Throwing Globalization Under the Container Ship?
July 15, 2019Last week produced relatively few incendiary tweets about trade and not a lot of news, aside from the French digital services tax and the similar UK proposal, so I’ll take advantage of the void and discuss a bigger picture issue—the state of globalization.
Just as Francis Fukuyama predicted “The End of History” in his essay of that title 30 years ago (and subsequent book), we are now seeing numerous thinkers predicting the end of globalization. The Economist had a cover story last January referring to “slowbalization,” its term for decelerating global market integration. The McKinsey Global Institute released a report several months later that discussed the slowing growth in trade in goods compared to services and increasing localization or regionalization of supply chains. I discussed these findings in an earlier column. More recently, we have a book by Michael O’Sullivan called The Leveling: What’s Next After Globalisation, which takes globalization’s demise as a fact and focuses on what comes next. These pieces raise two questions: are rumors of its death premature and, regardless of the answer to that, what comes next? The one thing that is certain is that something will come next, and we would be wise to prepare for it.
Patty Loveless sang, “Life’s about changing, nothing ever stays the same,” and it should be no surprise this is true in economics as well as real life. Globalization has had a good run, and while, O'Sullivan notwithstanding, it is hardly over, its nature is changing. It has always been enabled by technology—steep declines in the cost of transportation and communication over the past 60 years thanks to containerization and other innovations. The pace of technological change continues and even accelerates but mostly in the digital space, which is transforming the nature of manufacturing and commerce even more dramatically (think 3-D printers, autonomous vehicles, and blockchain). I could do an entire column on how the internet and smart phones enable commerce and make the whole world a potential market to even the smallest businesses. This all moves us toward a more democratic economy in which individual initiative is even more important than it used to be because these advanced tools will be available to and usable by everyone, who will no longer have to depend on middlemen to provide equipment or services. In arguing that globalization is dead, O’Sullivan blames, in part, its perceived side effects—inequality and the dominance of multinational corporations. But I think that is simply saying it is becoming less popular, not that it is going away.
At the same time, in O’Sullivan’s view, the global economy is increasingly organizing itself into three large regions dominated by the United States, the European Union, and China, with peripheral countries struggling to find their place. Most important, the differences between them are not only economic but political—the balance between rights and obligations, freedom and responsibility, and the way societies and governments interact. We can see this very clearly right now in the difference between Chinese and U.S. approaches to their economies and to the internet. The Chinese emphasize order and control and the responsibility of the individual to support the state, and they are busy marketing their approach to developing countries as the one that produces greater and faster growth. The United States defends democracy, individual freedom, and the marketplace, arguing that it might be messy, but it allows the greatest expression of individual liberty and produces better results in the long run.
While there are forces in both countries that would like to push their respective governments in the opposite direction, these are fundamental differences that are neither going away nor converging. The question is whether we are heading for another Cold War as we had with the Soviet Union or something different.
I vote for something different, and, ironically, allegedly dead globalization is the reason why. The Soviet Union spent its entire existence developing autarky. Economic connections with the West were minimal, and there were very few people on either side who had an economic stake in détente. The Chinese case is different. After a long period of emulating the Soviets, China opened itself to the world and has become a major importer as well as exporter. The Chinese government has resisted political change every step of the way, but it has welcomed economic change resulting in global connections all over the world and millions of people with a stake in maintaining those connections. China will do its best to control those connections via its Great Firewall, but I expect technology to stay one step ahead of the censors in what will be an endless cat and mouse game.
China will also do its best to market its system globally, and there will be no shortage of interested authoritarian leaders, particularly those with a large Chinese debt burden. The United States is behind in that game because of more limited resources and our president’s lack of interest in building coalitions and penchant for annoying our friends, but with the right policies, we could catch up.
Also, thanks to globalization, the world is not the bipolar place it was in the 1950s and 60s. The European Union is a significant economic and cultural force. Other developed countries like Japan, South Korea, Australia, and New Zealand matter, as do other emerging economies like India, Brazil, and South Africa. So, what comes next is not a G2 or even a G7 but something at best like the G20 or at worst a G0, Hobbesian every-country-for-itself world where might may not make right but where it will likely prevail. Our president might welcome that in the mistaken belief that we will win in that world, but our current experience with China and the European Union suggests "winning" is much harder than he thinks and that we abandon globalization at our peril.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
© 2019 by the Center for Strategic and International Studies. All rights reserved.