Globalization: The future

Globalization: The future

Populists on both left and right have criticized globalization, but it may still be the only way forward.

Globalization finds itself under attack from both sides of the political divide. Can it survive?

When Donald Trump began talking about his desire to level the playing field in trade between the US and its allies, he was accused by many of lacking a fundamental understanding of how today’s globalized economy works.

Blaming what he called “unfair” trade deals for the decline of US manufacturing and falling living standards for the working class, Trump famously vowed to “make America great again,” and targeted the US’s leading trade partners, notably China and Mexico, for blame.

Trump wasn’t the first critic of globalization, nor will he be the last. Indeed, for many, the Trump era has produced a much-needed reassessment of the pros and cons of what is the most important economic phenomenon of the past fifty years.

As Nobel Prize-winning economist Joseph Stiglitz wrote in 2002, the era of globalization has produced its discontents. In fact, a critique of globalization has been at the heart of the economic debate, especially on the left, since the end of the Cold War. Yet today, amid a resurgence of both right- and left-wing populism in many parts of the world, globalization finds itself under attack from both sides of the political divide. The key questions are: why, and can it survive?

The second era of globalization

Often forgotten is that the current era of globalization is merely the second in history.

The frst, which stretched from the mid-nineteenth century until the onset of the First World War, produced the most spectacular periods of growth and development that today’s advanced countries, such as the US and Great Britain, have ever known. Yet World War I put paid to this era, leading to the rise of Marxist-Leninism in many countries, fascism in others, and the birth of social democracy in Western Europe and much of the former British Empire.

As a result, between the 1920s and 1970s, most countries in the world—developed and emerging alike—practiced some form of protectionism, represented by high tariffs on imports and government support of domestic production and labor. Nevertheless, high public spending and prohibitive levels of regulation eventually weighed down even the most successful economies, leading to low growth, inflation, and high unemployment.

Beginning in the 1980s, during the administrations of Ronald Reagan and British Prime Minister Margaret Thatcher, free markets came back into vogue, and a decade later, the idea of the “Third Way,” a liberal consensus on free markets with a limited, if important, role for government.

Yet the mixed results of this “neo- liberal” consensus would bring harsh criticism. In the 1990s, globalization became the bogeyman du jour for leftist activists who, while they could not deny that capitalism had won the ideological struggle of the Cold War, nevertheless pointed to the many shortcomings of the consensus.

Such activists echoed opponents in developing countries, notably the Zapatista National Liberation Army in Mexico, whose famous armed uprising occurred the same day—January 1, 1994—the North American Free Trade Agreement (NAFTA) came into law. During this period, the political right would largely defend the free market, yet right-wing populists in the West—led by Donald Trump—have increasingly tapped into the idea that globalization has also hurt native-born workers of advanced countries by permitting the outsourcing of labor and destroying the manufacturing sector.

On the campaign trail, Trump famously called NAFTA, which allowed for the free movement of goods between the US, Mexico, and Canada, the “worst trade deal, maybe ever” and vowed to renegotiate the agreement.

A double-edged sword

Globalization has undoubtedly produced benefits for billions of people around the globe.

Since it opened its economy to foreign investment in the 1970s, China has lifted 800 million citizens out of poverty. Other densely populated countries, such as India, Brazil, and Mexico, have likewise enjoyed unprecedented levels of investment and economic diversification, giving them the opportunity to import technology and modernize their Tonce predominantly rural and commodity-dependent economies.

Yet the flipside has been the persistence of inequality as institutions, such as those responsible for education and training, and political will have struggled to keep pace. In Mexico, for example, the rule of law is believed to be a key impediment to economic growth with an estimated 9% of GDP lost to corruption every year. In 2015, its Gini coefficient—a ratio of income distribution within a country where 0 represents perfect equality and 1 perfect inequality—was 0.46, the second-highest among OECD countries and well above the OECD average of 0.32.

At the same time, leading industrial economies such as the US, Britain, and France, have increasingly outsourced production and even so- me services, forcing the working class to either develop new skills or risk unemployment. Combined with ongoing automation and the digitalization of the global economy more generally, this has led to notable frustration from working class voters with both right-and left-wing politicians drawing attention to the phenomenon.

“In the next 30 to 40 years, globalization will empower 80 percent of countries, businesses and people that have not benefited from globalization. That’s because of the power of the internet and technology (…) “No-one can stop globalization, no-one can stop trade. If trade stops, the world stops. Trade is the way to dissolve the war, not cause the war.”

— 2017 Fortune Global Forum held in Guangzhou, capital of Guangdong province.

Jack Ma, Alibaba Group

A fourth way?

Writing in Time magazine in May 2018, Ian Bremmer, president and founder of the political-risk consultancy Eurasia Group, listed five key factors in the decline of globalism: economics, society and culture, security, technology and filter bubbles (i.e. the Internet), and technology and automation.

He argues that while free trade remains the best way to improve living standards around the world (citing a 700% increase in global GDP since 1980), “not all countries and peoples share in this virtuous cycle equally” and warns that “in today’s polarized environment, one global economic stumble may be enough to shatter our interconnected world completely.”

Leftist economist Thomas Piketty, author of the bestselling Capital in the Twenty-First Century, argued in a recent op-ed for The Guardian that globalization will only survive pending a rethink of its fundamental principles.

“As a matter of urgency, globalization must be fundamentally re-oriented. The main challenges of our times are the rise in inequality and global warming. We must therefore implement international treaties enabling us to respond to these challenges and to promote a model for fair and sustainable development”.

Harvard historian Niall Ferguson is more optimistic than the latter two, believing that “terrible simplifiers” like Trump, along with critics of populism itself, overstate the current level of instability in the world. Writing in political journal Horizons, Ferguson claimed: “What we most have to fear… is not therefore Armageddon, but something more prosaic: an attempt to reverse certain aspects of globalization, followed by disappointment when the snake oil does not really cure the patient’s ills, followed by the emergence of a new and ostensibly more progressive set of remedies for our current malaise.”

There are those who will continue to say that globalization also has failed. Yet the considerable benefits it has already brought to industrialized and developing countries alike must be taken into consideration. A cautious mix of free trade and government intervention is probably the most realistic path forward, yet for those left behind by the Third Way economics of recent decades, it may not be enough, and populists from both sides of the political spectrum are lurking.

2018-10-09T21:07:30+00:00

About the Author:

Anthony Moran
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