Is Globalization Retreating?

Stephen DeAngelis

January 10, 2011

For its first “big question” of the year, the Financial Times asked a number of pundits: “Is globalisation on the retreat in 2011?” [3 January 2011] This is a question that has cropped up for the last several years and, apparently it is a question that cannot be answered definitively. That, of course, does not stop pundits from offering their opinions. Gideon Rachman provides his description of what defines globalization and then suggests that globalization could be in trouble. He writes:

“Globalisation involves the erosion of national barriers to the free flow of goods, capital and people. That process has accelerated during the past 30 years, as international trade, cross-border investment and migration have all boomed. But the pressure to reimpose barriers in all three areas is now growing in advanced economies.”

I believe that Rachman’s definition of globalization is a bit restrictive. It certainly captures the basics, but the Wikipedia definition is more inclusive:

“Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence. However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors. The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation.”

Rachman doesn’t declare globalization in retreat but he does believe it is threatened. He concludes:

“Globalisation prospered and took root during a period when all the world’s major powers were experiencing strong economic growth. It is threatened by a new world, in which emerging powers are palpably doing much better than the established economies of the west. The threat to globalisation will grow unless and until there is a co-ordinated global recovery.”

Joseph Stiglitz, an economics professor at Columbia University and a Nobel Laureate, agrees with Rachman that the pressures that could stanch the advance of globalization are real and growing. He writes:

“Emerging markets are already responding to unwanted funds with capital controls, taxes on capital gains, exchange rate interventions and lower interest rates. The result? More uncertainty in financial markets, greater fragmentation of capital markets, and a marked reversal in globalisation.”

It seems hyperbolic to me to declare that there has been “a marked reversal in globalisation.” I do agree with him, however, when he asserts that “globalisation’s cheerleaders will … face an increasingly hard time.” Peter Mandelson, a former European Union Trade Commissioner, recognizes that reversal is possible, but he isn’t ready to declare retreat yet. He writes:

“There were genuine fears that the global downturn would provoke 1930s-style protectionism. This has not happened: global leaders stood by their commitment to keep borders and trade open. If it continues to rebound at current rates, world trade by volume will recover to 2008 levels by 2012, after collapsing in a way unseen since the second world war. The rules-based system, centred on the World Trade Organisation, has proved its worth.”

Mandelson believes that most political leaders will eventually wake up to the reality that “it is no coincidence [that the era of globalization] has also seen history’s greatest increase in global prosperity.” One of the reasons that globalization is likely to continue to advance is technology. The information age has unleashed a genie of connectivity that simply can’t be put back into the bottle. As one might expect, Eric Schmidt, chairman and chief executive of Google, agrees that technology now defines globalization more than governmental policy. He writes:

“In this global era our real enemies are inflexibility, proprietary systems, and ‘walled gardens’ that let the elite in, but leave the rest out. Governments around the world will continue to raise barriers to growth in 2011. But this only means we must work harder to maintain the free flow of information, promote new trade agreements, and uphold the openness of the internet.”

Schmidt asserts that most opponents of globalization (whom he says include “traditional manufacturers and farmers) “assume trade and globalisation are zero-sum games.” He goes on to note that “the evidence suggests otherwise.” Globalization has created an enormous amount of wealth. In a zero-sum game, no wealth is created and participants vie for a share of a fixed amount. He concludes:

“History has shown a correlation between the amount of information available to the average citizen and economic growth. … So while I plead guilty to being a shameless optimist, it’s an optimism born from facts. … So let’s not spend 2011 fretting about whether the wave of globalisation should be reversed. It shouldn’t. Instead let us build the next economy –- one based on education, sharing information, adapting technology to work with many cultures, and constant exposure to new ideas –- giving everyone access to the opportunities currently enjoyed by the few.”

One could argue that globalization must be looked at through at least three lenses: a governmental lens; a commercial enterprise lens; and an individual lens. Most of the points be made in favor of globalization’s retreat are being seen through the governmental lens. I believe the picture looks much different through the other two lenses. Schmidt, looking through the commercial enterprise lens, sees an army of companies fighting bad policies and growing xenophobia. Nandan Nilekani, the former Chief Executive of Infosys, looks at globalization through the individual lens and sees personal growth rather than retreat. He writes:

“Globalisation might pause briefly in 2011, but it cannot be reversed when many billions of Indians and Chinese want it. Any country opting out of this new global game does so at their own risk.”

My colleague Tom Barnett has noted in his Globlogization: “We’ve had globalization based on greed, which I happen to believe in.” He goes on to note that the current concern, the one seen by Rachman and Stiglitz, is “deglobalization based on fear.” In an article for World Politics Review, Tom wrote:

“This fear-filled perspective was hardly limited to the margins. The Wall Street Journal cited the ‘danger of turning inward,’ while the Economist bemoaned that ‘the integration of the world is in retreat on almost every front.’ The Washington Post likewise cited ‘a global economy in retreat,’ and the New Republic warned, ‘If you thought globalization was destabilizing, just wait to see what deglobalization will do.’ In the words of author Walden Bellow, widely credited with coining the term ‘deglobalization,’ globalization was ‘terminally discredited.'”

Tom, like Nilekani, doesn’t believe that globalization is in retreat. Like any movement, globalization will move in starts and fits. Sometimes it will race ahead and sometimes it will slow its advance; but advance it will. Although Tom believes that globalization will continue to be fueled by greed, Nilekani sees a future for globalization based on hope. Those are not mutually exclusive viewpoints since the hope Nilekani sees is based on having a better life (which means more money and more things). In my experience, hope usually trumps fear. Nilekani concludes:

“Even greater opportunities will come from an explosion in Asian consumption. This year China will continue to invest in infrastructure, while Indian spending on highway networks and urban corridors is beginning to take off too. But at the same time rising personal incomes and spending will create huge growth opportunities in markets like detergents, cars and security spending. Developed nations exporting in these areas will see revenues and job creation jump. Perhaps the most unpredictable factor, but also that which holds greatest promise, is the impending global movement of technology and ideas. India and China face huge challenges in building liveable cities, managing climate change, and delivering governance and services on a huge scale. These also need to be tackled quickly, so both countries are seeking solutions that can be rapidly deployed, and are scalable, frugal and energy-efficient. This offers major opportunity for developed and developing nations to exchange ideas. In time, solutions built for developing countries will be applied back in the industrialised world – a new cycle of innovation that can drive the next phase of global growth.”

None of the pundits noted above, even those who see globalization under threat, unequivocally believe that globalization will go into full retreat during the coming year. If the global economy continues to recover, globalization may, in fact, gather new momentum.