Beyond the rancor and taunts heard at last month’s Republican National Convention, something even more ominous could be heard: the last rites for globalization. To adoring hoots, Donald Trump, the party’s presidential nominee, denounced US participation in international trade deals, and the foreign policy he sketched would pull the plug on the entire US-led liberal international order within which globalization has flourished. Should Trump enter the White House, globalization would not undergo a retreat; it would suffer a rout. Half a world away, G20 finance ministers met almost simultaneously in Chengdu, China, where they made revitalizing globalization a priority for 2016/2017. The fact that all of the major advanced and emerging economies fear for the future of global openness suggests the degree to which surging support for populist challengers has imperiled existing rules and structures. For many Project Syndicate commentators, globalization seems trapped in a pincer movement: assailed from one direction by those who claim that it has created a reserve army of economic losers lorded over by a small cadre of winners, the infamous 1%; and besieged from the opposite direction by unscrupulous politicians who, feeding on economic resentment, attack it in the once discredited language of nationalism, of blood and soil, of herrenvolk.
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Beyond the rancor and taunts heard at last month’s Republican National Convention, something even more ominous could be heard: the last rites for globalization. To adoring hoots, Donald Trump, the party’s presidential nominee, denounced US participation in international trade deals, and the foreign policy he sketched would pull the plug on the entire US-led liberal international order within which globalization has flourished. Should Trump enter the White House, globalization would not undergo a retreat; it would suffer a rout.
Half a world away, G20 finance ministers met almost simultaneously in Chengdu, China, where they made revitalizing globalization a priority for 2016/2017. The fact that all of the major advanced and emerging economies fear for the future of global openness suggests the degree to which surging support for populist challengers has imperiled existing rules and structures.
For many Project Syndicate commentators, globalization seems trapped in a pincer movement: assailed from one direction by those who claim that it has created a reserve army of economic losers lorded over by a small cadre of winners, the infamous 1%; and besieged from the opposite direction by unscrupulous politicians who, feeding on economic resentment, attack it in the once discredited language of nationalism, of blood and soil, of herrenvolk.
More Pain than Gain
For most middle-class people in most developed economies, the last four decades of economic globalization pale in comparison with les trente glorieuses, the 30 post-war years of ever-rising living standards. According to University of California, Berkeley’s Laura Tyson and Lenny Mendonca of the Presidio Institute, the root cause of disappointment with globalization is clear: “From 2005 to 2014, the real income of two-thirds of households in 25 developed economies was flat or fell. Only after very aggressive government intervention in taxes and transfers have some countries been able to hold families at least even.”
Nobel laureate Joseph Stiglitz paints an even grimmer picture. “Median income for full-time male workers” in the US, he points out, “is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago.” And it’s not just incomes that are moving in the wrong direction. “The effects of the economic pain and dislocation,” Stiglitz continues, “are even showing up in health statistics” – specifically, declining life expectancy among some non-Hispanic whites. For the United Nations’ Jomo Kwame Sundaram and Vladimir Popov of the Russian Academy of Sciences, the unvarnished truth is that “developed countries should not expect further gains from the process of globalization.”
Income stagnation in many developed countries is a direct result of what Yale’s Stephen Roach calls “the globalization disconnect.” While “seemingly elegant in theory,” Roach says, “the lesson of Brexit and of the rise of Donald Trump” is that “globalization suffers in practice. In fact, the theory of globalization itself hasn’t advanced much since the early 1800s.”
The Anatomy of Anti-Globalization
For former Costa Rican trade minister Anabel González, globalization’s political vulnerability stems from the difficulty of implementing “policies which will ensure that all people – in developed and developing countries – reap the benefits.” But Andrés Velasco, Chile’s former finance minister, asks a fundamental question: given that US wages have been stagnating since the 1970s and unemployment in Europe was persistently high for long periods in the 1980s and 1990s, why is globalization coming under assault now?
The reason, he argues, “has everything to do with politics”:
Elites in Western countries discredited themselves by permitting the financial excesses that helped trigger the Great Recession and by being slow – particularly in Europe – to deal with the social consequences. Next they underestimated the effect that unfettered migration and the perceived weakening of the nation-state would have on the sense of “us” – the people with whom we share a destiny and of whom we ask sacrifices (one of which is paying taxes).
Former Greek finance minister Yanis Varoufakis agrees. “What we are experiencing,” he says, “is the natural repercussion of the implosion of centrist politics, owing to a crisis of global capitalism in which a financial crash led to a Great Recession and then to today’s Great Deflation.” In “drawing upon the righteous anger and frustrated aspirations of the victims to advance its own repugnant agenda,” the populist right has formed “a nationalist international – a classic creature of a deflationary period – united by contempt for liberal democracy and the ability to mobilize those who would crush it.”
Harvard’s Ricardo Hausmann adds a crucial dimension, arguing that populist forces – whether in the US, Venezuela, or Europe – succeed only when they anchor their programs in an alternative mental universe. Citing the example of the seventeenth-century Salem witch trials, he notes that, “Whether policies sound crazy or sensible depends on the conceptual paradigm, or belief system, that we use to interpret the nature of the world we inhabit.” Thus, just as “Venezuela’s chavismo blamed inflation and recession on devious business behavior,” Trump’s supporters inhabit a mental universe where “the US is led by weaklings who are being exploited by savvy foreign powers, masquerading as allies. Free trade is a Mexican invention to take away American jobs. Global warming is a hoax invented by China to destroy American industry.”
It is also a mental universe in which globalization is equated with terror. “If people feel that their leaders are failing to protect them,” the French geo-strategist Dominique Moisi argues, “they may turn to more radical alternatives” and “may even decide to take the law into their own hands.” The specter of vigilantism underscores a fundamental point made by Ngaire Woods, dean of Oxford’s Blavatnik School of Government, about rising support for populist parties and candidates. “The message to the establishment is clear: we don’t trust you anymore” – not to secure our economic wellbeing; not even to protect us.
And, as Jean Pisani-Ferry, Commissioner-General of France Stratégie, would add, “We don’t trust your experts, either.” Indeed, suspicion of those with specialized knowledge is not limited to economic policy. Pisani-Ferry reports a remarkable finding by the French sociologist Gerald Bronner: “education neither increases trust in science nor diminishes the attraction of beliefs or theories that scientists regard as utter nonsense.” This, Pisani-Ferry argues, is obviously “a cause for deep concern,” and not only because dysfunctional beliefs can lead to economic disaster: “Representative democracy is based not only on universal suffrage, but also on reason.”
The Price of Mud
Irrationality and fear mongering are not cost-free. Nobel laureate economist Robert Shiller suggests that some of the “stories circulating today – related to growing nationalism or fear of challenges by immigrants to traditional cultural values – might underpin greater hesitation” to invest. Whether that could “bring on another worldwide recession” remains uncertain; but the very possibility of such an outcome implies that “we should not shrink from considering how such fears are affecting economic decision-making.”
Consider Britain and Europe in the aftermath of the fear-induced Brexit vote – the populists’ lone triumph so far. Although the immediate impact has been less severe than anticipated, NYU’s Nouriel Roubini sees “plenty of reason to worry about Europe and the eurozone.” Perhaps most important, an “ugly divorce” could roil markets and “lead Scotland and Northern Ireland to leave the UK,” fueling secession movements elsewhere. And the other non-eurozone EU members, Denmark and Sweden, could “fear that they will become second-class members of the EU, thus leading them to consider leaving as well.”
Britain’s choice about what sort of Brexit to pursue will also have a profound impact. “A ‘hard’ Brexit,” says Princeton’s Harold James, “would entail the severing of all existing links between the UK and the EU: no more contributions to the common budget and an end to free labor mobility.” By contrast, “a ‘soft’ Brexit would reflect the view that the UK is still a part of Europe, and that Britain still has much to gain from close EU ties.” The latter course, in James’s view, “is the UK’s better option,” reflecting “the triumph of a realistic worldview over a self-defeating perspective underpinned by an implausible notion of sovereignty.”
The presence of leading Brexiteers in Prime Minister Theresa May’s new cabinet would seem to make the “better option” unlikely. But Anatole Kaletsky of Gavekal Dragonomics goes even further. Instead “of rushing Brexit,” he argues, “Europe’s leaders should be trying to avert it, by persuading British voters to change their minds.”
With opinion polls showing overwhelming public support for a “soft” approach, and with the new government holding only a “slender parliamentary majority” that “depends on disgruntled ‘Remain’ rivals,” Kaletsky thinks “the EU could advance this strategy by calling May’s bluff on ‘Brexit means Brexit.’” That means “telling her that only two outcomes are possible: either Britain loses all single-market access and interacts with Europe solely under World Trade Organization rules, or it remains an EU member, after negotiating reforms that could persuade voters to reconsider Brexit in a general election or a second referendum.”
Some Call It Treason
Populists like Trump and Boris Johnson, a leader of the UK’s “Leave” campaign and now the British foreign secretary, portray themselves as...