Global Paradigm Shift Underway

THE world has never been more connected – and yet globalization is under strain as never before. Beggar-thy-neighbour economic policies and authoritarian populism are on the rise in much of the developed world, including the U.S., Germany, Britain, France and the Netherlands.

Next year, parties led by populist, revisionist and nostalgic leaders in some of these western democracies have a pretty good chance of gaining legislative seats, reaching ministerial office, and holding government power. Who could have imagined in 2016 that such an outlandish billionaire like Donald Trump (who wants to end globalization and “put America first”) could become president of the United States? It’s rather unfortunate that the politics of major global powers appear to be stuck in the past just when the future is coming so quickly.

Once upon a time, globalism (a liberal international order) was trumpeted by the West as the panacea for the socio-economic ills of developing countries. Now the fear of globalization extends from north to south – and from east to west. Not only is the backlash against globalization real and growing, but the term has been bandied around as a catch-all phrase for a host of perceived evils: high employment (due to vanishing manufacturing jobs), inequality, market chaos, automation, financialization of economies, the declining middle class and enrichment of the elite, cultural exclusion, a world more vulnerable to crises and the “gig economy”.

Countries mired in stagnation or economic decline are all now blaming globalization (albeit unfairly) for their predicament. And as chaos now beckons in Europe, a hard Brexit threatens to cast an even darker cloud of doubt on the approach and modalities of globalization. Is this really the turning point for globalization?

Although economic globalization has enabled unprecedented levels of wealth and prosperity in industrialized countries, and has been a boon to hundreds of millions of poor workers in China and elsewhere in Asia, it rests on shaky pillars. The Brexit vote was a clear statement against supranational authorities and labour immigration from low-wage EU countries – a situation which the British view as getting out of control and posing a real threat to public order and cultural norms.

As much as Britain’s departure from the EU represents a watershed moment for global integration, the event also signals the need for a new kind of globalization. Carmen Reinhart, Professor of the International Financial System at Harvard University’s Kennedy School of Government writes: “With its systemic negative effects on finance, trade and labour mobility, Brexit marks a major setback for globalization. The fallout from Brexit probably won’t spread as quickly as in outright financial crises, such as the 2008 financial meltdown or the 1997 and 1998 Asian episodes. But the after-effects also won’t subside anytime soon.”

After the 2008 financial crisis, protesting voices became louder against what they saw as “cowboy capitalism” and the lack of international co-ordination and regulation of financial markets, as the ensuing financial turmoil and contagion clearly exposed the downside of economic interdependence. The Great Recession of 2008 has resulted in the most precipitous decline in global trade since the Great Depression – and up till this day global trade has not recovered from its earlier trajectory.

As we all are made to understand, trade was supposed to be the major underpinning thrust of globalization, but now even developed countries are campaigning against free trade and rejecting market-oriented policies and even technological change.

The presidential electoral campaign in the United States has highlighted the frailty of the support for open trade in the world’s most powerful nation. The rise and election of Donald Trump and his isolationist rhetoric – anti-trade, anti-migration and anti-Muslim, is ringing plenty of alarm bells in NAFTA as well as in China, Japan, South Korea, and virtually every country that benefits from America’s trade systems and processes. NourielRoubini, a professor at NYU’s Stern School of Business explains: “Politically, the strains of globalization are twofold. First, establishment parties of the right and the left, which for more than a generation have supported free trade and globalization, are being challenged by populist, nativist/nationalist anti-establishment parties. Second, establishment parties are being disrupted – if not destroyed – from within, as champions of anti-globalization emerge and challenge the mainstream orthodoxy.”

So what is the true nature of the popular discontent with the economic process known as globalization? Why does a new nationalism threaten the fulfilment of global economic integration? Perhaps, the view by Chilean sociologist Oswaldo Sunkel that “integration into the international economy will eventually lead to disintegration of the national economy” is a good basis for debate and analysis.

Essentially, critics regard globalisation as involving one simple project – that of asking developing nations to open up their economies to the global market and its forces without paying much attention to their nature of development, their level of development as well as their location in the global economy. Against this backdrop, developing nations are forced by the so-called power centres of global integration (WTO, IMF, World Bank) to liberalise trade, investment and imports, and allow large multi-national corporations to freely and indiscriminately operate in their markets. The critics contend that national governments are hence undermined – directed by a global order to pursue a global macro-economic policy which significantly restricts their role in the economy to merely supporting the market and free enterprise.

Further, according to the anti-globalization gospel, this seemingly unpredictable global order allows the market through its “invisible hands” to determine the prices of goods and services, currencies, the supply of labour and even the allocation of scarce resources. As a consequence of market imperfections and an unlevel economic playing field, the unrestrained operation of multinationals pose serious difficulties ranging from dumping to unfair competition. Owing to the fact that these huge international corporations benefit from internal economies of scale and scope, they will eventually cause small domestic firms to go out of business and thereby exacerbate the scourge of unemployment and other social ills. Most strikingly, the argument goes, the rising tide of globalisation was supposed to lift all boats, but it seems only yachts hitherto have been lifted.

No one ever said that globalization would produce only winners and foster fairness for all. There were bound to be losers as many traditional economic sectors have suffered decline, resulting in crippling unemployment, inequality and social instability. I have always argued that the effects of the economic dislocation caused by globalization could have been mitigated if the winners had sufficiently compensated the losers in the form of retraining, retooling and more supportive social programmes.

Ironically, the very countries that have benefited most from economic globalization are the ones that threaten to roll back the process. Even so, post-Brexit and with Donald Trump as U.S. President, if Britain and America become openly protectionist and illiberal, this can have substantial implications for global economic growth, the investment climate and international co-operation – as people, goods and capital will all face increasing barriers to movement in a new century which had promised to spread the frontiers of human knowledge among the world’s societies and peoples.

For comments, write to [email protected] – Clement Wulf-Soulage is a Management Economist, Published Author and Former University Lecturer.