Is “economic globalization” worth saving?
The endings of periods of sustained globalization have been dangerous times: the Napoleonic Wars; the First World War. Globalization has its good points and bad points. Its good points have been the dramatic changes in the prospects for sustained economic growth in India and China and the pace at which people have been pulled out of extreme poverty and the relative cheapening of production. Its bad points have been the dramatic increase in inequalities in countries where previous policy has been built around the notion of avoiding huge differences in income and the growth of pollution and waste together with the unevaluated spread of western consumption practices. Some argue that the greatest threat to the world economy is the possibly irresistible rise of protectionism. Some might feel that a pause in the reckless development of China or in the destruction of communities by international economic forces beyond their control are good things, allowing time to reflect on the environmental and social impact of the global economy. Leaders are face with a choice of doing nothing (already rejected but still supported by right wing libertarians); doing something to stimulate demand (though the outcomes are uncertain); protecting that stimulus package in-country by protectionist methods (probably very attractive in the short-run); going for global coordination (difficult to achieve).
Accepting the situation and pausing to rethink looks an attractive proposition at first sight. The potential problems with this idea are huge. In the developing world, many countries have young and growing populations. Some of these countries such as Pakistan are of huge significance and the balance of forces between instability and stability is not assured on the side of stability. Increased unemployment could tip the balance. World-wide unemployment has surged. In this sense there is a pause but major and prolonged economic slumps lead quickly to political instability. If this is going to be as long and as bad as the 1930s, when many countries abandoned democracy, then there are likely to be other significant political consequences. Even capitalists abandoned the market in that period. A demand for protectionist policies to ensure that stimulus policies have the highest possible domestic effect may be inevitable. NAFTA is already strained with respect to Mexican-US transportation arrangements. It is a question of what members of a polity see as the relevant community: the national or the international. Prolonged unrest in strategically significant countries, such as Pakistan or Mexico, will not help the cause of recovery anywhere.
Globalization was in difficulty even before the financial crisis. The promise of the Doha Round to prevent further protection and free-up agricultural trade, withered, lingered and eventually died. There was already a protectionist mood abroad, not only in emerging economies but in the U.S. Congress. Economic policy, like the so-called economic science itself, is contingent on historical circumstances. Economic regulation was out for a long time, now it is back. It is hard to see what the right thing to do is. The British government is seeking to develop another package of measures. The Bank of England is not so sure. Obama’s policies have been criticized by some European politicians though it is denied that there is an EU/US split. It is hard to see how the Unted States can avoid massive inflation down-the-line. There is an intellectual as well as a political confusion. It is hard to see how protectionism can be avoided if national economies try to re-establish growth through stimulus measures. The leakages are enormous. Open economies do not respond well to Keynesian-type policies and current circumstances are not routine.
We will need to wait to see how the G20 meeting will handle the issues. The British Prime Minister, Gordon Brown, has pushed the global line vigorously but even with the EU there is no consensus line. He will need to work hard if he is to get anywhere.