The End of Globalization as We Know It

Nobody knows what globalization will look like in the future, but globalization as we have understood it so far is over. Decisions made today in monetary, fiscal, energy and health sectors will reveal whether the present paradigm, based on economic integration, can be substituted with a process focused on managing the global commons.

For most people, globalization has for decades been another name for across-the-board liberalization. Starting mainly in the 1980s, governments allowed goods, services, capital and data to move across borders, with few controls. Market capitalism triumphed, and its economic rules applied worldwide. As the title of Branko Milanovic’s latest book points out, capitalism was finally alone. Globalization, obviously, was not exclusively triggered by liberalization. The fall in transport costs has been staggering. And as Richard Baldwin pointed out in his illuminating book, The Great Convergence, the collapse in the cost of communications has played an even bigger role, because it made it possible to “unbundle” design and production, as well as successive production stages of the same good. It ushered in the emergence and development of global value chains. 

There were also other aspects of globalization that bore little relation to market capitalism. The globalization of science and information broadened access to knowledge in unprecedented ways. Through increasingly international civic action, climate campaigners and human-rights defenders coordinated their initiatives as never before. Meanwhile, governance advocates argued early on that only the globalization of policies could balance the forward march of markets. Global problems, it was said, required global solutions – be they macroeconomic initiatives, supervisory cooperation, a global competition policy, or tax coordination.

But these other sides of globalization never measured up to the economic dimension. The globalization of policies was especially disappointing, with the 2008 financial crisis epitomizing how governance of the global financial system had failed.

The end of an era

This phase of globalization is now ending, for two reasons. The first is the sheer magnitude of the challenges that the international community must tackle, of which global public health and the climate crisis are only the most prominent. The case for joint responsibility for the global commons has become indisputable. Achievements here have been meager so far, but global governance has won the battle of ideas. On climate, for example, few continue to dispute the reality of man-made warming and the urgency of action. The days are long gone when John Bolton (who would later become UN Ambassador under George W. Bush and National Security Advisor under Donald Trump) could dismiss global governance as a plot against national sovereignty.

The second reason is political.

Country after country has witnessed a rebellion of those “left behind”, from Brexit to Trump’s election to the French “yellow vest” protests. Each community has expressed unhappiness in its own way, but the common threads are unmistakable.

As Raghuram Rajan has put it, in his book The Third Pillar, the world has become a “nirvana for the upper middle class” (and of course the wealthy), “where only the children of the successful succeed.” Those left out increasingly end up in the nativist camp, which offers a sense of belonging. This calls into question the political sustainability of globalization.

The debate is not fundamentally an economic one (though it has economic dimensions). Economists may continue to discuss whether trade, technology, migrations, or domestic policies have been the main driver behind the rise in economic inequality, yet they generally agree that globalization has increased incomes and boosted development. Nevertheless, in many advanced countries, globalization and openness have lost the political argument.

Differences between the stance of the Biden administration and that of previous democratic administrations illustrate the point. Since Bill Clinton’s presidency in the 1990s, Democrats have offered only two solutions to workers who have been left behind: education and social benefits. As The Atlantic’s Ronald Brownstein recounted in May 2021, Clinton’s mantra was “What you learn is what you earn.” He and Barack Obama strongly believed that more and better education was the best way to deal with the labor market upheavals brought about by digitalization and globalization.

Workers, however, do not agree. They do not want to live on welfare, nor do they want to be sent back to school. Rather, they want to keep the good jobs that have long provided them with incomes and a sense of pride.Trump won in 2016 also because he understood this sentiment and exploited it to win the working class vote in key swing states.

And it’s not just America. Everywhere one looks, the left has lost the working-class vote. In the United Kingdom, Prime Minister Boris Johnson has conquered Labour’s “Red Wall”; in France, far-right leader Marine Le Pen has emerged as the candidate of choice for a growing share of workers; and in Italy, successive strands of populism have lured similar voters. As Amory Gethin, Clara Martínez-Toledano, and Thomas Piketty show in a fascinating comparative paper, the traditional cleavages that structured post-war politics have collapsed across Western democracies.

Progressive globalization and responsible capitalism

The tension between the unprecedented need for global collective action and a growing aspiration to rebuild political communities within national confines is a defining challenge for today’s policy-makers. And it is currently unclear whether they can resolve this acute contradiction.

In a wide-ranging recent paper published by Terra Nova, Pascal Canfin, chair of the European Parliament’s Committee on the Environment, makes the case for what he calls “the progressive age of globalization.” Canfin argues that the fiscal and monetary activism endorsed by nearly all advanced economies in response to the pandemic, the growing alignment of their climate action plans, and the recent agreements on taxing multinational firms all indicate that the globalization of governance is becoming a reality. Similarly, the greening of global finance is a step toward “responsible capitalism.”

One may question the scale of the victories that Canfin lists, but he is right that advocates of global governance have recently seized the initiative and made enough progress to regain credibility. Progressive globalization is not a pipe dream anymore; it is becoming a political project.

Yet although the globalization of governance may appease the left, it will hardly alleviate the woes of those who have lost good jobs and whose skills are being devalued.

Workers who feel threatened and find protectionist solutions attractive won’t change their minds because the Group of Twenty has reached an agreement on a minimum taxation of multinationals or because the international consensus on climate action has fortified. They expect more concrete responses. Furthermore, they may protest against global initiatives, such as a carbon tax.

In The Economics of Belonging, Martin Sandbu of the Financial Times outlines an agenda for restoring economic belonging while keeping borders open. His idea, in a nutshell, is that each country should be free to regulate its domestic market according to its own preferences, provided it does not discriminate against foreigners. The European Union, for example, may ban chlorine-washed chicken (it does, actually), not because it is produced in the United States but because the EU does not trust the product.

Similarly, any country should be able to ban timber resulting from deforestation, or credits provided by undercapitalized banks, provided the same rules apply to domestic and foreign firms. Transactions would remain free, but there would be more freedom for setting national standards that differ from each other, provided they be applied across the board.

These are sound principles. The idea echoes proposals made by Dani Rodrik of the Harvard Kennedy School. Rodrik has always been suspicious of hyperglobalization (in 1997 already, he published an essay asking if globalization had gone too far). His idea is that absent a global democratic governance, there is a built-in tension between democratic accountability at national levels and unfettered globalization. He therefore recommends creating breathing space for differences between national regulations, as long as “beggar-thy-neighbor” policies and discrimination are avoided.

Testing the theories

But what do these ideas mean in practice? While applying Sandbu’s proposals to products is straightforward, doing the same for processes is notoriously difficult. A given good or service ultimately incorporates all the standards in force along its value chain. True, multinationals nowadays are compelled to trace labor practices (and thus end reliance on child labor, for example, among their direct or indirect suppliers). But it would be challenging to proceed in the same way with regard to working conditions, union rights, local environmental damage, or access to subsidized credit.

Moreover, attempts to tweak the rules of international trade would stir up fierce opposition among developing countries, whose leaders argue that subjecting them to advanced-economy standards is the surest way to make them uncompetitive. For this reason, attempts to include social clauses in international trade deals failed in the early 2000s.

The eu’s announcement of a plan for a Carbon Border Adjustment Mechanism (cbam) that will require importers of carbon-intensive products to buy corresponding credits on the eu market for emission permits constitutes an important test. As long as decarbonization does not proceed everywhere at the same pace, the economic case for such a border-adjustment system is impeccable: the European Union wants to prevent producers from evading its emission limits by moving elsewhere. But it is inevitably controversial. The United States has already indicated its concerns about the idea; China is wary; and developing countries are sharpening their arguments against it. Two fundamental questions are in play here. The first is whether the world can find a way out of the tension between scattered national and regional preferences and the increasingly urgent need for collective action. The second is whether the rules of trade should take precedence or be adapted in the name of the preservation of the environment. Climate has become the testing ground for these two major debates.

Adam Posen, of the Peterson Institute, has said that the world economy is experiencing “a corrosion of globalization”. Indeed, it would be a mistake to consider that it only needs small repairs after the damages inflicted on it by the Trump administration. What is needed is rather a rebuilding. Instead of the integration-oriented globalization of the early twenty-first century, the world now needs a commons-oriented globalization that makes room for differences in preferences and regards social inclusiveness as an imperative rather than an option.

It remains to be seen whether the dual agendas of rebuilding economic belonging and managing the global commons can be reconciled. Agreements on carbon border adjustments and on a minimal taxation of multinationals are steps in this direction. It will take some time yet to see how the words are acted upon. The old globalization is dying, but the new one has yet to be born.


This article is an updated and augmented version of a June 2021 Project Syndicate column by the author.

This article appeared in Aspenia.it.

Aspenia international 93-94

Jean Pisani-Ferry: The end of globalization as we know it

Jean Pisani-Ferry

is a professor of economics at the SciencesPo in Paris and at the European University Institute in Florence. He is also a senior fellow at the European think tank Bruegel and at the Peterson Institute in Washington, DC.

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