Economic and Technical Factors Behind the Rise and Fall of Economic Globalization and Some Consequences in Hungary. A Historical Perspective

Árva, László (2018) Economic and Technical Factors Behind the Rise and Fall of Economic Globalization and Some Consequences in Hungary. A Historical Perspective. POLGÁRI SZEMLE: GAZDASÁGI ÉS TÁRSADALMI FOLYÓIRAT, 14 (Spec.). pp. 275-289. ISSN 1786-6553

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Abstract

Although globalization has been going on for quite a time, after 1970 it took new forms. Foreign direct investments were made in increasing amounts just to optimize the value chains of large transnational companies. The activities requiring unskilled workers were outsourced to underdeveloped peripheral countries like China, Vietnam and Malaysia in Asia, and after 1990, to Romania, Slovakia or Hungary in Central and Eastern Europe. At the same time the activities that require skilled and high-quality labour were kept in Western Europe. TNCs made profits on the difference between the low wages paid in peripheral countries and high prices charged in developed ones. Although it seemed that globalization cannot be stopped, a new development, robotisation might slow down or even completely stop this process: why should a company outsource any activity to a faraway developing country and transport goods for thousands of miles if they can use relatively cheaper robots at home, close to the key markets? Robots may be considerably cheaper and more disciplined than any human worker in a cheap-labour country. Robotisation has significant economic and social consequences, as the budget revenues of governments might decline, as a large part of government revenues comes from taxes levied on wages. With significantly less workers the budget revenue is reduced. In Hungary the results of heavy taxes on labour (to a minor extent, personal income taxes and more importantly, social security contributions) are felt, as the discrepancy between net and gross wages is too high, and thus when the EU labour market opened up to Hungarian workers, nearly half a million Hungarians (around 10% of the active population) left the country for Western Europe.

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