This Week’s Mtg: Globalization’s Future, Part I

Since this week’s topic is important but kind of technical, I thought I’d do several background posts.  This one will explain what is meant by globalization.  Part II will cover benefits and costs of globalization, with LINKS.  FYI, you’ll find me more in the middle on this topic than on many others.

What Is Globalization?  A “globalized” world economy means that what were once local or at most national markets have become integrated into a single market.  In this age of hyper-globalization (not a criticism, just a fact), most everything a person in this country can buy, sell, invest in, or make comes from a single, worldwide system of production and distribution.  This is because the barriers to moving goods and money (investments) across national borders have been so reduced that businesses can manufacture things wherever it is most cost-effective and sell them wherever people are able and willing to pay for them.   By barriers to trade/investment, I mean not just obstacles imposed by governments, like tariffs and regulations, but also obstacles caused by the lack of government, like poor infrastructure and an absent rule of law.

How “Complete” Is Globalization?  Very.  “Free trade” and “free investment” (not costless, of course, but free of government interference) is the rule.  Supply chains are global for most everything, and investment, whether in factories or in stocks and bonds, flows around in vast amounts mostly unfettered by governments ior politics.  Also, things related to trade, such as finance, insurance, and intellectual property rights, have been globalized in a similar way, by being liberalized and brought under trade rules.

How Did This Happen?  Obviously, rapid advances in technology, such as in communications, finance, and transportation, played an enormous role, as did revolutions in business practices and rising consumer wealth.  So, to some extent, globalization was a “natural” processes driven by human ingenuity and Adam Smith’s invisible-ish hand

But, it’s very important to understand that government played – and had to play– a key role.  Globalization cannot occur without active, strong government.  The obstacles to integrating markets across dozens of different countries and cultures across great distances are just too large without an enforceable system of rules, physical protection, and other things only governments can provide.  Thus, globalization of markets has also globalized governance.  We see this in the many transnational government and quasi-government organizations, such as the World Trade Organization, the International Monetary Fund, and dozens of others you’ve never heard of.

Did It Have To Happen This Way?  No.  Before the 1990s, the rules of globalization were looser and more flexible.  Under GATT and the Bretton-Woods Agreements (more later), different countries could and did create very different successful economic models based on different degrees of integration with the global economy.  Some were very open to trade and/or were low-tax, low government-service economies, like the USA and Hong Kong.  Others built big social welfare systems, like Scandinavia.  Other paths to rising prosperity were more closed to outside economic competitors and depended heavily on government industrial policy, such as India and China., and the Asian “tigers.”

In other words, what most people call “globalization” is really “Globalization,” with a capital G.  Capital G Globalization refers to the particular version of it that we implemented.  As I’ll explain in more detail tomorrow, since the early 1990s we’ve been operating under a rather ideological version of globalization, usually called The Washington Consensus or Neoliberalism.  It emphasized opening up all areas of all countries’ economies to the maximum extent possible, on the theory that the benefits of more liberalization would always outweigh the costs.  A kind of one-size-fits-all approach, sometimes imposed on countries.  Other things that could have been regulated at the global level — like human rights, labor rights, and environmental impacts – were left out of the framework.  Neoliberalism’s hyper-Globalization may have been the best way, but it was not the only way.

What Are The Costs And Benefits – and to whom — of Doing Globalization This Way?  That’s tomorrow’s post and TH discussion.  The only points I’ll make here is that:

1.  We Can’t Go Back —   IMO, the benefits are too large, and the political power of those who do benefit (not just big corporations, but regular people, whether they see it or not!) to consider seriously going back to, say, pre-WWII protectionism, closed-off capital markets, or autarky.

2.  It’s Not About “Pro-G” Versus “Anti-G:”  It’s about where we go from here.  Criticizing capital G Globalization is not Luddite.  It is entirely fair to ask, (1) whether the current version of globalization is sustainable given how brittle and subject to meltdowns it has become; and (2) whether the system’s rules should be changed to accommodate other social values beyond squeezing as much growth as possible out of the little bit of market liberalization that is left to accomplish regardless of the costs.

TOMORROW:  More on what we’ve learned from recent experience about the costs and benefits of the globalization we’ve built, including questions of fairness across nations and within them (like here in the USA).

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