Protestors were arrested in Brussels recently for pelting trade officials with confetti, upset over the latest round of Transatlantic Trade and Investment (TTIP) negotiations between the European Union and the United States. There was a time when such a protest over a global trade agreement would have seemed comical, but in today’s hyper-charged political and economic environment it’s not a laughing matter.
In countries around the world, there’s a reaction underway rejecting globalization. TTIP is just the latest target for those opposed to further integration of the global economy. Needless to say, with headlines filled with reports of terror attacks, attempted coups, and social strife, we live in difficult, contentious times. Protestations over trade agreements are symptomatic of something more onerous.
Why is this the case? Part of the problem lies with politicians who have poorly described the benefits of free trade and globalization to the broad population. Their poor communication has resulted in a backlash from large swaths of the electorate in the United States, European Union, and elsewhere. For many workers in the developed world, globalization seems more like some Wall Street con job than an economic panacea. However, when we consider the financial crash of 2008, and the aftermath of government bailouts of so many financial institutions, it’s not difficult to wonder if globalization and the rush to cash in on a growing world economy was symptomatic of something wrong with the theories supporting free trade.
In the Beginning, There was the WTO.
I remember the heady days of the founding of the World Trade Organization (WTO) in 1992. I was actually in Geneva the day when the WTO was ratified and remember the excitement all too well. I was a member of the U.S. textile delegation representing the interest of domestic textile mills. To secure ratification of the WTO, developed countries, led by the U.S. and Europe, agreed to end the Multifiber Arrangement.
Developed world textile producers lost out to the financial services. Gosh, now how did that turn out? It was a rout, of course. Once the WTO deal was signed, sourcing companies dashed around the world finding ever-cheaper producers of textiles and apparel. But no matter, as U.S. trade negotiators reassured us that it would be better in the long run for the country and that we had to keep the big picture in mind. After all, so the argument went: “Why would anyone want to sit behind a sewing machine for 12 hours a day? Folks will be better off working in finance and tech. They’ll get paid more and have more opportunities.”
Wow. Such was the promise. For tired of the Cold War, closed borders, and anemic economic growth, the WTO became not only a symbol of globalization but a new church for the believers of free trade. More so, globalization became the moniker for all that was possible, a new and necessary step for so many. Sadly, though, it left behind so many others. Today, we’re left to pick up the pieces, forced to contend with the aftermath, a world tired of the Cold War, closed borders, and anemic economic growth, the WTO became not only a symbol of globalization but a new church for the believers of free trade. More so, globalization became the moniker for all that was possible, a new and necessary step for so many. Sadly, though, it left behind so many others. Today, we’re left to pick up the pieces, forced to contend with the aftermath.
Textiles: The Point of Spear.
Globalization has been no more evident than in textiles and apparel. Our industry is the point of the spear of globalization and economic development. As a consumer-facing industry, we experience shifts in the economy before many other industries and can occur with a shattering suddenness. Globalization has always promised lower consumer prices and greater product diversity, while at the same time providing opportunities for the globe’s poor and untold economic benefits for consumers in the developed world.
That promise of globalization has often been true -- although not always. And that’s the problem we now face. A portion of the population has been left behind, and they’re now voicing their displeasure. Globalization is predicated on the economic belief that people will always behave rationally; they will make decisions based on what’s best for themselves. But today, such reasoning has been pushed to their logical extremes. People left out of global prosperity want back in. The irony is that for all of the benefits wrought by free trade and globalization, the downsides were so poorly address by our political leaders.
The Impact of Brexit on Today’s Industry.
Let’s take Brexit, as an example. The people of Great Britain voted to leave the European Union. Regardless of political perspective, a majority of the British electorate rejected global integration and repudiated more than thirty years of globalization and greater internationalization. Why? Globalization hasn’t worked for them. London may have boomed over the past 30 years, but large swaths of the populace were left behind, suffering from stagnant incomes and diminished opportunities.
For our industry, rejection of globalization has severe implications. Foremost is demand: it will be weak. Will demand plummet back to 2008 levels? Maybe not that bad, but it will be negatively affected by Brexit. Economic and social uncertainty typically translates into weak retail sales and rattled consumer confidence. At a minimum, the market will be volatile.
Up until Brexit, many apparel stores in Europe and the United States had reported better sales, but others continued to struggle. Even without considering Brexit, the market reflected a rapidly changing economy. For instance, young consumers exert greater influence every shopping season while online sales continued to expand at the expense of many brick and mortar stores. Furthermore, tech gadgets continued to attract dollars that would have otherwise purchased clothing.
Of course, many of these trends are not new and have gradually gained prominence as changing global economics continue to grind away at the traditional retail business. But a challenge for many sourcing executives is how to determine the real impact of such change. Is it only measured in aggregate retail sales or is there more to the story? Indeed, Brexit looms large, but economic fundamentals remain relevant.
Broader Economic Trends Influence the Industry.
Some segments of the apparel supply chain appear to have recovered from the doldrums of the global recession in 2008 while others continue to struggle. All the while, the retail apparel business continued to function as two distinct entities: one, high-end, the other, low-end. Indeed, this dichotomy not only characterizes today’s retail apparel market, but it more directly reflects the contemporary social environment.
For sure there have always been high- and low-ends of the market. But in today’s business, this split has taken on new dimensions. In the past, retail always assumed the consumer would often choose products based on factors such as emotional desire, functionality, fit and finish. Price always played a role, but increasingly for many consumers, the price of a garment is more important than ever and outweighs simple fashion. And many retailers have only been too happy to meet such demand.
At the high-end, though, other forces are at work: environmentalism, local production, and “slow” fashion have gained primacy. For many consumers, it’s not enough to just purchase a garment at a good price; they want to know the story behind that garment. Where and how was it made? But it is not clear how many consumers are prepared to pay for a story.
Time for a Reassessment.
Which brings me back to Brexit. Although it is always possible that Britain’s’ turn away from the E.U. is a one-off occurrence, it also may be a harbinger of the future. The U.S. election looms large; similarities abound. The rise of Donald Trump and his brand of politics parallels that of many politicians in Britain who supported Brexit. In some ways, the rise of Trump and the politics behind Brexit are two sides of the same coin. Should Trump become president, then we will see a rejection of globalization on both sides of the Atlantic that can only spell trouble for retailers and their globalized supply chains. Retailers will be in a tight bind. The economics of the business was tough enough already. Politics will only make it that much more challenging.
It’s time for political and business leaders to reconsider what globalization means. Free market practices have come with costs; it has not provided the kind of broad-based economic prosperity promised since the founding of the WTO. Indeed, in total, thanks to free trade, the global economy benefitted greatly. Without free trade, it’s hard to see how globalization could have succeeded to the degree it has. But the issue for so many is that the benefits of free trade and the success of globalization have been unevenly distributed around the world. That’s the rub. And now, we have a political, populist backlash.
We’ve seen the results of Brexit. What will be next? The end of the European Union? President Trump? If populism wins out, then all bets are off, and the promise of globalization will have turned into simple tribal nationalism. Turning inward is not the answer. The challenge for political leaders will be how to illustrate the benefits of globalization while at the same time meeting the needs of those adversely affected by a changing world. And this will prove to be no small task.
Originally published in www.Just-Style.com on August 1, 2016.