Restart for Globalization? What It All Means for Us
By Shlomo Maital
The rise of rightist leaders and governments worldwide (UK, Europe, US) who oppose globalization (free unhampered movement of goods, services, people, information, money and technology) has brought a great deal of new thinking. Trump wins, Brexit, Renzi resigns, Austria’s far right barely loses, Merkel turns right, LePen is on the rise, Putin makes trouble everywhere… Globalization seeks win-win. Nationalism seeks “we win/you lose”… which can turn into lose/lose easily.
Global world trade and finance seem headed for some sort of restart: What are the main implications for people everywhere? What form will this restart of globalization take? Will the free movement of goods, services, people, information, money and technology be impaired? Amidst the enormous fog of uncertainty shrouding the world economy at present, can we make some reasonable predictions? This and several following blogs tackle this daunting task.
Background: Globalization really began on July 1-10, 1944, at a resort called Bretton Woods, New Hampshire, U.S. at Hotel Mt. Washington. The U.S. convened world economic and financial leaders and in 10 short days redesigned the architecture of the world economy, even as World War II raged. Here globalization was born: the General Agreement on Tariffs and Trade, which in negotiated rounds lowered trade barriers; the World Bank, which funded infrastructure in poor countries; IMF, the financial fireman; and others. The goal: first, lower tariffs and trade barriers, to make trade an engine of growth. America opened its markets, and emerging nations benefited greatly. So did the U.S., in part, by gaining a flood of low-price consumer goods; while losing manufacturing jobs. The world gained, with trade becoming the engine of growth; trade grew twice as fast as world GDP.
The gains for the US from globalization are amorphous, the losses are tangible and identified with specific people and groups. Globalization brought enormous inequality, with a few big winners and a lot of small losers. Nobody found a way to compensate the losers, or even to try. It was a ticking time bomb. (The illustration above mentions ‘inequality’..nowhere). Wealth concentrated in very few hands. And inevitably it exploded. The losers, blue collar workers, low-to-middle class wage-earners, now take their revenge at the polls. Hence: Trump. And that revenge has just begun.
Who gets it? Which of the experts has begun to figure this ‘restart’ out? Start with Larry Summers, Bill Clinton’s Treasury Secretary, former Harvard President, and the nephew of two Nobel Economics Laureates, Paul Samuelson (MIT) and Kenneth Arrow (Harvard). In the New York Times, Summers make these observations:
“This renaissance of nationalism and resistance to globalization appears to be universal, and not the exclusive preserve of either the left or right. It seems to stem from a profound sense on the part of many groups that their lives are buffeted by forces beyond their control. As people’s distance increases in a geographic sense, in a cultural sense, and in the sense of a lack of shared identity, they lose confidence in their leaders’ abilities to protect them. Insecurity is begetting atavism (the reappearance of bad traits that we thought had disappeared). These trends pose dangers. For all the problems and challenges, the past 70 years have been a period of unprecedented progress in increasing human emancipation, prosperity, life expectancy and in reducing violence. All of this would be at risk. We need to redirect the global economic dialogue to the promotion of “responsible nationalism” rather than on international integration for its own sake. … These and other statistics indicate that the United States and Europe are just one recessionary shock away from being caught in a deflationary trap. Japan has been stuck in one for more than a decade, with expectations of decreasing prices prompting consumers to delay spending and save money. Assuring adequate pressure for stimulus needs to become a priority for the Group of 20, to precaution against deflation. The events of 2016 will be remembered either as a point at which we began to turn away from globalization or the one at which the strategies of globalization began to be reoriented away from elite and toward mass interests. As we make our choices over the next few years, the stakes are very high.”
Top priority, for Summers: Prevent a global recession, as Trump pushes interest rates higher (helps the rich make even more money) and this spreads worldwide, and as trade stops growing and with it, GDP.
Implication: In your planning, think about a scenario in which there is renewed global recession. Have you set aside enough? For those who know history: In 1932 the U.S. imposed a tariff on foreign imports, the Smoot-Hawley tariff, bringing retaliation, shrinkage of trade…and ultimately, the Great Recession.