would happen to the thousands of textile workers likely to lose their jobs as a result.
When I think about it, I find it ironic that so many blue-collar workers voted to elect Donald Trump as president – and now we have to deal with the consequences.
So lots of countries joined the WTO, which opened its doors in 1995 to much fanfare as the de facto representative protector of free trade and open markets, believing it would result in economic growth to lift their countries out of poverty and malfeasance. And it has – only not in the ways that many folks at the time thought that it would.
So here we find ourselves in 2019: there was supposed to be an explosion in trade of consumer goods – and there has for some countries. According to free trade ideologists, cheaper suppliers would meet the needs of consumers with well-designed and manufactured products for less cost than it would take if made in consumers' home markets.
But history has proven otherwise: on a per capita basis, consumption of products in the garment industry has slowed. In fact, despite the founding of the WTO, the rate of growth in the United States – still the world's largest consumer of apparel – has fallen.
Furthermore, unit prices for these products have fallen sharply over the years, with the aggregate average prices of US imported apparel dropping from $3.65 per square meter equivalent (SME) in 1990 to just $2.98/SME in 2018, according the US Office of Textiles & Apparel (OTEXA).
Much of the spin promoted by advocates of free trade said that prices would fall once tariffs came down and quotes were eliminated when the WTO came into existence. Only now all I see are closing stores, declining per capita consumption of apparel, and falling prices. What gives?
Growth has benefitted some, but not others
Growth has benefited some but not all – and that goes for people and countries. The growing economic inequality we've witnessed around the world has been widely reported. A comparatively small slice of the global population has gained most of the rewards.
The same goes for trade. Ten countries now dominate the trade of apparel globally, with China far ahead at the top of the list. Before the advent of the WTO, the list of major apparel exporting countries was longer, with trade more evenly distributed amongst the top suppliers.
We can see the phenomenon clearly by using US import statistics. At the advent of the WTO in 1995, the top ten apparel exporters to the US accounted for 61.1% of world apparel exports to the US. Last year, that number had jumped to 85.4%. And many of the countries listed as top ten suppliers had changed.
Some factors to consider
There are a lot of factors that have affected how globalisation has unfolded since the advent of the WTO all those years ago. Let's look at a few:
Technology. Our lives (and businesses) have been radically affected. When the WTO was established, no one could have predicted the impact technology would have on the fundamental operation of industry, consumerism, and rapid communication. Global supply chains would be incredibly difficult to manage were it not for technology, while for consumers, the ease with which products can now be purchased from a phone is truly astounding.
Interconnectedness. Business is now intertwined in ways hard to believe when the WTO was established. The same can be said of national economies. I'd suggest that globalisation is too easily affected by economic problems in a given country or set of countries. In effect, globalisation's most significant export is financial stress, which is seemingly shipped from country to country within the global system. What happens in China affects the US, which in turn affects Mexico, which affects Germany, and so forth. Examples of stress include commodity prices, currency manipulation, supply and demand imbalances, the effects of weather, local political instability, and lots more.
Our customers. Consumers have changed. Have you noticed? Thousands of stores have closed in the US and Europe. And we're not even in a recession. Even more, many brands are scrambling to find new ways of courting an increasingly elusive customer base. Consumers, our ultimate customers, are the ultimate rulers of our supply chain and they have placed pressure on our industry like never before. A strength of globalisation – product diversity and flexibility manufacturing – has resulted in an empowered consumer. When coupled with technological change, we have a global system that has set itself up for even more significant change in the future.
All through this period I have struggled with why politicians didn't do more to correct or adjust problems and changes in the system. Why did they let it go for so long? I'm sure there are many reasons – some good and some not so good. But we find ourselves at a pivotal point in history, left with the likes of Trump, trade wars, and increasing pressure on the EU.
We're also left with rising nationalism and a populist turning away of some countries from globalization, with tribalism now ascendant. Institutions are increasingly questioned. Many people don't seem to trust institutions like they once did.
What can be done?
Globalization isn't a terrible idea. History suggests that during periods of expanded globalization, relations between nations and economies are relatively peaceful and constructive. From a historical perspective, turning away from globalisation and international relations like we witnessed in the 19th and 20th Centuries only resulted in armed conflicts.
But as with any system (or piece of machinery), it needs maintenance from time to time. If our industry is to prosper over the long term, then the ailments that currently affect globalization need to be tended to – mended here, adjusted there – before setting it back on its merry way. In practice, the failure of the Doha Round and other attempts at multilateral negotiations have been unable to produce reasonable adjustments to the system. So the machine trudged on, imbalances and all.
Some would say globalisation has caused more problems than good. They have a point when specific industries are considered, and economic inequality is taken into account. Yet I feel the greatest failure of globalization has been the lack of management by its very proponents.
How can someone defend a system that has disproportionately benefitted the few instead of the many? And how can a system that demands such product churn ignore the devastation and heartbreak caused by disasters like Rana Plaza?
At the end of the day, what we're talking about here is how our industry will grow – or not – in the future. Globalisation gave us a good ride, only at what cost? It's a bit of a conundrum. What's a brand to do? Maybe learn more about Gini coefficients.
Note: This article was originally published on just-style.com on March 20, 2019.