Globalisation in retreat 

Globalisation in retreat 

Context

Article tinkers with the popular question: The fate of globalization & where are we headed?

Globalization in retreat

Author cites the example of major countries where anti-globalization sentiment seems to be rising.

He states that

• The retreat of globalization is not confined to the US alone. Germany, Britain, France and Italy are the four biggest European economies
• Via Brexit, Britain has already given in to an inward-looking pullback
• Right wing populist political forces are showing signs of revival in Italy
• The nativist party led by Marine Le Pen finished second in France; and
• A right-wing populist party has emerged from nowhere in Germany to become the third largest party in parliament, causing a substantial erosion of popular support for the centre right and centre left, and making it hard for a government to emerge

Defining globalization

• Theoretical definition: Author states that in its purest economic form, globalization represents free movement of capital, goods and labour across national boundaries
• Reality: In reality, compared to capital and goods, labour was always allowed lower freedom to move. Moreover, since different countries opted for varying degrees of integration with the global economy, even the movement of capital and goods, while less constrained than before, was not entirely free

Globalization as it is now

Eventually, the actually existing globalisation came to mean two things:

1. Greater economic freedom beyond national borders than perhaps ever before; and
2. Freer movement of capital and goods than of labour

Globalization 2.0

Economic historians also make it clear that the hundred years until the First World War constituted the first era of globalization. We have been watching Globalization 2.0 over the last four decades

How China & India have progressed under Globalization 2.0?

India and China were among the worst sufferers during the first globalisation but they have been two of the biggest beneficiaries of the second globalisation.

• In 1980, China and India were not even among the 45 largest economies of the world
• In 2016, at $11.2 trillion, China’s GDP was second only to the US ($18.6 trillion) and at $2.3 trillion, India’s GDP was the seventh largest in the world, ahead of Italy ($1.9 trillion) and Canada ($1.5 trillion), and only slightly behind Britain ($2.6 trillion) and France ($2.5 trillion), though its per capita income continues to be a fraction of all four

Therefore, China and India have not objected to Globalisation 2.0 while the West has. Further, it is not economic arguments against globalisation that have forced the retreat. It is the new political forces that have done so

Arguments against globalization

Two economic arguments against full-blown globalisation, made in the 1990s, are worth noting

• Prone to extreme instability: In 1998, JagdishBhagwati, famous for his arguments in favour of trade globalisation, wrote vehemently against free movement of capital, arguing that capital markets were prone to extreme instability — “panics and manias” — unlike trade in goods, which was more stable and durably welfare-enhancing. In 1996, Malaysia, Indonesia, Thailand, the Philippines and South Korea received $93 billion in capital inflow, but had an outflow of $12 billion in 1997, causing a massive East Asian economic crisis. Trade in goods can never wildly fluctuate in this manner
• In 1997, Dani Rodrik, A Turkish economist, had argued against unrestricted free trade, claiming that many losers from trade liberalisation would lose permanently, not simply in the short run

Recent arguments against globalization

• The first is the claim that there is a grave imbalance between the global nature of markets and the national scope of state sovereignty. If wages in the US are high, businesses can simply move overseas, hurting US work force. Greater popular control over capital, according to this argument, was necessary
• Second argument is around immigrant movement across the borders. The anti-immigrant wave of politics, often taking ugly racist forms, is born out of the anxiety produced by the changing demographic composition of polities. In the US, the Hispanics and Muslims became the object of a majoritarian ire; in France, North African Muslims; in Britain, new migrants from Europe and elsewhere; in Germany, refugees from the Middle East, etc

Where are we headed?

As per author,

• Labour migration will almost certainly be badly hurt
• Capital is likely to be hit least as complex supply chains established after years of globalization cannot be easily broken
• The tricky part for populist rulers will be how to impose higher tariffs to protect domestic businesses without triggering a trade war