Globalization and Its Discontents Revisited Read online

  The Historical Context

  In GAID I tried to put globalization, as it existed at the time of publication, in historical context.28 Before the collapse of the Berlin Wall, there was competition for the hearts and minds and loyalty of those in the developing world between communism and the West. That competition prevented the United States from abusing its enormous economic power. The end of the Cold War gave the United States almost free rein in shaping globalization. It could have used that power to reflect its values and principles—to support governments that showed a commitment to human rights, provide assistance to end poverty, create systems of social protection, and ensure that young people had access to education. It did so, but only to a very limited extent; but it simultaneously tried to change the rules of international commerce in ways that would entrench the advantages of the advanced countries, and particularly their corporate and financial interests. Bill Clinton was elected on a platform of “Jobs, Jobs, Jobs!” and “It’s the economy, stupid.” He decided to focus trade policy on advancing U.S. economic interests—but that turned out to mean U.S. corporate interests. In doing so, the United States lost an important opportunity to redefine globalization.

  Globalization in the New Millennium

  There was but a decade of relative calm after the fall of the Berlin Wall before a series of storms hit. First, in December 1999, came the Seattle anti-globalization protests, which were focused against a new round of trade talks. They brought together those worried about the effect of trade agreements on jobs, about the inequities imposed on developing countries, and about the environment. Protesters felt they knew where the talks would go: to another trade agreement advancing corporate interests in the advanced countries. The protestors won the day: the talks did not begin.

  Shortly before GAID was published, the global war on terrorism began with the 2001 attack of 9/11. It became clear that not only did good things move more easily across borders in the era of globalization, but so did bad things. In the moment of solidarity that followed, a new round of trade talks, called the Development Round, began with a promise to rectify the imbalances of previous trade agreements that were very tilted against the developing countries. As I discuss in the afterword, that spirit of unity was short-lived; the United States and Europe reneged on their promise to reform trade rules to help the less developed countries grow, and fourteen years later, the Development Round was formally abandoned. By then, the larger emerging markets had shown that they could stand up to the United States; and the United States had not learned how to navigate negotiations in this new world—it could not tame the special agricultural interests, which, as I have noted, were powerful enough to ensure the continuation of massive subsidies for themselves.

  But the real storm came in 2008, with the global financial crisis—globalization had enabled America to sell its toxic mortgages around the world, and globalization meant that an economic crisis originating in America spread quickly around the world, inflicting enormous pain to hundreds of millions. Ironically, as the United States sought to recover, with its forceful monetary policies (quantitative easing), it imposed still more instability on others: a rush of liquidity led to asset price bubbles in the emerging markets, and an increase in their exchange rates led to decreases in exports and surges of imports.

  The Rise of Trump

  All of this has given unfettered globalization a bad name, or at least given rise to skepticism about globalization in much of the world. But almost surely, nothing will have done as much to undermine faith in globalization as Trump.29 Trump and his supporters seemed to be saying to the world, if we can’t win in the game of globalization, we’ll take our marbles and go home. America had thought it had created a globalization that served its interests; and when that didn’t seem to be the case, it decided that the rules had to be changed, or else.

  But the world of the twenty-first century is very different from that of the years immediately after World War II, when much of the developing world didn’t even have its freedom. By the first decade of the twenty-first century, the United States–led wars in Vietnam, Afghanistan, and Iraq had shown the limits of military power. America couldn’t even decisively win against small, poor countries. Its soft power—the influence exerted by its moral values and culture—had been diminished by the way it conducted the Iraq War, how it treated the poor in its own country, by the hypocrisy it demonstrated in its international trade negotiations, and by the power of money in its elections. Again, the election of a president so untethered to the truth—who is totally unfazed by lying—has simply compounded matters. In short, with the diminution of its soft power, with a new global balance of economic power, and with the limits of military power so evident, the United States is unlikely to be able to unilaterally rewrite the rules of globalization.

  Trump, for instance, has complained about trade agreements like the North American Free Trade Agreement (NAFTA), which allows for the free movement of goods between Canada, Mexico, and the United States. There will be changes—agreements made close to a quarter of a century ago or more will have to be updated (NAFTA went into effect in 1994)—but they will be changes that will be mutually agreed to. The United States has the power to exit agreements—often, though, only with the consent of Congress—but that is a far cry from getting a new agreement. Many of the trade agreements (such as that with Korea) faced strong opposition not only in the United States but in the other signatory nations. Any significant change that disturbed the balance of benefits and costs within and between the signatories would ensure the death of the agreement: citizens now realize that no agreement is better than a bad agreement.

  There is thus considerable uncertainty about what globalization in a post-Trump world might look like—and this uncertainty itself will impede trade and economic integration. Trump is likely to fail to carry out many of his campaign promises, since many of them require unlikely congressional support, while others have been struck down by courts. Within months of taking office, he was equivocating on his promises. The 45 percent across-the-board tax on Chinese imports quickly became forgotten, replaced by the standard duties imposed in previous administrations on goods that China sells below costs. Even as negotiations on NAFTA began, the administration had no serious proposals on how to reverse the trade deficit with Mexico. Indeed, chapter 3 explains that Trump’s policies are likely to increase America’s overall trade deficit. America’s voters are used to there being a gap between campaign rhetoric and what follows; but just as Trump’s campaign rhetoric was outsized, so too has been the gap. Even so, because Trump has shown that borders matter, firms will now be more cautious in creating global supply chains.

  Even without Trump, it is likely that globalization would have changed. The collapse of the Development Round of trade negotiations in 2015 meant that, for the foreseeable future, there would be no more global agreements. The opposition to the United States–driven trade agreements across the Pacific (the Trans-Pacific Partnership, or TPP) and across the Atlantic (the Transatlantic Trade and Investment Partnership, or TTIP) suggested it would be increasingly difficult to push forward the corporate-driven agreements that had marked the past.30 On the other hand, South-South agreements—among developing countries and emerging markets—were expanding: Trump’s “America First” rhetoric gave a big spur to a trend that was already under way. For instance, the Pacific Alliance, which since 2011 has brought together Peru, Mexico, Colombia, and Chile, enjoyed a major boost to its relevancy in the wake of the U.S. election. And there are a number of regional agreements moving forward in Asia.

  A New Global Economy

  In GAID I discuss some of the inequities between the North and the South. Several changes in the last fifteen years have only heightened the sense of injustice. The first is the heightened awareness of climate change—with most of the increases in the atmospheric concentration of greenhouse gases which give rise to it coming from the advanced countries,31 and most of the costs being borne by the develo
ping countries. The United States, with its refusal to go along with any agreement with fair burden sharing—and with so many Americans, including Trump, even claiming that it’s a hoax—generates particular resentment in this arena.32

  A second change was an unforeseen consequence of the East Asia crisis and the way it was mismanaged by the IMF. Countries around the world, but especially in East Asia, said “never again.” They understood the benefits of globalization, but they also realized that openness exposed them to risks beyond their control. To manage these risks they needed reserves, usually dollars, that they held against a rainy day—and especially against a storm like the crisis of 1997. They knew, though, that they didn’t have enough to weather such a storm. Reserves increased by trillions of dollars.

  The real irony is this: while it was the U.S. Treasury that was largely responsible for these policies which imposed such enormous costs on the East Asian countries, the U.S. Treasury has also been the big beneficiary. Countries typically hold reserves in the form of U.S. T-bills, which means that they are lending to the United States. However, they are lending at a low rate (in the years after the global crisis, at close to zero interest rate, which means in real terms, taking account of inflation, they are getting a negative return), but often borrowing from the United States at much higher rates. It was, in effect, a massive transfer of money from these poorer countries to the United States. The developing and emerging markets thus paid a high price to protect their loss of sovereignty.

  There was a ready solution: the creation of a global reserve system. China, Russia, and France supported such a system, and the UN voted to have it studied.33 But the United States opposed such a system, or even the study of its feasibility—after all, under current arrangements, the United States could borrow from others at an interest rate close to zero, and they liked this. Given U.S. opposition, nothing happened.34

  A third change was the increasing importance of intellectual property and the payments associated with it. As the world moved more to a knowledge economy, these payments increased, and with most of the patents held by the North, there was a substantial flow of money from the South to the North. Again, rather than money flowing from rich countries to poor countries to help them grow, it seemed as if the global economic system was designed to make the money flow the other way, seemingly defying gravity.

  A fourth change is that the model of export-led manufacturing growth that had been the basis of the success of East Asia may well be coming to an end. Even if all the manufacturing jobs in China were to go to Africa, it would provide just a fraction of the needed jobs for the new entrants into the labor force, given the large increase in that continent’s labor force expected in coming decades.35 Without jobs, immigration pressures, especially in Europe, will continue unabated.

  Perhaps the biggest change, at least from the perspective of the management of globalization—a change well underway before Trump—was the increasing economic power of the emerging markets. Their relative share in global GDP has grown enormously. Hardly a surprise: China, for instance, grew at nearly 10 percent per year, for a third of a century, doubling its economy every seven years. It grew even faster in some of the years after the global financial crisis, a period in which Europe and the United States performed particularly badly.

  Rebalancing the Global System

  As the disconnect has grown larger between the voice of the emerging markets in globalization and in global financial institutions like the World Bank and the IMF, established at the end of World War II, and the economic realities, the need for a rebalancing has become more pronounced.

  Of course, there have been changes, for instance, small adjustments in voting shares at the IMF and the World Bank, which seem to have had no observable consequences. The global financial crisis made it evident that global problems need to be addressed globally—and not just by the club of the rich countries, the G-7. The G-20 brought in China, India, Turkey, Saudi Arabia, Argentina, and eight other emerging markets and became the key global meeting. But as the global financial crisis faded, disagreements about the direction the global economy should take prevented much progress in redefining globalization. Perhaps the most important achievement was in climate change, with the Paris Agreement signed by 195 countries and entering into effect on November 4, 2016. The strength of the agreement was demonstrated in the aftermath of President Trump’s announcement of the U.S. withdrawal36 from the accord. The rest of the world stood firm in solidarity in support of the agreement, and many businesses and states within the United States reaffirmed their commitment to achieving its ambitions. Trump was mocked everywhere. Rome’s City Hall displayed a huge banner: “The Planet First” (making fun of Trump’s slogan, “America First”); and President Emmanuel Macron of France used the slogan “Make Our Planet Great Again” (making fun of Trump’s slogan, “Make America Great Again”).

  Not surprisingly, given the slow progress in rebalancing globalization, in giving voice to emerging markets commensurate with their economic power, these countries have taken matters into their own hands, setting up their own institutions—sometimes over the futile opposition of the United States, which made efforts to retain its influence. The United States has had a hard time adapting itself to this world in which its relative economic power is diminished—and I suspect matters will only get worse under Trump.

  Rebalancing globalization to give more voice to developing countries and emerging markets will not be easy. It will require a kind of cooperation that will be hard to attain so long as the United States maintains an “America First” position.

  THREE WAYS FORWARD

  The discontent with globalization is evident both in developing and developed countries. The question, then, is where does globalization go from here?

  Doubling Down on the Washington Consensus

  One approach is some variant of the Washington Consensus: a continuation of the structure of globalization much as it has been, with rules set by and for the large corporations and big finance in the advanced countries. This would be a doubling down on the Washington Consensus policies that failed in so much of the developing world. I wrote GAID to explain why that was not the way the world should go. Still, at the time I wrote it, I was very much afraid that that was the direction in which the world would go.

  If the world took this approach, I felt I knew how things would play out. In GAID, I describe IMF policies as being like dropping bombs from 50,000 feet. One couldn’t see the human suffering down below. The IMF focused on cold numbers like the unemployment rate. But behind a 10 percent unemployment rate are millions of families without a job. For those families, a change in policy leading to an 8 percent unemployment rate makes a world of difference—a human difference that simply can’t be captured in that small change in the statistic. But the disconnect between what advocates of globalization thought and what was happening was even greater. They had a theory that globalization would lead to faster economic growth—but they didn’t even look at statistics about how globalization was affecting ordinary people.

  Failing to Make Globalization Sustainable

  At the time I wrote GAID, it seemed to me that globalization, as it was then being structured, was unsustainable. What happened in the ensuing years, as I’ve described, only made matters worse.

  At the national level, somehow, the politics has not worked in a way which would have led to the changes to make globalization sustainable. Those on the right who have been the strongest advocates of globalization have not been willing to push policies that would have protected those who have been hurt by it. To the contrary, they have even resisted assistance to those who have lost their jobs as a result of globalization.

  More surprising has been the behavior of the center-left—such as the Democrats in the United States. They should have been the defenders of the interests of the workers who are displaced by globalization—and opposed globalization if those interests weren’t protected. In practice, though, they were cogniti
vely captured by the arguments for the benefits of globalization—perhaps attracted a little by the campaign contributions that came from the financial sector for those who supported their view of globalization. Perhaps some even came to believe in trickle-down economics. Finally, as the disillusionment of so many of their “base”—or what should have been their base—became clear, there was a shift, led most forcefully by Bernie Sanders, behind whom rallied not only many workers, but a huge proportion of the young; and eventually, even by Hillary Clinton, who was forced to distance herself from the globalization policies of her husband. Even she came out against TPP.

  The New Protectionism