This post was written in collaboration with the team at C³. Learn more about C³ at the end of the post.
Our work is not meant to serve as an all-inclusive summary on the topic, but instead is meant to serve as a starting point for thinking and learning about it. We outline important factors to consider as you form your own opinion rather than trying to push you in one direction or another
Structuring the topic
National versus international
- Over the last few decades, inequality between nations has been rapidly falling whilst inequality within nations, both rich and poor has been rapidly rising. This simple fact means, when considering how one would address the ills of globalization, it is vital to consider whether the scope is the entire world, or only one nation such as the US for example. This is vital, changing this scope, would radically redirect any discussion on the matter, and not agreeing on a scope would result in endless back and forth, with individuals speaking past each other. Defining the scope, national versus international, is a debate on its own – a national scope is more realistic and an international one, more philosophical.
Private vs public actors
- Are we more interested in the roles of public or private actors? It is much easier for a national government to constrain the ability of a business than it is for a multilateral institution to constrain the ability of a local government, and hence business.
Key issues and implications
- Globalization as we know it is an ideology that was born at the end of World War II. It started being diffused in the global economy thanks to an international “system” put in place through the Bretton Woods Agreement and its likes.
- This system, designed for developed nations, established the rules for financial and commercial transactions among these nations expanding to include developing nations.
- The goals of the system was to lower barriers to international trade, slash tariffs, make countries more hospitable and more “competitive” for businesses. This too often meant lowering labor costs and led countries in a “race to the bottom.”
- The recent anti-globalization wave creeping into politics is merely rekindling small flames from two decades ago. In 1997, Harvard economist Dani Rodrik, already published a book Has Globalization Gone too Far? And anti-globalization protests date back as far as the late 90s.
- Many see limiting immigration as protecting their quality of life – Trends such as this are common in Australia and New Zealand, where people tend to emphasize quality of life over economic gains.
- However, others fear that this is simply a mask for racism and anti-immigration sentiment. Australian Economist, Nicholas Biddle, found that people living in areas most strained by population growth were not the ones pushing anti-immigration rhetoric – hence supporting the argument of masking racism.
- A potential reason for the anti-globalization movement gaining more traction today, is because economists had previously underestimated, social costs of free trade and they are starting to come to light. Further, it may be that social issues are valued more highly today.
- Opinion polls show that anxiety and insecurity are on the rise as workers’ jobs are being displaced abroad. As Rodrik puts it – economic integration creates social disintegration. The key for anyone partaking in this debate is assigning weights to economic integration and social disintegration. Good luck!
- Anti-globalization sentiment is creating a clear movement towards well-being and away from economic growth. For decades economists have praised GDP growth as the ultimate goal; however, more and more economists have come to reject its ability to act as a measure of well-being.
- Economically, the net effect of globalization has been a net positive. The key is about the winners and losers that emerge in the process.
- As Columbia economist Jagdish Bhaghwati puts it – “Freer trade is associated with higher growth, and higher growth is associated with reduced poverty. Hence, growth (achieved through freer trade) reduces poverty. They key to supporting or undwinding Bhagwati’s argument is defining one’s scope. Supporting a global scope would stand by Bhagwati’s analysis but choosing a local one, would render the argument somewhat useless.
- Globalization lacks flexibility. The agreements that shape it do not take into account the realities of each country. Contemporary globalization is a one-size-fits-all capitalistic solution.
- Democracies have the right to protect their social arrangements. However, if the goal of a country is to encourage globalization, when this right clashes with the requirements of the global economy, it is the latter that should give way.
- A thin layer of international rules that leave substantial room for maneuver by national governments is a better globalization. As Dani Rodrik puts it, we need smart globalization, not maximum globalization.
- Hyperglobalization is not feasible, as any system must account for differences in preferences across regions.
- What is needed are traffic rules (rules of international governance) that help vehicles (nation-states) of different shapes and sizes and travelling at varying speeds navigate around each other, rather than impose an identical car or uniform speed limit on all. We must strive for globalization that maintains space for diversity in national institutional arrangements. Provided that the traffic rules are right, the world economy can function quite well with nation states in the driving seat.
- It requires us to accept the existence of a fundamental political trilemma between democracy, national determination, and economic globalization. One cannot be pushed further without impeding the other two.
- Although many may believe globalization is taking over the world, according to Ghemawat and Altman from NYU Stern, in absolute terms, market integration remains limited.
- Foreign operations of MNCs only generate 9% of world GDP.
- Exports account for only 29% of world GDP, down to only 20% if we account for the same goods crossing multiple borders.
- Contemporary globalization can be credited for the rise of a global “emerging middle class.” However, in absolute terms, over 50% of the gains have gone to what is commonly called “the 1%” – half of whom are based in the US.
- Unlike national markets which are regulated and supported by somewhat strong political institutions, global markets are still evolving and weak. There is no global stock market, no global antitrust authority, no global lender of last resort, no global regulator or global safety net.
- Many anti-globalizers think all a firm must do is expand abroad and free money starts pouring in. As the numbers above suggest, it is not that easy, otherwise global trade and business would account for more.
- Succeeding across borders and distances is still much tougher than winning at home. Think of the considerations that any MNC operating in the US and China has to consider before they can launch any product or marketing campaign. There are people and political regimes waiting to be offended by every move. Polarizing politics within countries, such as we see in the USA today, makes it even more difficult as the number of considerations only rise.
- However, this difficulty means that there are increased rewards for companies that find ways to overcome these huge challenges.
- Job losses, stagnating nominal wages and declining real wages in recent decades are primarily due to automation and globalization – the exact role of each is unclear and different economists argue for both sides.
- Economists such as Krugman say that globalization is responsible for far more job losses and lowering of wages than he originally anticipated.
- On the contrary – Ghemawat and Altman suggests that because the USA is the ‘rich’ country that imports the least relative to the size of its economy, its inequality (near the highest), cannot be blamed on free trade and globalization.
- However, one should not simply label globalization because of its impacts on jobs. As Christine Lagarde puts it – “to say that globalization is bad because it destroys jobs is a very short cut for something that needs far more analytical work and understanding”.
- Nationalism still prevails.
- According to one survey, Americans would be much more supportive of a hypothetical trade policy that adds one job in the US at the expense of 1000 lost abroad than a policy that sacrifices one job in the US but creates 1000 abroad.
- The biggest winners of globalization are likely to be the companies that learn to embrace globalization’s complexity.
- Rather than solving globalization, let’s find ways to mitigate its impacts:
- Retraining workers who are displaced (see Future of Work)
- Redistribution of wealth through a welfare state
- Globalization should be an instrument for achieving the goals that societies seek, which today overwhelmingly appears to be quality of life and stability.
- A one-size-fits-all way to achieve globalization will not work. Trade agreements need to do away with the idealistic ideology of a global democratic world and, instead, deal with the realities present in the nation-states joining those agreements.
- Trade agreements could consider a smart redistributive tax to decrease the wide gap in wealth generated by our current free trade system.
- Dani Rodrik – The Globalization Paradox
- Intro: Recasting Globalization’s Narrative
- Chapter 11: Designing Capitalism 3.0
- Globalization | The State of Globalization in 2019, and What It Means for Strategists, HBR report
- WEF: Davos Perspective
- Globalisation: the rise and fall of an idea that swept the world
C³ – Critical Creative Collaboration
This post was written in collaboration with the team at C³.
Who: We are a diverse community based in New York City.
What: At its simplest form, C³ functions as an idea club. Every month we dig into a curated list of books, journals, articles, podcasts and documentaries focused on a core idea. We come together for a day of fruitful conversation and collect all our most insightful discoveries in a single post that we share here with you.