Globalisation: the rise and fall of an idea that swept the world
The long read: Its not just a populist backlash many economists who once swore by free trade have changed their minds, too. How'd they got it so wrong?
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. Powder conditions on the local ski slopes, while cradling champagne and canapes. This January, the ultra-rich and the sparkling wine returned. By all reports the mood was one of anxiety, defensiveness and self-reproach.
The future of economic globalization. Which the Davos men and women see themselves as caretakers, had been shaken by a series of political earthquakes. Globalisation can mean many things. 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 worlds richest country. Forthcoming elections in France and Germany suddenly seemed to bear the possibility of anti-globalization parties garnering better results than ever before. The barbarians werent at the gates to the ski-lifts yet but they werent 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 globalization. it's not clear to me that we're 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: globalization caused job losses and depressed wages. The usual Davos proposals such as instructing affected populations to accept the new reality werent going to work. Unless something changed, the political consequences were likely to get worse.
The backlash to globalization 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 favor 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. Many, talk of greater globalization 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 Frances presidential election, Marine Le Pen warned darkly that the main thing at stake in this election is the rampant globalization that's endangering our civilisation.
It was only a few decades ago that globalization was held by many, even by some critics, to be an inevitable, unstoppable force. Rejecting globalization, 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. 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 labor was expensive, to poor countries, where labor was cheaper. People in the rich countries would either have to accept lower wages to compete. Lose their jobs. But no matter what, the goods they formerly produced would now be imported. 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 globalization, with little concern that there might be political consequences.
Back then, economists could calmly chalk up anti-globalization sentiment to a marginal group of delusional protesters. Disgruntled stragglers still toiling uselessly in sunset industries. These days, as sizable constituencies have voted in country after country for anti-free-trade policies. Candidates that promise to limit them, the old self-assurance is gone. Millions have rejected, with uncertain results, the punishing logic that globalization couldn't be stopped. The backlash has swelled a wave of soul-searching among economists, one that'd already begun to roll ashore with the financial crisis. How did they fail to foresee the repercussions?
In the heyday of the globalization 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, Rodriks 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 Russias once-protected markets having been forcibly opened, leading to a sudden decline in living standards a communist won 40% of the vote in Russias 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's come to be called globalization. Since the 1980s. 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 labor cheaper and regulations looser, often in countries that'd once tried their hand at socialism. Had spent years protecting homegrown industries with tariffs.