The long read
Globalisation: the rise and fall of
an idea that swept the world
It’s not just a populist backlash –
many economists who once swore by free trade have changed their minds, too. How
had they got it so wrong? By Nikil Saval
Friday 14 July 2017 05.28 BST
The annual January gathering of the World Economic Forum in
Davos is usually a placid affair: a place for well-heeled participants to
exchange notes on global business opportunities, or powder conditions on the
local ski slopes, while cradling champagne and canapes. This January, the
ultra-rich and the sparkling wine returned, but by all reports the mood was one
of anxiety, defensiveness and self-reproach.
The future of economic globalisation, for which the Davos
men and women see themselves as caretakers, had been shaken by a series of
political earthquakes. “Globalisation” can mean many things, but what lay in
particular doubt was the long-advanced project of increasing free trade in
goods across borders. The previous summer, Britain had voted to leave the
largest trading bloc in the world. In November, the unexpected victory of
Donald Trump, who vowed to withdraw from major trade deals, appeared to
jeopardise the trading relationships of the world’s richest country.
Forthcoming elections in France and Germany suddenly seemed to bear the
possibility of anti-globalisation parties garnering better results than ever
before. The barbarians weren’t at the gates to the ski-lifts yet – but they
weren’t very far.
In a panel titled Governing Globalisation, the economist
Dambisa Moyo, otherwise a well-known supporter of free trade, forthrightly
asked the audience to accept that “there have been significant losses” from
globalisation. “It is not clear to me that we are going to be able to remedy
them under the current infrastructure,” she added. Christine Lagarde, the head
of the International Monetary Fund, called for a policy hitherto foreign to the
World Economic Forum: “more redistribution”. After years of hedging or
discounting the malign effects of free trade, it was time to face facts:
globalisation caused job losses and depressed wages, and the usual Davos
proposals – such as instructing affected populations to accept the new reality
– weren’t going to work. Unless something changed, the political consequences were
likely to get worse.
The backlash to globalisation has helped fuel the
extraordinary political shifts of the past 18 months. During the close race to
become the Democratic party candidate, senator Bernie Sanders relentlessly
attacked Hillary Clinton on her support for free trade. On the campaign trail,
Donald Trump openly proposed tilting the terms of trade in favour of American
industry. “Americanism, not globalism, shall be our creed,” he bellowed at the
Republican national convention last July. The vote for Brexit was strongest in
the regions of the UK devastated by the flight of manufacturing. At Davos in
January, British prime minister Theresa May, the leader of the party of capital
and inherited wealth, improbably picked up the theme, warning that, for many,
“talk of greater globalisation … means their jobs being outsourced and wages
undercut.” Meanwhile, the European far right has been warning against free
movement of people as well as goods. Following her qualifying victory in the first
round of France’s presidential election, Marine Le Pen warned darkly that “the
main thing at stake in this election is the rampant globalisation that is
endangering our civilisation.”
It was only a few decades ago that globalisation was held by
many, even by some critics, to be an inevitable, unstoppable force. “Rejecting
globalisation,” the American journalist George Packer has written, “was like
rejecting the sunrise.” Globalisation could take place in services, capital and
ideas, making it a notoriously imprecise term; but what it meant most often was
making it cheaper to trade across borders – something that seemed to many at
the time to be an unquestionable good. In practice, this often meant that
industry would move from rich countries, where labour was expensive, to poor
countries, where labour was cheaper. People in the rich countries would either
have to accept lower wages to compete, or lose their jobs. But no matter what,
the goods they formerly produced would now be imported, and be even cheaper.
And the unemployed could get new, higher-skilled jobs (if they got the
requisite training). Mainstream economists and politicians upheld the consensus
about the merits of globalisation, with little concern that there might be
political consequences.
Back then, economists could calmly chalk up
anti-globalisation sentiment to a marginal group of delusional protesters, or
disgruntled stragglers still toiling uselessly in “sunset industries”. These
days, as sizable constituencies have voted in country after country for
anti-free-trade policies, or candidates that promise to limit them, the old
self-assurance is gone. Millions have rejected, with uncertain results, the
punishing logic that globalisation could not be stopped. The backlash has
swelled a wave of soul-searching among economists, one that had already begun
to roll ashore with the financial crisis. How did they fail to foresee the
repercussions?
In the heyday of the globalisation consensus, few economists
questioned its merits in public. But in 1997, the Harvard economist Dani Rodrik
published a slim book that created a stir. Appearing just as the US was about
to enter a historic economic boom, Rodrik’s book, Has Globalization Gone Too
Far?, sounded an unusual note of alarm.
Rodrik pointed to a series of dramatic recent events that
challenged the idea that growing free trade would be peacefully accepted. In
1995, France had adopted a programme of fiscal austerity in order to prepare
for entry into the eurozone; trade unions responded with the largest wave of
strikes since 1968. In 1996, only five years after the end of the Soviet Union
– with Russia’s once-protected markets having been forcibly opened, leading to
a sudden decline in living standards – a communist won 40% of the vote in
Russia’s presidential elections. That same year, two years after the passing of
the North American Free Trade Agreement (Nafta), one of the most ambitious
multinational deals ever accomplished, a white nationalist running on an
“America first” programme of economic protectionism did surprisingly well in
the presidential primaries of the Republican party.
What was the pathology of which all of these disturbing
events were symptoms? For Rodrik, it was “the process that has come to be
called ‘globalisation’”. Since the 1980s, and especially following the collapse
of the Soviet Union, lowering barriers to international trade had become the
axiom of countries everywhere. Tariffs had to be slashed and regulations
spiked. Trade unions, which kept wages high and made it harder to fire people,
had to be crushed. Governments vied with each other to make their country more
hospitable – more “competitive” – for businesses. That meant making labour
cheaper and regulations looser, often in countries that had once tried their
hand at socialism, or had spent years protecting “homegrown” industries with
tariffs.
These moves were generally applauded by economists. After
all, their profession had long embraced the principle of comparative advantage
– simply put, the idea countries will trade with each other in order to gain
what each lacks, thereby benefiting both. In theory, then, the globalisation of
trade in goods and services would benefit consumers in rich countries by giving
them access to inexpensive goods produced by cheaper labour in poorer
countries, and this demand, in turn, would help grow the economies of those
poorer countries.
But the social cost, in Rodrik’s dissenting view, was high –
and consistently underestimated by economists. He noted that since the 1970s,
lower-skilled European and American workers had endured a major fall in the
real value of their wages, which dropped by more than 20%. Workers were
suffering more spells of unemployment, more volatility in the hours they were
expected to work.
While many economists attributed much of the insecurity to
technological change – sophisticated new machines displacing low-skilled
workers – Rodrik suggested that the process of globalisation should shoulder
more of the blame. It was, in particular, the competition between workers in
developing and developed countries that helped drive down wages and job
security for workers in developed countries. Over and over, they would be held
hostage to the possibility that their business would up and leave, in order to
find cheap labour in other parts of the world; they had to accept restraints on
their salaries – or else. Opinion polls registered their strong levels of
anxiety and insecurity, and the political effects were becoming more visible.
Rodrik foresaw that the cost of greater “economic integration” would be greater
“social disintegration”. The inevitable result would be a huge political
backlash.
As Rodrik would later recall, other economists tended to
dismiss his arguments – or fear them. Paul Krugman, who would win the Nobel
prize in 2008 for his earlier work in trade theory and economic geography,
privately warned Rodrik that his work would give “ammunition to the
barbarians”.
It was a tacit acknowledgment that pro-globalisation
economists, journalists and politicians had come under growing pressure from a
new movement on the left, who were raising concerns very similar to Rodrik’s.
Over the course of the 1990s, an unwieldy international coalition had begun to
contest the notion that globalisation was good. Called “anti-globalisation” by
the media, and the “alter-globalisation” or “global justice” movement by its
participants, it tried to draw attention to the devastating effect that free
trade policies were having, especially in the developing world, where
globalisation was supposed to be having its most beneficial effect. This was a
time when figures such as the New York Times columnist Thomas Friedman had
given the topic a glitzy prominence by documenting his time among what he
gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto
one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists
were intent on showing a much darker picture, revealing how the record of
globalisation consisted mostly of farmers pushed off their land and the rampant
proliferation of sweatshops. They also implicated the highest world bodies in
their critique: the G7, World Bank and IMF. In 1999, the movement reached a
high point when a unique coalition of trade unions and environmentalists
managed to shut down the meeting of the World Trade Organization in Seattle.
In a state of panic, economists responded with a flood of
columns and books that defended the necessity of a more open global market
economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman
used his first piece as a New York Times columnist to denounce the “trashing”
of the WTO, calling it “a sad irony that the cause that has finally awakened
the long-dormant American left is that of – yes! – denying opportunity to
third-world workers”.
Where Krugman was derisive, others were solemn, putting the
contemporary fight against the “anti-globalisation” left in a continuum of
struggles for liberty. “Liberals, social democrats and moderate conservatives
are on the same side in the great battles against religious fanatics,
obscurantists, extreme environmentalists, fascists, Marxists and, of course,
contemporary anti-globalisers,” wrote the Financial Times columnist and former
World Bank economist Martin Wolf in his book Why Globalization Works. Language
like this lent the fight for globalisation the air of an epochal struggle. More
common was the rhetoric of figures such as Friedman, who in his book The World
is Flat mocked the “pampered American college kids” who, “wearing their branded
clothing, began to get interested in sweatshops as a way of expiating their
guilt”.
Arguments against the global justice movement rested on the
idea that the ultimate benefits of a more open and integrated economy would
outweigh the downsides. “Freer trade is associated with higher growth and …
higher growth is associated with reduced poverty,” wrote the Columbia
University economist Jagdish Bhagwati in his book In Defense of Globalization.
“Hence, growth reduces poverty.” No matter how troubling some of the local
effects, the implication went, globalisation promised a greater good.
The fact that proponents of globalisation now felt compelled
to spend much of their time defending it indicates how much visibility the
global justice movement had achieved by the early 2000s. Still, over time, the
movement lost ground, as a policy consensus settled in favour of globalisation.
The proponents of globalisation were determined never to let another gathering
be interrupted. They stopped meeting in major cities, and security everywhere
was tightened. By the time of the invasion of Iraq, the world’s attention had
turned from free trade to George Bush and the “war on terror,” leaving the
globalisation consensus intact.
Above all, there was a widespread perception that
globalisation was working as it was supposed to. The local adverse effects that
activists pointed to – sweatshop labour, starving farmers – were increasingly
obscured by the staggering GDP numbers and fantastical images of gleaming
skylines coming out of China. With some lonely exceptions – such as Rodrik and
the former World Bank chief and Columbia University professor Joseph Stiglitz –
the pursuit of freer trade became a consensus position for economists,
commentators and the vast majority of mainstream politicians, to the point
where the benefits of free trade seemed to command blind adherence. In a 2006
TV interview, Thomas Friedman was asked whether there was any free trade deal
he would not support. He replied that there wasn’t, admitting, “I wrote a
column supporting the Cafta, the Caribbean Free Trade initiative. I didn’t even
know what was in it. I just knew two words: free trade.”
In the wake of the financial crisis, the cracks began to
show in the consensus on globalisation, to the point that, today, there may no
longer be a consensus. Economists who were once ardent proponents of
globalisation have become some of its most prominent critics. Erstwhile
supporters now concede, at least in part, that it has produced inequality,
unemployment and downward pressure on wages. Nuances and criticisms that
economists only used to raise in private seminars are finally coming out in the
open.
A few months before the financial crisis hit, Krugman was
already confessing to a “guilty conscience”. In the 1990s, he had been very
influential in arguing that global trade with poor countries had only a small
effect on workers’ wages in rich countries. By 2008, he was having doubts: the
data seemed to suggest that the effect was much larger than he had suspected.
In the years that followed, the crash, the crisis of the
eurozone and the worldwide drop in the price of oil and other commodities
combined to put a huge dent in global trade. Since 2012, the IMF reported in
its World Economic Outlook for October 2016, trade was growing at 3% a year –
less than half the average of the previous three decades. That month, Martin
Wolf argued in a column that globalisation had “lost dynamism”, due to a
slackening of the world economy, the “exhaustion” of new markets to exploit and
a rise in protectionist policies around the world. In an interview earlier this
year, Wolf suggested to me that, though he remained convinced globalisation had
not been the decisive factor in rising inequality, he had nonetheless not fully
foreseen when he was writing Why Globalization Works how “radical the
implications” of worsening inequality “might be for the US, and therefore the
world”. Among these implications appears to be a rising distrust of the
establishment that is blamed for the inequality. “We have a very big political
problem in many of our countries,” he said. “The elites – the policymaking
business and financial elites – are increasingly disliked. You need to make
policy which brings people to think again that their societies are run in a
decent and civilised way.”
That distrust of the establishment has had highly visible
political consequences: Farage, Trump, and Le Pen on the right; but also in new
parties on the left, such as Spain’s Podemos, and curious populist hybrids,
such as Italy’s Five Star Movement. As in 1997, but to an even greater degree,
the volatile political scene reflects public anxiety over “the process that has
come to be called ‘globalisation’”. If the critics of globalisation could be
dismissed before because of their lack of economics training, or ignored
because they were in distant countries, or kept out of sight by a wall of
police, their sudden political ascendancy in the rich countries of the west
cannot be so easily discounted today.
Over the past year, the opinion pages of prestigious
newspapers have been filled with belated, rueful comments from the high priests
of globalisation – the men who appeared to have defeated the anti-globalisers
two decades earlier. Perhaps the most surprising such transformation has been
that of Larry Summers. Possessed of a panoply of elite titles – former chief
economist of the World Bank, former Treasury secretary, president emeritus of
Harvard, former economic adviser to President Barack Obama – Summers was
renowned in the 1990s and 2000s for being a blustery proponent of
globalisation. For Summers, it seemed, market logic was so inexorable that its
dictates prevailed over every social concern. In an infamous World Bank memo
from 1991, he held that the cheapest way to dispose of toxic waste in rich
countries was to dump it in poor countries, since it was financially cheaper
for them to manage it. “The laws of economics, it’s often forgotten, are like
the laws of engineering,” he said in a speech that year at a World Bank-IMF
meeting in Bangkok. “There’s only one set of laws and they work everywhere. One
of the things I’ve learned in my short time at the World Bank is that whenever
anybody says, ‘But economics works differently here,’ they’re about to say
something dumb.”
Over the last two years, a different, in some ways
unrecognizable Larry Summers has been appearing in newspaper editorial pages.
More circumspect in tone, this humbler Summers has been arguing that economic
opportunities in the developing world are slowing, and that the already rich
economies are finding it hard to get out of the crisis. Barring some kind of
breakthrough, Summers says, an era of slow growth is here to stay.
In Summers’s recent writings, this sombre conclusion has
often been paired with a surprising political goal: advocating for a “responsible
nationalism”. Now he argues that politicians must recognise that “the basic
responsibility of government is to maximise the welfare of citizens, not to
pursue some abstract concept of the global good”.
One curious thing about the pro-globalisation consensus of
the 1990s and 2000s, and its collapse in recent years, is how closely the cycle
resembles a previous era. Pursuing free trade has always produced displacement
and inequality – and political chaos, populism and retrenchment to go with it.
Every time the social consequences of free trade are overlooked, political
backlash follows. But free trade is only one of many forms that economic
integration can take. History seems to suggest, however, that it might be the
most destabilising one.
Nearly all economists and scholars of globalisation like to
point to the fact that the economy was rather globalised by the early 20th
century. As European countries colonised Asia and sub-Saharan Africa, they
turned their colonies into suppliers of raw materials for European
manufacturers, as well as markets for European goods. Meanwhile, the economies
of the colonisers were also becoming free-trade zones for each other. “The
opening years of the 20th century were the closest thing the world had ever
seen to a free world market for goods, capital and labour,” writes the Harvard
professor of government Jeffry Frieden in his standard account, Global
Capitalism: Its Fall and Rise in the 20th Century. “It would be a hundred years
before the world returned to that level of globalisation.”
In addition to military force, what underpinned this
convenient arrangement for imperial nations was the gold standard. Under this
system, each national currency had an established gold value: the British pound
sterling was backed by 113 grains of pure gold; the US dollar by 23.22 grains,
and so on. This entailed that exchange rates were also fixed: a British pound
was always equal to 4.87 dollars. The stability of exchange rates meant that
the cost of doing business across borders was predictable. Just like the
eurozone today, you could count on the value of the currency staying the same,
so long as the storehouse of gold remained more or less the same.
When there were gold shortages – as there were in the 1870s
– the system stopped working. To protect the sanctity of the standard under
conditions of stress, central bankers across the Europe and the US tightened
access to credit and deflated prices. This left financiers in a decent
position, but crushed farmers and the rural poor, for whom falling prices meant
starvation. Then as now, economists and mainstream politicians largely
overlooked the darker side of the economic picture.
In the US, this fuelled one of the world’s first
self-described “populist” revolts, leading to the nomination of William
Jennings Bryan as the Democratic party candidate in 1896. At his nominating
convention, he gave a famous speech lambasting gold backers: “You shall not
press down upon the brow of labour this crown of thorns, you shall not crucify
mankind upon a cross of gold.” Then as now, financial elites and their
supporters in the press were horrified. “There has been an upheaval of the
political crust,” the Times of London reported, “and strange creatures have
come forth.”
Businessmen were so distressed by Bryan that they backed the
Republican candidate, William McKinley, who won partly by outspending Bryan
five to one. Meanwhile, gold was bolstered by the discovery of new reserves in
colonial South Africa. But the gold standard could not survive the first world
war and the Great Depression. By the 1930s, unionisation had spread to more
industries and there was a growing worldwide socialist movement. Protecting
gold would mean mass unemployment and social unrest. Britain went off the gold
standard in 1931, while Franklin Roosevelt took the US off it in 1933; France
and several other countries would follow in 1936.
The prioritisation of finance and trade over the welfare of
people had come momentarily to an end. But this wasn’t the end of the global
economic system.
The trade system that followed was global, too, with high
levels of trade – but it took place on terms that often allowed developing
countries to protect their industries. Because, from the perspective of free
traders, protectionism is always seen as bad, the success of this postwar
system has been largely under-recognised.
Over the course of the 1930s and 40s, liberals – John
Maynard Keynes among them – who had previously regarded departures from free
trade as “an imbecility and an outrage” began to lose their religion. “The
decadent international but individualistic capitalism, in the hands of which we
found ourselves after the war, is not a success,” Keynes found himself writing
in 1933. “It is not intelligent, it is not beautiful, it is not just, it is not
virtuous – and it doesn’t deliver the goods. In short, we dislike it, and we
are beginning to despise it.” He claimed sympathies “with those who would
minimise, rather than with those who would maximise, economic entanglement
among nations,” and argued that goods “be homespun whenever it is reasonably
and conveniently possible”.
The international systems that chastened figures such as
Keynes helped produce in the next few years – especially the Bretton Woods
agreement and the General Agreement on Tariffs and Trade (Gatt) – set the terms
under which the new wave of globalisation would take place.
The key to the system’s viability, in Rodrik’s view, was its
flexibility – something absent from contemporary globalisation, with its
one-size-fits-all model of capitalism. Bretton Woods stabilised exchange rates
by pegging the dollar loosely to gold, and other currencies to the dollar. Gatt
consisted of rules governing free trade – negotiated by participating countries
in a series of multinational “rounds” – that left many areas of the world
economy, such as agriculture, untouched or unaddressed. “Gatt’s purpose was
never to maximise free trade,” Rodrik writes. “It was to achieve the maximum
amount of trade compatible with different nations doing their own thing. In
that respect, the institution proved spectacularly successful.”
Partly because Gatt was not always dogmatic about free
trade, it allowed most countries to figure out their own economic objectives,
within a somewhat international ambit. When nations contravened the agreement’s
terms on specific areas of national interest, they found that it “contained
loopholes wide enough for an elephant to pass”, in Rodrik’s words. If a nation
wanted to protect its steel industry, for example, it could claim “injury”
under the rules of Gatt and raise tariffs to discourage steel imports: “an
abomination from the standpoint of free trade”. These were useful for countries
that were recovering from the war and needed to build up their own industries
via tariffs – duties imposed on particular imports. Meanwhile, from 1948 to
1990, world trade grew at an annual average of nearly 7% – faster than the
post-communist years, which we think of as the high point of globalisation. “If
there was a golden era of globalisation,” Rodrik has written, “this was it.”
Gatt, however, failed to cover many of the countries in the
developing world. These countries eventually created their own system, the
United Nations conference on trade and development (UNCTAD). Under this rubric,
many countries – especially in Latin America, the Middle East, Africa and Asia
– adopted a policy of protecting homegrown industries by replacing imports with
domestically produced goods. It worked poorly in some places – India and
Argentina, for example, where the trade barriers were too high, resulting in
factories that cost more to set up than the value of the goods they produced –
but remarkably well in others, such as east Asia, much of Latin America and
parts of sub-Saharan Africa, where homegrown industries did spring up. Though
many later economists and commentators would dismiss the achievements of this
model, it theoretically fit Larry Summers’s recent rubric on globalisation:
“the basic responsibility of government is to maximise the welfare of citizens,
not to pursue some abstract concept of the global good.”
The critical turning point – away from this system of trade
balanced against national protections – came in the 1980s. Flagging growth and
high inflation in the west, along with growing competition from Japan, opened
the way for a political transformation. The elections of Margaret Thatcher and
Ronald Reagan were seminal, putting free-market radicals in charge of two of
the world’s five biggest economies and ushering in an era of
“hyperglobalisation”. In the new political climate, economies with large public
sectors and strong governments within the global capitalist system were no
longer seen as aids to the system’s functioning, but impediments to it.
Not only did these ideologies take hold in the US and the
UK; they seized international institutions as well. Gatt renamed itself as the
World Trade Organization (WTO), and the new rules the body negotiated began to
cut more deeply into national policies. Its international trade rules sometimes
undermined national legislation. The WTO’s appellate court intervened
relentlessly in member nations’ tax, environmental and regulatory policies,
including those of the United States: the US’s fuel emissions standards were
judged to discriminate against imported gasoline, and its ban on imported
shrimp caught without turtle-excluding devices was overturned. If national
health and safety regulations were stricter than WTO rules necessitated, they
could only remain in place if they were shown to have “scientific justification”.
The purest version of hyperglobalisation was tried out in
Latin America in the 1980s. Known as the “Washington consensus”, this model
usually involved loans from the IMF that were contingent on those countries
lowering trade barriers and privatising many of their nationally held
industries. Well into the 1990s, economists were proclaiming the indisputable
benefits of openness. In an influential 1995 paper, Jeffrey Sachs and Andrew
Warner wrote: “We find no cases to support the frequent worry that a country
might open and yet fail to grow.”
But the Washington consensus was bad for business: most
countries did worse than before. Growth faltered, and citizens across Latin
America revolted against attempted privatisations of water and gas. In
Argentina, which followed the Washington consensus to the letter, a grave
crisis resulted in 2002, precipitating an economic collapse and massive street
protests that forced out the government that had pursued privatising reforms.
Argentina’s revolt presaged a left-populist upsurge across the continent: from
1999 to 2007, leftwing leaders and parties took power in Brazil, Venezuela,
Bolivia and Ecuador, all of them campaigning against the Washington consensus
on globalisation. These revolts were a preview of the backlash of today.
Rodrik – perhaps the contemporary economist whose views have
been most amply vindicated by recent events – was himself a beneficiary of
protectionism in Turkey. His father’s ballpoint pen company was sheltered under
tariffs, and achieved enough success to allow Rodrik to attend Harvard in the
1970s as an undergraduate. This personal understanding of the mixed nature of
economic success may be one of the reasons why his work runs against the broad
consensus of mainstream economics writing on globalisation.
“I never felt that my ideas were out of the mainstream,”
Rodrik told me recently. Instead, it was that the mainstream had lost touch
with the diversity of opinions and methods that already existed within
economics. “The economics profession is strange in that the more you move away from
the seminar room to the public domain, the more the nuances get lost,
especially on issues of trade.” He lamented the fact that while, in the
classroom, the models of trade discuss losers and winners, and, as a result,
the necessity of policies of redistribution, in practice, an “arrogance and
hubris” had led many economists to ignore these implications. “Rather than
speaking truth to power, so to speak, many economists became cheerleaders for
globalisation.”
In his 2011 book The Globalization Paradox, Rodrik concluded
that “we cannot simultaneously pursue democracy, national determination, and
economic globalisation.” The results of the 2016 elections and referendums
provide ample testimony of the justness of the thesis, with millions voting to
push back, for better or for worse, against the campaigns and institutions that
promised more globalisation. “I’m not at all surprised by the backlash,” Rodrik
told me. “Really, nobody should have been surprised.”
But what, in any case, would “more globalisation” look like?
For the same economists and writers who have started to rethink their
commitments to greater integration, it doesn’t mean quite what it did in the
early 2000s. It’s not only the discourse that’s changed: globalisation itself
has changed, developing into a more chaotic and unequal system than many
economists predicted. The benefits of globalisation have been largely
concentrated in a handful of Asian countries. And even in those countries, the
good times may be running out.
Statistics from Global Inequality, a 2016 book by the
development economist Branko Milanović, indicate that in relative terms the
greatest benefits of globalisation have accrued to a rising “emerging middle
class”, based preponderantly in China. But the cons are there, too: in absolute
terms, the largest gains have gone to what is commonly called “the 1%” – half
of whom are based in the US. Economist Richard Baldwin has shown in his recent
book, The Great Convergence, that nearly all of the gains from globalisation
have been concentrated in six countries.
Barring some political catastrophe, in which rightwing
populism continued to gain, and in which globalisation would be the least of
our problems – Wolf admitted that he was “not at all sure” that this could be
ruled out – globalisation was always going to slow; in fact, it already has.
One reason, says Wolf, was that “a very, very large proportion of the gains
from globalisation – by no means all – have been exploited. We have a more open
world economy to trade than we’ve ever had before.” Citing The Great
Convergence, Wolf noted that supply chains have already expanded, and that
future developments, such as automation and the use of robots, looked to
undermine the promise of a growing industrial workforce. Today, the political
priorities were less about trade and more about the challenge of retraining
workers, as technology renders old jobs obsolete and transforms the world of
work.
Rodrik, too, believes that globalisation, whether reduced or
increased, is unlikely to produce the kind of economic effects it once did. For
him, this slowdown has something to do with what he calls “premature
deindustrialisation”. In the past, the simplest model of globalisation
suggested that rich countries would gradually become “service economies”, while
emerging economies picked up the industrial burden. Yet recent statistics show
the world as a whole is deindustrialising. Countries that one would have
expected to have more industrial potential are going through the stages of
automation more quickly than previously developed countries did, and thereby
failing to develop the broad industrial workforce seen as a key to shared
prosperity.
For both Rodrik and Wolf, the political reaction to
globalisation bore possibilities of deep uncertainty. “I really have found it
very difficult to decide whether what we’re living through is a blip, or a
fundamental and profound transformation of the world – at least as significant
as that one brought about the first world war and the Russian revolution,” Wolf
told me. He cited his agreement with economists such as Summers that shifting
away from the earlier emphasis on globalisation had now become a political priority;
that to pursue still greater liberalisation was like showing “a red rag to a
bull” in terms of what it might do to the already compromised political
stability of the western world.
Rodrik pointed to a belated emphasis, both among political
figures and economists, on the necessity of compensating those displaced by
globalisation with retraining and more robust welfare states. But
pro-free-traders had a history of cutting compensation: Bill Clinton passed
Nafta, but failed to expand safety nets. “The issue is that the people are
rightly not trusting the centrists who are now promising compensation,” Rodrik
said. “One reason that Hillary Clinton didn’t get any traction with those
people is that she didn’t have any credibility.”
Rodrik felt that economics commentary failed to register the
gravity of the situation: that there were increasingly few avenues for global
growth, and that much of the damage done by globalisation – economic and
political – is irreversible. “There is a sense that we’re at a turning point,”
he said. “There’s a lot more thinking about what can be done. There’s a renewed
emphasis on compensation – which, you know, I think has come rather late.”
Illustrations by Nathalie Lees
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