Remember our old friend Globalization? To paraphrase a bit from The NY Times:
By building international supply chains and shipping manufacturing jobs to where labor was cheap and regulations not an issue, supposedly the whole world would be tied together in mutual dependence and prosperity in a triumph of free market capitalism that would uplift everyone, plus we’d all get cheap stuff. (The link should allow passage through the pay wall at the Times.)
Oops.
Patricia Cohen, who covers the global economy and is based in London, has some bad news.
While the world’s eyes were on the pandemic, China and the war in Ukraine, the paths to prosperity and shared interests have grown murkier.
When the world’s business and political leaders gathered in 2018 at the annual economic forum in Davos, the mood was jubilant. Growth in every major country was on an upswing. The global economy, declared Christine Lagarde, then the managing director of the International Monetary Fund, “is in a very sweet spot.”
Five years later, the outlook has decidedly soured.
“Nearly all the economic forces that powered progress and prosperity over the last three decades are fading,” the World Bank warned in a recent analysis. “The result could be a lost decade in the making — not just for some countries or regions as has occurred in the past — but for the whole world.”
A lot has happened between then and now: A global pandemic hit; war erupted in Europe; tensions between the United States and China boiled. And inflation, thought to be safely stored away with disco album collections, returned with a vengeance.
But as the dust has settled, it has suddenly seemed as if almost everything we thought we knew about the world economy was wrong.
Do tell.
The economic conventions that policymakers had relied on since the Berlin Wall fell more than 30 years ago — the unfailing superiority of open markets, liberalized trade and maximum efficiency — look to be running off the rails.
During the Covid-19 pandemic, the ceaseless drive to integrate the global economy and reduce costs left health care workers without face masks and medical gloves, carmakers without semiconductors, sawmills without lumber and sneaker buyers without Nikes.
The idea that trade and shared economic interests would prevent military conflicts was trampled last year under the boots of Russian soldiers in Ukraine.
And increasing bouts of extreme weather that destroyed crops, forced migrations and halted power plants has illustrated that the market’s invisible hand was not protecting the planet.
Now, as the second year of war in Ukraine grinds on and countries struggle with limp growth and persistent inflation, questions about the emerging economic playing field have taken center stage.
Globalization, seen in recent decades as unstoppable a force as gravity, is clearly evolving in unpredictable ways. The move away from an integrated world economy is accelerating. And the best way to respond is a subject of fierce debate.
emphasis added
Remember this one?
Today’s sense of unease is a stark contrast with the heady triumphalism that followed the collapse of the Soviet Union in December 1991. It was a period when a theorist could declare that the fall of communism marked “the end of history” — that liberal democratic ideas not only vanquished rivals, but represented “the end point of mankind’s ideological evolution.”
emphasis added
It all seemed so simple at the time.
Associated economic theories about the ineluctable rise of worldwide free market capitalism took on a similar sheen of invincibility and inevitability. Open markets, hands-off government and the relentless pursuit of efficiency would offer the best route to prosperity.
It was believed that a new world where goods, money and information crisscrossed the globe would essentially sweep away the old order of Cold War conflicts and undemocratic regimes.
Ah yes — The World is Flat. Take a look at the list of 10 things Thomas Friedman describes as world-flattening.
And here’s the part from the Times article that seems like the key bit of wishful thinking at the core:
The favored economic road map helped produce fabulous wealth, lift hundreds of millions of people out of poverty and spur wondrous technological advances.
But there were stunning failures as well. Globalization hastened climate change and deepened inequalities.
In the United States and other advanced economies, many industrial jobs were exported to lower-wage countries, removing a springboard to the middle class.
Policymakers always knew there would be winners and losers. Still, the market was left to decide how to deploy labor, technology and capital in the belief that efficiency and growth would automatically follow. Only afterward, the thinking went, should politicians step in to redistribute gains or help those left without jobs or prospects.
emphasis added
There’s something touching about the child-like faith policy makers had that free market forces would automatically produce an optimum result for everyone. (Obviously, they’ve never met Tom Tomorrow’s Invisible-Hand-of-the-Free-Market Man.)
The Times article sums up the core failed assumptions nicely with this quote:
It turned out that markets on their own weren’t able to automatically distribute gains fairly or spur developing countries to grow or establish democratic institutions.
Jake Sullivan, the U.S. national security adviser, said in a recent speech that a central fallacy in American economic policy had been to assume “that markets always allocate capital productively and efficiently — no matter what our competitors did, no matter how big our shared challenges grew, and no matter how many guardrails we took down.”
Emphasis added. Also, well DUH!
And here’s the kicker. While serious problems were becoming too big to keep sweeping under the rug, what finally tipped the balance?
While the collapse of the Soviet Union cleared the way for the domination of free-market orthodoxy, the invasion of Ukraine by the Russian Federation has now decisively unmoored it.
The story of the international economy today, said Henry Farrell, a professor at the Johns Hopkins School of Advanced International Studies, is about “how geopolitics is gobbling up hyperglobalization.”
Old-world style great power politics accomplished what the threat of catastrophic climate collapse, seething social unrest and widening inequality could not: It upended assumptions about the global economic order.
emphasis added
READ THE WHOLE THING. There’s more detail and examples of what has gone wrong. At the end Cohen samples a bit of the changes in policy that are coming about in recognition of how globalization has become the problem and not the solution (to paraphrase another famous wishful thinker).
This appeared in The NY Times on Sunday, the weekend news void. If this is an actual thing, the collapse of doctrines the world has been running on for decades, you’d think it ought to be getting more attention. The high level mission by Blinken to China is a de facto admission that globalization has gone pear-shaped.
It seems to be taking a while to shift the Overton Window to include policies that can address the situation. Are there talks about really resetting trade versus domestic production? Are we going to put international cooperation on the back-burner, or reformat it? We definitely need to address climate in a manner that includes the whole planet because it’s not something trade restrictions can keep from crossing borders.
This is one of those times that can result in a phase-change for the way the world works. (Or doesn’t.) Is someone going to be able to seize on this in a way that will capture the popular attention, or will it devolve into continuing denial and attempting to muddle through? People in the right places with the right words can suddenly find leverage they didn’t have before — and that applies to both reformers and demagogues. Never let a crisis go to waste, as they say.
Certainly some parties have cashed in bigly from globalization — they’re not going to sit back and do nothing as others try to change the game they’ve rigged to their benefit. (You know — that regulation and redistribution that now seems overdue.) And, as the Times article acknowledges, the worst among us will seize on the disruption to further their own ambitions. They’re already doing it.
Two quotes:
- Lois McMaster Bujold: “The world is made by the people who show up for the job.”
- Draper Kauffman: “...those who do not try to create the future they want must endure the future they get.”
Topics for further discussion:
See Late-stage Capitalism: what is it, and what do we do about it? (Also see Disaster Capitalism, and The Story of Stuff.)
Also see just about everything by Robert Reich.
Do you live in a developed country? Wilkinson and Pickett have massive amounts of research that show the greater the inequality in a given country, the worse everyone does, from the bottom to the top. If you want to justify the case for intervention in the ‘free’ market, there’s plenty of material to work with there.
Wondering why people are turning to authoritarian leaders? When people feel like the systems they depend on are failing them and their place in the social order is under siege, they look for scapegoats and strong leaders who promise to Make Everything Great Again. Bob Altemeyer has unraveled the psychology of such leaders and their followers. So what can we do about them?
If you are wondering why the failure of globalization is coming as a shock to people and why they fell for it in the first place, Rudyard Kipling’s The Gods of the Copybook Headings puts them and “The Gods of the Marketplace” in historical perspective.