Is Globalization Passé?
Assume you left planet Earth for the outer space six years ago and just returned home. You would find the situation stunning. People back then held for certain that globalization was the name of the new world order, or to use Thomas Friedman's forceful image, that the world was getting flat. This view was initially vindicated by the initial response to the global crisis. In contrast to what happened in the 1930s, protectionist temptations were contained and the initial collapse of global trade was quickly reversed. It even seemed for a moment that the crisis had triggered a permanent upgrade of international economic cooperation. A few years later, however, globalization optimism has been dented by a series of developments.
Start with global trade. Prior to the crisis, it was expanding about twice as fast as global output, and producers the world over were busy developing global value chains that rendered meaningless the very notion that products were “made in" somewhere. According to the Dutch CPB's World Trade Monitor, however, since the end of 2007 global trade volume increased by 2 percent per year only – barely more than world industrial production, against 6 percent in the decade to December 2007. True, there has been no protectionist surge. But the momentum has been lost.
The slowdown of global trade is nothing compared to the retreat of global finance. The early 2000s witnessed a dramatic acceleration of cross-border financial flows. It was especially strong in Europe where the combination of financial liberalization and monetary union rendered capital much more mobile across borders, but the trend was general. In 2008-2009 international capital flows decreased by more than half and they have not recovered since. For the once-mighty global banks, the crisis was a wake-up call. They realized that they depended more than they thought on being able to access a national central bank's liquidity window and a national treasury's capital support. They were, as economist Charles Goodhart said, “global in life, but national in death."
Migrations were never liberalized and the data is poor, which makes it difficult to track the recent evolution of peoples' flows. But in Europe at least, the evidence points toward increasing restrictions to international labor flows. As discussed in my previous column recent policy inflections in Switzerland and Britain suggest that in several countries apprehensive voters tend to ask for less immigration.
Facts, therefore, highlight new fragilities in the process of globalization. What about global the institutions that are supposed to support it? They offer a mixed picture to say the least.
The World Trade Organization is not anymore the place where the rules of international trade are being written. The Uruguay round of international trade negotiations was completed two decades ago and agreement on a new round has been on the agenda since the WTO conference in Seattle in 1999. The Doha round that was launched in 2001 has only delivered partial and meager results. Rather, important negotiations take place at bilateral and regional level.
On the finance side, international institutions are certainly stronger: the Financial Stability Board created in the aftermath of the 2008 shock and the Basel Committee on Banking Supervision, which includes most relevant players, have proved instrumental in revising the global financial rulebook. But national regulations introduced in response to the financial crisis are only partially coordinated. As regards some key dimensions, such as the separation between investment and retail banking, choices differ from one country to another. Furthermore, the International Monetary Fund, which used to be the linchpin of the global financial order, is being weakened by the combination of a massive involvement in Europe and reluctance by the U.S. Congress to ratify reforms agreed in 2010 to adapt the fund's means and governance structure.
Finally the G20 has disappointed. It started well in 2008-2009 and succeeded in coalescing efforts to restore financial stability, resist protectionism and foster growth. But having failed to coordinate post-crisis policies and to introduce major international reforms, it quickly lost effectiveness thereafter.
Suddenly, globalization looks more vulnerable than the unstoppable train it seemed to be before the crisis. Economically, it is still alive but it lacks momentum. Institutionally, it does not rest on strong underpinnings. And politically, it has lost part of the support it used to enjoy in the very countries that invented it in the first place – the United States and to a lesser extent Europe.
Most countries still have much to gain from an open global regime. Indiscriminate, across-the-board liberalization is not the panacea its supporters pretended it to be, especially as regards capital flows, but a stable and well-designed system of multilateral rules is needed if participants in international trade and finance are to reap the benefits of globalization. The problem, however, is that as things stand nearly everybody would prefer to free ride, rather than to endorse responsibility for delivering results. The United States does not see itself anymore as the benevolent hegemon of the world economic order; Europe is too preoccupied with its internal problems to show leadership; China does not consider itself a rich enough country to play the role its partners would wish it to play; and smaller players such as Japan and India focus more on their own interests.
We are at the eve of a new and promising age of globalization in which emerging and advanced countries will play much more balanced trade and financial roles. For this to happen, however, more involvement of the main emerging players in the governance of the global regime is indispensable. China, for sure, would have wished this moment of truth to come later. As often in history, however, it may have to step in earlier than hoped.
Jean Pisani-Ferry teaches at the Hertie School of Governance in Berlin, and serves as Commissioner-General for Policy Planning in Paris. He is a former director of Bruegel, the Brussels-based economic think tank.
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