China’s Resource Diplomacy: It’s not Charity for sure


August 5, 2017

China’s Resource Diplomacy: It’s not Charity for sure

By Jealous Chishamba

http://allafrica.com/stories/201708040279.html

Image result for China's Resource Diplomacy

Resource diplomacy refers to the diplomatic activity designed to enhance a nation’s access to resources and its energy security.

It normally happens when great powers contend for supremacy. There are several interlinked components of resource diplomacy. Generally, resource security has three components namely insuring a stable supply of energy and resources; keeping resource supplies at acceptable prices; and being able to transfer those resources to fixed locations, not necessarily to the home country but where they can be processed or consumed.

In economic context, if recipient countries negotiate for a win-win outcome, resource diplomacy can work positively in supporting infrastructure growth for developing countries. However, in most instances, the inhibiting factor for a balanced outcome is that beggars cannot be choosers.

China’s enormous overseas spending has slowly allowed it to write the rules for 21st Century commerce as part of this resource diplomacy.

The increased overseas purchases of resources makes other countries dependent on China’s economy for their own growth, thereby expanding China’s global influence.

 

The transformation of the BRICs acronym from an investment term into a household name of international politics and, more recently, into a semi-institutionalized political outfit (called BRICS, with a capital ‘S’ after South Africa’s inclusion), is one of the defining developments in international politics of the first decade of the 21st century.

 

Beijing’s aim is to help displace the United States and Europe as the leading financial power in large parts of the developing world. To some extent, Beijing may wield some economic power over other competing global economies given that history has never set any precedent that an empire is capable of governing the world forever. Currently, international order is being restructured where traditionally-dominant economies have undergone adjustments and restrictions necessitated by the global financial crisis and its aftermath.

As if endorsing the foregoing assertion, the International Monetary Fund (IMF) unavoidably blessed the Chinese Renminbi as one of the world’s elite currencies, alongside the Dollar, Euro, Pound and Yen. Developing countries especially in Africa are increasingly finding that they must operate in China’s orbit to support their growth.

China and the African continent collectively contain a third of the global population and have recorded the fastest growth rates in the world over the past 15 years.

In some countries across Africa, a deeper relationship with China is already paying dividends. For example, the findings from Afrobarometer’s 2014/2015 surveys in 36 African countries, which included a special series of questions on China, suggest that generally 63% of the respondents have favourable views on economic and assistance activities by China.

Although there are several caveats to using this data to corroborate economic sense, the exactness of these survey results is less important than what the actual numbers signify. The recent exponential growth in China-Africa trade corridor numbers support the view that China and African countries are developing commercial ties that are more balanced, diversified, and beneficial to both regions.

China Development Bank and the Export-Import Bank of China have financed big-ticket projects in Asia and Africa as compared to Bretton Woods Institutions (the World Bank and IMF).

In addition, the birth of the Asian Infrastructure Investment Bank where China has significant power was a result of the difficulties China faced to get veto power in Bretton Woods Institutions. In 2015, the BRICS bank was also formed and China holds a clear dominance within the BRICS group (Brazil, Russia, India, China and South Africa).

BRICS bank is highly regarded as a competitor or alternative to the IMF and World Bank. China’s economic clout in Africa has strengthened and there are fears that Beijing would use these development banks as another tool to exert its influence across the global economy.

Although China-Africa relationship has evolved greatly over the past few years, critics and common pessimistic perceptions have not kept pace with changing realities. Traditionally, the Chinese are not very transparent about their flows of overseas loans.

China is not a member of the Organisation for Economic Co-operation and Development (OECD) and thus they do not participate in the OECD’s Creditor Reporting System, which is the source for much of the data on official flows from the wealthier countries.

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China and Nigeria

While Chinese policy bank officials do release data from time to time on their African loan commitments, this is not systematic in either their parameters or specificity. As is the case with the United States Export Import Bank and other export credit agencies, Chinese banks also rarely publish information regarding specific financing agreements.

It is also uncommon for the recipients of such financing to fully disclose the details of the finance they receive. More often, the loans are tied to the use of Chinese contractors on the projects.

In this regard, China’s investment has been cast as an exploitative neo-colonial business partner with little interest in forging genuine win-win deals in African nations.

Sometimes, the pessimists’ views have some merit given the opaque, government-to-government nature of China’s relationship with the continent. Other schools of thoughts opine that the behind-closed-doors, government-to-government approach of the Chinese state entities lacks transparency and it has therefore been criticised for compromising the expected economic and social benefits of such deals for African countries.

According to China Africa Research Initiative, loans or grants from Chinese government agencies to African counterparts have traditionally outweighed foreign direct investment.

For example, from 2000 to 2015, the Chinese government, banks and contractors extended US$94,4 billion worth of loans to African governments and state-owned enterprises (SOEs).

The figures speak for themselves that indeed the burgeoning of Sino-African links is unprecedented and is becoming the main topic of interest in Africa’s international relations. African governments typically agree to long-term concessionary loans from the Export Import Bank of China to fund major infrastructure projects. They do so because other sources of financing are lacking or are too slow to meet immediate infrastructure needs.

China has realised that Africa is unique and that the approach by Bretton Woods is tied to archaic and largely ineffective Africa investment models hence the danger of missing out on the double digit returns that successful African investments provide.

Wenjie Chen, an economist in IMF’s African Department found that whereas Western investment favours the better governance environments, Chinese investment in strong and weak governance environments is about the same, but its share of foreign investment is higher in the weak governance states.

Thus, the capital flows behind this system of infrastructure financing, often results in illogical comparison between United States, European, and Chinese forms of investment in Africa. Zimbabwe has also been the loci for Chinese investments.

In July 2017, Zimbabwe made an application an application for US$153 million from China Export Import Bank for the upgrade of Harare International Airport. Loans pledged by Exim Bank are in excess of US$1 billion.

In 2016, China’s Premier surprised several global powerhouses when he visited Zimbabwe and pledged around US$4 billion of China-led Foreign Direct Investment (FDI). If executed, this level of commitment contrasts starkly with the action or lack thereof from Bretton Woods banks in Zimbabwe.

Post the visit of China’s President Xi Jinping in Zimbabwe, Fay Chung, did a balanced analysis in his correspondent article entitled Unpacking China’s USD4bln Zim investment.

It is unfortunate that some of the innumerable challenges mentioned as investment deterrents in Chung’s article have not been addressed hence the delays in real China-led FDI flow in the country. It is worth emphasising that given the shifting global dynamics, what ultimately comes from China’s promises depends largely on what we do ourselves.

Sustainability relies not only on goodwill from the East and the West, but also on us being able to add value, negotiate and focus on long-term goals as already achieved by other neighbouring countries whose China-led FDI flows are comparatively high despite vast opportunities in-country.

China has backed its proposal for real win-win cooperation between China and Africa by committing US$60 billion of new investment in major projects which can help develop local economic capacity if the country religiously pursues these opportunities.

Pursuing the opportunities embedded in China-Africa trade corridor is a low hanging fruit for Zimbabwe given that China’s investment in Africa often eschews conditionality as compared to Bretton Woods Institutions.

As for Zimbabwe, the compelling returns will be gained by setting up an investment-led task force to take advantage of China’s resource diplomacy and unlock massive investment potential for the benefit of the country.

The enormity of infrastructure gaps that Zimbabwe needs to resolve requires exploring these strategic opportunities offered by these “all-weather” friends.

Chishamba is a Zimbabwean banker with experience in treasury and corporate banking. He writes in his personal capacity.

Trump’s enfeebled America stands alone


July 20, 2017

Trump’s enfeebled America stands alone

Economic change has affected other countries, but they have managed globalisation

by Martin Sanbu@www.ft.com

Image result for Trump Go it Alone Foreign PolicyDonald Trump with his Foreign Policy Novice, SIL Jared Kushner

The US President used to be thought of as the leader of the free world. America’s western friends are finding that they can no longer rely on it. But the truly transforming change is that they may find they no longer need to — and that the US needs the world more than the other way around.–Martin Sandbu

The greatest challenge posed by Donald Trump’s presidency is not that he will deploy American strength against the global common good. It is that he demonstrates how weak the US has become.

Recall Mr Trump’s inaugural address. The phrase that has resounded around the world is “America first”. But the more significant phrase he used is that other, more inward-looking one: “American carnage”. What sort of country describes itself, in the words of its highest leader no less, in such terms? Not one that feels strong.

Some Americans may not recognise the dystopian conditions his speech described. But a large group surely does. American decline is not a figment of Mr Trump’s imagination. The US economy has left large numbers of people with stagnant wages for decades. It is an economy in which millions fewer people have a job than at the peak in 2000, and which still leaves tens of millions without secure, decent healthcare.

It is an economy dotted with towns that were thriving within living memory, but have been devastated by the loss of factory jobs — lost because automation made plants too productive to need as much human labour as before, or because a failure to automate made them uncompetitive against rivals.

Above all, it is an economy in which centuries-old progress against mortality has gone in reverse for middle-aged low-educated Americans, who are dying from the afflictions of broken lives and broken communities: drug overdoses, liver disease and suicide.

Deep economic change has affected other advanced economies too. But others have not let globalisation get in the way of managing it. The US is weak not because it has uniquely been cheated out of a golden age of factory jobs by foreigners, but because it has failed to create a prosperous new future for all at home.

Mr Trump’s railing against Washington is therefore not without foundation. Economic dysfunction has long been matched by glaringly inadequate governance. The devastation of the global financial crisis — which was at its core a US financial crisis, unsuspected by its regulatory system — followed the gross incompetence of the George W Bush administration’s handling of Hurricane Katrina and its adventurism in Iraq.

Mr Trump’s speech in Poland before the G20 summit was the international version of his American carnage speech. Just like the US, in his telling, is a landscape of decay at the mercy of corrupt leaders, he presented the western world as mortally threatened by destructive forces because of decadence within.

But while he may be a fiery prophet of US decline, he is wrong about the wider world. If other western countries display a quiet confidence vis-à-vis Mr Trump, it is because they have reason to. Their unrepentant globalism is striking. Canada’s reconsecration of its globalist destiny matches its ambitious welcome of refugees. Europe and Japan are creating one of the world’s largest free trade areas. The EU vows not to withdraw from globalisation but to shape it to its values of solidarity. Japan is leading the other spurned partners from the Trans-Pacific Partnership Mr Trump has pulled out of, in an effort to complete trade liberalisation without US participation.

What lessons can we draw from this contrast? First, take the theatrics of populism seriously. Populism paradoxically mixes machismo with an incessant focus on weakness — but blames weakness on elements that must be expelled, allowing the true representatives of the forgotten people a free hand.

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A revitalised Franco-German Partnership for a Strong EU–Macron and Merkel

Second, this worsens the problem populists promise to solve. It deepens existing divisions and paralyses democratic politics. For aspiring totalitarians that may be part of a plan. For others, it is simply a self-fulfilling prophecy. Look no further than Britain for a nation that has acted on a mistaken belief that its strength has been sapped by the global liberal order (in the form of the EU), only to throw itself into true political disarray and indecision.

Third, the clash between populism and globalism is theatrical all right, but it is a theatre of the grotesque that expresses reality by transmogrifying it. Those who most try to project strength are those with the most domestic weakness to hide. Leaders of harmonious countries have no need to brag.

Fourth, it is in countries where US-style social and economic decay is most visible that the global liberal order is most contested: above all the UK, but also France and Italy. The rest of the west must redouble efforts to improve the social protections that have kept decay at bay for now.

Germany is of particular importance: its labour reforms 15 years ago have produced a worrying increase in inequality and precarious work. It must not repeat the US’s mistakes.

Finally, the global liberal order is more than the US. Its remaining supporters aim to carry on by forging the unity of purpose collectively that the US cannot even muster at home. A few decades ago that would have been unthinkable. Today, it may just be true that US isolationism will most harm the US itself.

The US President used to be thought of as the leader of the free world. America’s western friends are finding that they can no longer rely on it. But the truly transforming change is that they may find they no longer need to — and that the US needs the world more than the other way around.

martin.sandbu@ft.com

Promises and Pitfalls of the Belt and Road Initiative


July 20, 2017

Asia Pacific Bulletin
Number 388 | July 19, 2017
ANALYSIS

Promises and Pitfalls of the Belt and Road Initiative

By Bipul Chatterjee and Saurabh Kumar

China’s signature economic and foreign policy project – the ‘Belt and Road Initiative’ (BRI), also known as ‘One Belt, One Road’ (OBOR) – is the most ambitious global connectivity project ever launched by China or any country. The project aims to connect 65 Asian, African, and European countries comprising two-thirds of world’s population, through various sub-projects. The estimated investment cost for realizing this project is $4-8 trillion.

The goal of BRI is to connect China with Asia, Europe, and Africa through a network of railways, highways, oil and gas pipelines, fiber-optic lines, electrical grids and power plants, seaports and airports, logistics hubs, and free trade zones.

The promise of BRI

First, a promising aspect of this initiative is the potential reduction in transportation costs which would reduce the price of trade more broadly. At a time when countries are looking for specific measures to reduce trade costs and shying away from free trade agreements, a reduction in transportation costs as a substitute for trade deals can effectively widen the volume of international trade. A Bruegel study pointed out that a 10% reduction in railway and maritime costs can increase trade as much as 2%, while the effects of a reduction in tariffs would take a much longer time to be felt. An Asian Development Bank and Purdue University study estimated that improvements in transport networks as well as trade facilitation measures could increase the gross domestic product (GDP) by 0.3 % for India and 0.7 % for the South Asian region as a whole.

Second, BRI presents huge business opportunities for companies engaged in infrastructure development. A total of over $900 billion is expected to be invested in roads, ports, pipelines and other infrastructure as part of the project. This could immensely benefit countries suffering from inadequate infrastructure for their economic development.

Third, from the point of view of trade facilitation there are a number of factors that will create dynamic effects. China may accrue significant long-term trade benefits if it reduces tariffs through free trade zones, particularly on products from BRI countries. Beijing is also expected to reduce some of the non-tariff barriers hampering the prospects of foreign firms doing business in China including in those emerging areas such as internet banking and electronic commerce.

Potential Implications

Apart from the sheer number of participating countries, BRI appears to be both economic and strategic in nature. This became visible during the recently held Belt and Road Forum for International Cooperation in Beijing. The initiative came under scrutiny after European Union officials voiced apprehensions over transparency, labor, and environmental standards. This resulted in the EU’s refusal to endorse a trade statement tied to BRI. India’s non-participation due to sovereignty issues relating to the China-Pakistan Economic Corridor passing through part of Jammu and Kashmir also served as a serious dampener.

Even though BRI seeks to create trade infrastructure around India, it also encircles the country by creating a ring through land and sea routes passing through several countries with which India has sensitive relationships. However, India – with around 90% of its international trade through maritime routes and only 10% by rail and road – is comparatively less likely to see much benefit through enhanced connectivity under the initiative. Most of India’s maritime trade occurs from its western ports located in Arabian Sea and via land routes within the Bangladesh-Bhutan-India-Nepal network.

In presenting BRI, China appears to be unaccommodating with respect to political and diplomatic issues as well as economic concerns. Trade facilitation alone cannot drive trade flow upward. There needs to be smart and secure management of trade routes so that end-to-end supply and value chain networks can be strengthened. In recent times, piracy has emerged as a major potential threat for railways and highways as well as maritime routes. BRI does not address these challenges in a meaningful way.

Although the project was launched around four years ago, it suffers from a lack of key information, operational strategy, terms of reference, and detailed work plan for the role of partner countries. This has eroded trust.

The Next Steps

While it is true that China’s economic and strategic interests are intertwined, it would have been beneficial for the BRI to be planned more holistically in order to give due consideration to the economic and political interests of other participating countries. For a large project like BRI, an international governance structure involving all the participating countries to institutionalize objectives and safeguard the interests of participants has to be established now with a particular emphasis on financial mechanism. The decision-making structure for the execution of BRI should be based on consensus.

“While it is true that China’s economic and strategic interests are intertwined, it would have been beneficial for the BRI to be planned more holistically in order to give due consideration to the economic and political interests of other participating countries.”

Several sub-projects of various Chinese companies to receive political and financial support from the Chinese government are being touted as part of this initiative but have nothing to do with it and should be de-coupled so that ambiguity can be cleared and only official BRI projects can be materialized. Participating countries should also get equal treatment in the financing of BRI, so that they can also reap the long-term benefits of the project, a step in this direction could be the revamping of the New Development Bank. A clear operational strategy for the entire project with an economic and political matrix should now be made to increase trust and transparency. This should clearly indicate relative as well as absolute potential losses and gains of participating countries. Active participation of global institutions such as the United Nations, the International Court of Arbitration, and International Court of Justice should be included for reliability as well as to resolve a potential dispute.

BRI should be executed in a selective manner with focus on economically viable sub-projects developing trade and economic corridors, for example a Bangladesh-China-India-Myanmar Corridor in the case of South Asia.

About the Authors

Bipul Chatterjee and Saurabh Kumar are Executive Director and Policy Analyst, respectively, at CUTS International. They can be contacted at bc@cuts.org and sbk@cuts.org.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Peter Valente, Project Assistant, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

For comments/responses on APB issues or article submissions, please contact washington@eastwestcenter.org.

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A New Course for Economic Liberalism


July 17, 2017

A New Course for Economic Liberalism

by Sebastian Buckup

Sebastian Buckup is Head of Programming at the World Economic Forum.

How policymakers can manage the opposing forces of economic diffusion and concentration.

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The New Man in France–President Emmanuel Macron

Since the Agrarian Revolution, technological progress has always fueled opposing forces of diffusion and concentration. Diffusion occurs as old powers and privileges corrode; concentration occurs as the power and reach of those who control new capabilities expands. The so-called Fourth Industrial Revolution will be no exception in this regard.

Already, the tension between diffusion and concentration is intensifying at all levels of the economy. Throughout the 1990s and early 2000s, trade grew twice as fast as GDP, lifting hundreds of millions out of poverty. Thanks to the globalization of capital and knowledge, countries were able to shift resources to more productive and higher-paying sectors. All of this contributed to the diffusion of market power.

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But this diffusion occurred in parallel with an equally stark concentration. At the sectoral level, a couple of key industries – most notably, finance and information technology – secured a growing share of profits. In the United States, for example, the financial sector generates just 4% of employment, but accounts for more than 25% of corporate profits. And half of US companies that generate profits of 25% or more are tech firms.

The same has occurred at the organizational level. The most profitable 10% of US businesses are eight times more profitable than the average firm. In the 1990s, the multiple was only three.

Such concentration effects go a long way toward explaining rising economic inequality. Research by Cesar Hidalgo and his colleagues at MIT reveals that, in countries where sectoral concentration has declined in recent decades, such as South Korea, income inequality has fallen. In those where sectoral concentration has intensified, such as Norway, inequality has risen.

A similar trend can be seen at the organizational level. A recent study by Erling Bath, Alex Bryson, James Davis, and Richard Freeman showed that the diffusion of individual pay since the 1970s is associated with pay differences between, not within, companies. The Stanford economists Nicholas Bloom and David Price confirmed this finding, and argue that virtually the entire increase in income inequality in the US is rooted in the growing gap in average wages paid by firms.

Such outcomes are the result not just of inevitable structural shifts, but also of decisions about how to handle those shifts. In the late 1970s, as neoliberalism took hold, policymakers became less concerned about big firms converting profits into political influence, and instead worried that governments were protecting uncompetitive companies.

With this in mind, policymakers began to dismantle the economic rules and regulations that had been implemented after the Great Depression, and encouraged vertical and horizontal mergers. These decisions played a major role in enabling a new wave of globalization, which increasingly diffused growth and wealth across countries, but also laid the groundwork for the concentration of income and wealth within countries.

The growing “platform economy” is a case in point. In China, the e-commerce giant Alibaba is leading a massive effort to connect rural areas to national and global markets, including through its consumer-to-consumer platform Taobao. That effort entails substantial diffusion: in more than 1,000 rural Chinese communities – so-called “Taobao Villages” – over 10% of the population now makes a living by selling products on Taobao. But, as Alibaba helps to build an inclusive economy comprising millions of mini-multinationals, it is also expanding its own market power.

Policymakers now need a new approach that resists excessive concentration, which may create efficiency gains, but also allows firms to hoard profits and invest less. Of course, Joseph Schumpeter famously argued that one need not worry too much about monopoly rents, because competition would quickly erase the advantage. But corporate performance in recent decades paints a different picture: 80% of the firms that made a return of 25% or more in 2003 were still doing so ten years later. (In the 1990s, that share stood at about 50%.)

To counter such concentration, policymakers should, first, implement smarter competition laws that focus not only on market share or pricing power, but also on the many forms of rent extraction, from copyright and patent rules that allow incumbents to cash in on old discoveries to the misuse of network centrality. The question is not “how big is too big,” but how to differentiate between “good” and “bad” bigness. The answer hinges on the balance businesses strike between value capture and creation.

Moreover, policymakers need to make it easier for startups to scale up. A vibrant entrepreneurial ecosystem remains the most effective antidote to rent extraction. Digital ledger technologies, for instance, have the potential to curb the power of large oligopolies more effectively than heavy-handed policy interventions. Yet economies must not rely on markets alone to bring about the “churn” that capitalism so badly needs. Indeed, even as policymakers pay lip service to entrepreneurship, the number of startups has declined in many advanced economies.

Finally, policymakers must move beyond the neoliberal conceit that those who work hard and play by the rules are those who will rise. After all, the flipside of that perspective, which rests on a fundamental belief in the equalizing effect of the market, is what Michael Sandel calls our “meritocratic hubris”: the misguided idea that success (and failure) is up to us alone.

This implies that investments in education and skills training, while necessary, will not be sufficient to reduce inequality. Policies that tackle structural biases head-on – from minimum wages to, potentially, universal basic income schemes – are also needed.

Neoliberal economics has reached a breaking point, causing the traditional left-right political divide to be replaced by a different split: between those seeking forms of growth that are less inclined toward extreme concentration and those who want to end concentration by closing open markets and societies. Both sides challenge the old orthodoxies; but while one seeks to remove the “neo” from neoliberalism, the other seeks to dismantle liberalism altogether.

The neoliberal age had its day. It is time to define what comes next.

 

Lessons from the Brexit Debacle — All very British Bulldog


July 16, 2017

Lessons from the Brexit Debacle– All very British Bulldog

by Dr. Munir Majid@www.thestar.com.my

Image result for Cameron and May Brexit Debacle

FORMER British Prime Minister David Cameron went for the Brexit referendum to strengthen his position in the Conservative party and end the warring among the Tories over the European Union, thinking the Brexiteers would lose.

His complacent and cavalier approach to the referendum in the British system of representative (not direct) democracy, without a robust presentation of the facts, resulted in a campaign driven by passion, emotion, prejudice and lies – and the vote by a whisker a year ago to get out of the EU.

How that was to happen was hardly touched upon. What was exposed instead were the deep divisions that exist in Britain.

Image result for Cameron and May Brexit Debacle

Cameron left the Brexit fiasco to Theresa May whose “Hard Brexit” campaign rhetoric was a typical British Bulldog mess

Cameron resigned and left the mess with his successor Theresa May. Her contribution to the momentous decision was: Brexit means Brexit. Indeed, as a former Remainer, she bent over backwards to go for a “Hard Brexit”, rather like converts to a new religion who become extreme to show how true they are to the faith.

Indeed, she called an early general election to consolidate her position in the party and to strengthen her hand in the Brexit negotiations. Her “Hard Brexit” campaign rhetoric was: no deal was better than a bad deal. All very British Bulldog.

In the event, the Conservatives lost their majority in Parliament, Theresa May’s position in the party is threatened and her hand in the Brexit negotiations weakened. She and her party stay in power through an unsavoury arrangement with the Democratic Ulster Unionists (DUP, who have an abhorrent set of beliefs – one of which is the Pope is the Anti-Christ – and who were able to extract £1.5bil from the prime minister who had famously said there was no “magic money tree” when nurses in the National Health Service sought a pay rise).

After the election last month, the Institute of Directors found a negative swing of 34 points in confidence in the British economy from its last survey in May.

Many epithets have been attached to Theresa May since. She has become rather like “Calamity Jane”. There is an appropriate Malay word that could be applied: kelam kabut. At sixes and sevens. Shooting every which way.

Meanwhile, the much-maligned leader of the Labour Party, Jeremy Corbyn, who did so much better in the election than expected, has been elevated to being, as described by a commentator, “a cross between zen master and Star Wars character Obi-Wan Kenobi”.

This is a romantic notion, of course. The Labour Party is as divided as the Conservative Party, on Brexit as on anything else. Corbyn represents the far left, whose economic management for sometimes laudable social policies has many a time led Britain to a fiscal and monetary dead end.

The swing of support for the Labour Party came largely from young voters attracted to Corbyn’s promise to abolish university fees – although May’s political gymnastics and calamitous proposal to put a cap on state support for the old in retirement homes did not help the Tories.

At the first Prime Minister’s Question time after the election, Corbyn was straining at the leash to push his advantage, especially as the Grenfell Tower fire in London has exposed incompetence and division in British society yet again.

He was well armed with facts and figures and had May on the back foot. However, he was not able to put her to the sword. When the British Prime Minister cleverly turned the argument against him by saying it was the last Labour argument that had presided over the housing regulations that allowed the cladding that caused the Grenfell Tower fire to become an inferno, he did not get back at her.

He should have argued any government in power – and May certainly wanted to be in power – has no right to refer to the past (it was a Conservative government that got Britain into Europe) when its duty is to govern with responsibility here and now. Really not very Star Wars of Corbyn.

Britain divided

Be that as it may, both leaders are polarising figures. Britain is deeply divided along the lines of class, income, race, region and age. There is not a whiff of an Emmanuel Macron figure to try and unify recalcitrant constituencies, to find a new belief and a centre to move Britain forward.

Instead it looks as if Britain is going through a death by a thousand cuts. What are the lessons from all this – the sad tragedy that is being played out in Britain – that can be learned for our country and region?

The most important lesson is the threat of division in a country and society that builds up from a long period of neglect which is always exploited in politics.

United Kingdom Independence Party exploited xenophobic instincts among both the British upper class and the underclass, by playing on their fears, whether driven by racism and dislike of foreigners or by perceived rule from Brussels (the new Rome). These emotive references are easy points from which to get support.

Facts can also be twisted, as was evident from the many false numbers that were given on the cost of EU membership. Once a base is founded on base instincts, it is not difficult to whip up falsehoods as self-evident truths.

Image result for A Racially Divided Malaysia

 

In Indonesia and Malaysia, many positions are being taken on race and religion which divide society and cause minorities to become victims. This has been happening for some time and these countries should be mindful of destabilising eruptions.

In Britain, destabilising developments have been caused through the vote. The rule of law holds back the ugliest ramifications of deep social division. One wonders how they might be expressed in less developed political systems in ASEAN.

The other division is in income. We applaud ad nauseam the splendid economic growth rates in the region, and how ASEAN as a whole is the seventh or sixth largest economy in the world, and could become the fourth largest in 2050 or whenever, but do we give enough attention to income disparities and maldistribution of wealth?

They are increasing in ASEAN, within and between member states. Together with other divisive factors, the crunch time in Britain came in the form of Brexit and a hung parliament. In the United States, in the form of Trump. What form could it take in ASEAN countries where the ballot box is not always the preferred means of securing change?

Even with the economy, even as it grows, disruptions are now happening with digitisation, which displaces employment.

Employment for cheap manufacturing cost is increasingly becoming an attraction of the past. What are ASEAN countries like Indonesia and Myanmar doing about training and education, and retraining, for the digital economy? What will happen to micro-, small and medium enterprises and employment levels?

There is much research which shows, and empirical evidence that confirms it, that those at the lowest rung of education and skill level are the most exposed to this fourth industrial revolution.

Displacement of employment, with the already large income disparity, is going to divide society again.

Disruptions and fissures must be anticipated and filled. Otherwise, divisions in society will cause severe problems later on. And sometimes even earlier rather than later on.

We can become smug in Asia, or ASEAN – indeed, in individual countries – at how well we are doing. Even superior, when looking at the travails of other countries. We must resist this. We must learn lessons and understand we are so very far from perfect.

Dr. Munir Majid, Chairman of Bank Muamalat and Visiting Senior Fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

Globalisation: The Rise and Fall of an Idea that swept the World


July 15, 2017

Globalisation: The Rise and Fall of an Idea that swept the World

It’s not just a populist backlash – many economists who once swore by free trade have changed their minds, too. How had they got it so wrong?

by Nikil Saval

https://www.theguardian.com

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The Annual January gathering of the World Economic Forum in Davos is usually a placid affair: a place for well-heeled participants to exchange notes on global business opportunities, or powder conditions on the local ski slopes, while cradling champagne and canapes. This January, the ultra-rich and the sparkling wine returned, but by all reports the mood was one of anxiety, defensiveness and self-reproach.

The future of economic globalisation, for which the Davos men and women see themselves as caretakers, had been shaken by a series of political earthquakes. “Globalisation” can mean many things, but what lay in particular doubt was the long-advanced project of increasing free trade in goods across borders. The previous summer, Britain had voted to leave the largest trading bloc in the world. In November, the unexpected victory of Donald Trump, who vowed to withdraw from major trade deals, appeared to jeopardise the trading relationships of the world’s richest country. Elections in France and Germany suddenly seemed to bear the possibility of anti-globalisation parties garnering better results than ever before. The barbarians weren’t at the gates to the ski-lifts yet – but they weren’t very far.

In a panel titled Governing Globalisation, economist Dambisa Moyo, otherwise a well-known supporter of free trade, forthrightly asked the audience to accept that “there have been significant losses” from globalisation. “It is not clear to me that we are going to be able to remedy them under the current infrastructure,” she added. Christine Lagarde, the head of the International Monetary Fund, called for a policy hitherto foreign to the World Economic Forum: “more redistribution”. After years of hedging or discounting the malign effects of free trade, it was time to face facts: globalisation caused job losses and depressed wages, and the usual Davos proposals – such as instructing affected populations to accept the new reality – weren’t going to work. Unless something changed, the political consequences were likely to get worse.

The backlash to globalisation has helped fuel the extraordinary political shifts of the past 18 months. During the close race to become the Democratic party candidate, Senator Bernie Sanders relentlessly attacked Hillary Clinton on her support for free trade. On the campaign trail, Donald Trump openly proposed tilting the terms of trade in favour of American industry. “Americanism, not globalism, shall be our creed,” he bellowed at the Republican national convention last July. The vote for Brexit was strongest in the regions of the UK devastated by the flight of manufacturing. At Davos in January, British Prime Minister Theresa May, the leader of the party of capital and inherited wealth, improbably picked up the theme, warning that, for many, “talk of greater globalisation … means their jobs being outsourced and wages undercut.” Meanwhile, the European far right has been warning against free movement of people as well as goods. Following her qualifying victory in the first round of France’s presidential election, Marine Le Pen warned darkly that “the main thing at stake in this election is the rampant globalisation that is endangering our civilisation.”

It was only a few decades ago that globalisation was held by many, even by some critics, to be an inevitable, unstoppable force. “Rejecting globalisation,” the American journalist George Packer has written, “was like rejecting the sunrise.” Globalisation could take place in services, capital and ideas, making it a notoriously imprecise term; but what it meant most often was making it cheaper to trade across borders – something that seemed to many at the time to be an unquestionable good.

In practice, this often meant that industry would move from rich countries, where labour was expensive, to poor countries, where labour was cheaper. People in the rich countries would either have to accept lower wages to compete, or lose their jobs. But no matter what, the goods they formerly produced would now be imported, and be even cheaper. And the unemployed could get new, higher-skilled jobs (if they got the requisite training). Mainstream economists and politicians upheld the consensus about the merits of globalisation, with little concern that there might be political consequences.

Back then, economists could calmly chalk up anti-globalisation sentiment to a marginal group of delusional protesters, or disgruntled stragglers still toiling uselessly in “sunset industries”. These days, as sizable constituencies have voted in country after country for anti-free-trade policies, or candidates that promise to limit them, the old self-assurance is gone. Millions have rejected, with uncertain results, the punishing logic that globalisation could not be stopped. The backlash has swelled a wave of soul-searching among economists, one that had already begun to roll ashore with the financial crisis. How did they fail to foresee the repercussions?

Anti-Globalisation protesters in Seattle, 1999. Photograph: Eric Draper/AP

In the heyday of the globalisation consensus, few economists questioned its merits in public. But in 1997, the Harvard economist Dani Rodrik published a slim book that created a stir. Appearing just as the US was about to enter a historic economic boom, Rodrik’s book, Has Globalization Gone Too Far?, sounded an unusual note of alarm.

Rodrik pointed to a series of dramatic recent events that challenged the idea that growing free trade would be peacefully accepted. In 1995, France had adopted a programme of fiscal austerity in order to prepare for entry into the eurozone; trade unions responded with the largest wave of strikes since 1968. In 1996, only five years after the end of the Soviet Union – with Russia’s once-protected markets having been forcibly opened, leading to a sudden decline in living standards – a communist won 40% of the vote in Russia’s presidential elections. That same year, two years after the passing of the North American Free Trade Agreement (NAFTA), one of the most ambitious multinational deals ever accomplished, a white nationalist running on an “America first” programme of economic protectionism did surprisingly well in the presidential primaries of the Republican party.

What was the pathology of which all of these disturbing events were symptoms? For Rodrik, it was “the process that has come to be called ‘globalisation’”. Since the 1980s, and especially following the collapse of the Soviet Union, lowering barriers to international trade had become the axiom of countries everywhere. Tariffs had to be slashed and regulations spiked. Trade unions, which kept wages high and made it harder to fire people, had to be crushed. Governments vied with each other to make their country more hospitable – more “competitive” – for businesses. That meant making labour cheaper and regulations looser, often in countries that had once tried their hand at socialism, or had spent years protecting “homegrown” industries with tariffs.

These moves were generally applauded by economists. After all, their profession had long embraced the principle of comparative advantage – simply put, the idea countries will trade with each other in order to gain what each lacks, thereby benefiting both. In theory, then, the globalisation of trade in goods and services would benefit consumers in rich countries by giving them access to inexpensive goods produced by cheaper labour in poorer countries, and this demand, in turn, would help grow the economies of those poorer countries.

Construction workers in Beijing, China. Photograph: Ng Han Guan/AP

But the social cost, in Rodrik’s dissenting view, was high – and consistently underestimated by economists. He noted that since the 1970s, lower-skilled European and American workers had endured a major fall in the real value of their wages, which dropped by more than 20%. Workers were suffering more spells of unemployment, more volatility in the hours they were expected to work.

While many economists attributed much of the insecurity to technological change – sophisticated new machines displacing low-skilled workers – Rodrik suggested that the process of globalisation should shoulder more of the blame. It was, in particular, the competition between workers in developing and developed countries that helped drive down wages and job security for workers in developed countries. Over and over, they would be held hostage to the possibility that their business would up and leave, in order to find cheap labour in other parts of the world; they had to accept restraints on their salaries – or else. Opinion polls registered their strong levels of anxiety and insecurity, and the political effects were becoming more visible. Rodrik foresaw that the cost of greater “economic integration” would be greater “social disintegration”. The inevitable result would be a huge political backlash.

As Rodrik would later recall, other economists tended to dismiss his arguments – or fear them. Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give “ammunition to the barbarians”.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik’s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the “trashing” of the WTO, calling it “a sad irony that the cause that has finally awakened the long-dormant American left is that of – yes! – denying opportunity to third-world workers”.

Where Krugman was derisive, others were solemn, putting the contemporary fight against the “anti-globalisation” left in a continuum of struggles for liberty. “Liberals, social democrats and moderate conservatives are on the same side in the great battles against religious fanatics, obscurantists, extreme environmentalists, fascists, Marxists and, of course, contemporary anti-globalisers,” wrote the Financial Times columnist and former World Bank economist Martin Wolf in his book Why Globalization Works. Language like this lent the fight for globalisation the air of an epochal struggle. More common was the rhetoric of figures such as Friedman, who in his book The World is Flat mocked the “pampered American college kids” who, “wearing their branded clothing, began to get interested in sweatshops as a way of expiating their guilt”.

Arguments against the global justice movement rested on the idea that the ultimate benefits of a more open and integrated economy would outweigh the downsides. “Freer trade is associated with higher growth and … higher growth is associated with reduced poverty,” wrote the Columbia University economist Jagdish Bhagwati in his book In Defense of Globalization. “Hence, growth reduces poverty.” No matter how troubling some of the local effects, the implication went, globalisation promised a greater good.

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The fact that proponents of globalisation now felt compelled to spend much of their time defending it indicates how much visibility the global justice movement had achieved by the early 2000s. Still, over time, the movement lost ground, as a policy consensus settled in favour of globalisation. The proponents of globalisation were determined never to let another gathering be interrupted. They stopped meeting in major cities, and security everywhere was tightened. By the time of the invasion of Iraq, the world’s attention had turned from free trade to George Bush and the “war on terror,” leaving the globalisation consensus intact.

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Above all, there was a widespread perception that globalisation was working as it was supposed to. The local adverse effects that activists pointed to – sweatshop labour, starving farmers – were increasingly obscured by the staggering GDP numbers and fantastical images of gleaming skylines coming out of China. With some lonely exceptions – such as Rodrik and the former World Bank chief and Columbia University Professor Joseph Stiglitz – the pursuit of freer trade became a consensus position for economists, commentators and the vast majority of mainstream politicians, to the point where the benefits of free trade seemed to command blind adherence. In a 2006 TV interview, Thomas Friedman was asked whether there was any free trade deal he would not support. He replied that there wasn’t, admitting, “I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.”

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.
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A few months before the financial crisis hit, Krugman was already confessing to a “guilty conscience”. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers’ wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

In the years that followed, the crash, the crisis of the eurozone and the worldwide drop in the price of oil and other commodities combined to put a huge dent in global trade. Since 2012, the IMF reported in its World Economic Outlook for October 2016, trade was growing at 3% a year – less than half the average of the previous three decades. That month, Martin Wolf argued in a column that globalisation had “lost dynamism”, due to a slackening of the world economy, the “exhaustion” of new markets to exploit and a rise in protectionist policies around the world.

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In an interview earlier this year, Wolf suggested to me that, though he remained convinced globalisation had not been the decisive factor in rising inequality, he had nonetheless not fully foreseen when he was writing Why Globalization Works how “radical the implications” of worsening inequality “might be for the US, and therefore the world”. Among these implications appears to be a rising distrust of the establishment that is blamed for the inequality. “We have a very big political problem in many of our countries,” he said. “The elites – the policy making business and financial elites – are increasingly disliked. You need to make policy which brings people to think again that their societies are run in a decent and civilised way.”

That distrust of the establishment has had highly visible political consequences: Farage, Trump, and Le Pen on the right; but also in new parties on the left, such as Spain’s Podemos, and curious populist hybrids, such as Italy’s Five Star Movement. As in 1997, but to an even greater degree, the volatile political scene reflects public anxiety over “the process that has come to be called ‘globalisation’”. If the critics of globalisation could be dismissed before because of their lack of economics training, or ignored because they were in distant countries, or kept out of sight by a wall of police, their sudden political ascendancy in the rich countries of the west cannot be so easily discounted today.

Over the past year, the opinion pages of prestigious newspapers have been filled with belated, rueful comments from the high priests of globalisation – the men who appeared to have defeated the anti-globalisers two decades earlier. Perhaps the most surprising such transformation has been that of Larry Summers. Possessed of a panoply of elite titles – former Chief Economist of the World Bank, former Treasury Secretary, President emeritus of Harvard, former Economic Adviser to President Barack Obama – Summers was renowned in the 1990s and 2000s for being a blustery proponent of globalisation. For Summers, it seemed, market logic was so inexorable that its dictates prevailed over every social concern. In an infamous World Bank memo from 1991, he held that the cheapest way to dispose of toxic waste in rich countries was to dump it in poor countries, since it was financially cheaper for them to manage it. “The laws of economics, it’s often forgotten, are like the laws of engineering,” he said in a speech that year at a World Bank-IMF meeting in Bangkok. “There’s only one set of laws and they work everywhere. One of the things I’ve learned in my short time at the World Bank is that whenever anybody says, ‘But economics works differently here,’ they’re about to say something dumb.”

Over the last two years, a different, in some ways unrecognizable Larry Summers has been appearing in newspaper editorial pages. More circumspect in tone, this humbler Summers has been arguing that economic opportunities in the developing world are slowing, and that the already rich economies are finding it hard to get out of the crisis. Barring some kind of breakthrough, Summers says, an era of slow growth is here to stay.

In Summers’s recent writings, this sombre conclusion has often been paired with a surprising political goal: advocating for a “responsible nationalism”. Now he argues that politicians must recognise that “the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good”.

One curious thing about the pro-globalisation consensus of the 1990s and 2000s, and its collapse in recent years, is how closely the cycle resembles a previous era. Pursuing free trade has always produced displacement and inequality – and political chaos, populism and retrenchment to go with it. Every time the social consequences of free trade are overlooked, political backlash follows. But free trade is only one of many forms that economic integration can take. History seems to suggest, however, that it might be the most destabilising one.

Nearly all economists and scholars of globalisation like to point to the fact that the economy was rather globalised by the early 20th century. As European countries colonised Asia and sub-Saharan Africa, they turned their colonies into suppliers of raw materials for European manufacturers, as well as markets for European goods. Meanwhile, the economies of the colonisers were also becoming free-trade zones for each other. “The opening years of the 20th century were the closest thing the world had ever seen to a free world market for goods, capital and labour,” writes the Harvard Professor of Government Jeffry Frieden in his standard account, Global Capitalism: Its Fall and Rise in the 20th Century. “It would be a hundred years before the world returned to that level of globalisation.”

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In addition to military force, what underpinned this convenient arrangement for imperial nations was the gold standard. Under this system, each national currency had an established gold value: the British pound sterling was backed by 113 grains of pure gold; the US dollar by 23.22 grains, and so on. This entailed that exchange rates were also fixed: a British pound was always equal to 4.87 dollars. The stability of exchange rates meant that the cost of doing business across borders was predictable. Just like the eurozone today, you could count on the value of the currency staying the same, so long as the storehouse of gold remained more or less the same.

When there were gold shortages – as there were in the 1870s – the system stopped working. To protect the sanctity of the standard under conditions of stress, central bankers across the Europe and the US tightened access to credit and deflated prices. This left financiers in a decent position, but crushed farmers and the rural poor, for whom falling prices meant starvation. Then as now, economists and mainstream politicians largely overlooked the darker side of the economic picture.

In the US, this fuelled one of the world’s first self-described “populist” revolts, leading to the nomination of William Jennings Bryan as the Democratic party candidate in 1896. At his nominating convention, he gave a famous speech lambasting gold backers: “You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.” Then as now, financial elites and their supporters in the press were horrified. “There has been an upheaval of the political crust,” the Times of London reported, “and strange creatures have come forth.”

Businessmen were so distressed by Bryan that they backed the Republican candidate, William McKinley, who won partly by outspending Bryan five to one. Meanwhile, gold was bolstered by the discovery of new reserves in colonial South Africa. But the gold standard could not survive the first world war and the Great Depression. By the 1930s, unionisation had spread to more industries and there was a growing worldwide socialist movement. Protecting gold would mean mass unemployment and social unrest. Britain went off the gold standard in 1931, while Franklin Roosevelt took the US off it in 1933; France and several other countries would follow in 1936.

The prioritisation of finance and trade over the welfare of people had come momentarily to an end. But this wasn’t the end of the global economic system.

The trade system that followed was global, too, with high levels of trade – but it took place on terms that often allowed developing countries to protect their industries. Because, from the perspective of free traders, protectionism is always seen as bad, the success of this postwar system has been largely under-recognised.

Over the course of the 1930s and 40s, liberals – John Maynard Keynes among them – who had previously regarded departures from free trade as “an imbecility and an outrage” began to lose their religion. “The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success,” Keynes found himself writing in 1933. “It is not intelligent, it is not beautiful, it is not just, it is not virtuous – and it doesn’t deliver the goods. In short, we dislike it, and we are beginning to despise it.” He claimed sympathies “with those who would minimise, rather than with those who would maximise, economic entanglement among nations,” and argued that goods “be homespun whenever it is reasonably and conveniently possible”.

The international systems that chastened figures such as Keynes helped produce in the next few years – especially the Bretton Woods agreement and the General Agreement on Tariffs and Trade (GATT) – set the terms under which the new wave of globalisation would take place.

The key to the system’s viability, in Rodrik’s view, was its flexibility – something absent from contemporary globalisation, with its one-size-fits-all model of capitalism. Bretton Woods stabilised exchange rates by pegging the dollar loosely to gold, and other currencies to the dollar. GATT consisted of rules governing free trade – negotiated by participating countries in a series of multinational “rounds” – that left many areas of the world economy, such as agriculture, untouched or unaddressed. “GATT’s purpose was never to maximise free trade,” Rodrik writes. “It was to achieve the maximum amount of trade compatible with different nations doing their own thing. In that respect, the institution proved spectacularly successful.”

Partly because GATT was not always dogmatic about free trade, it allowed most countries to figure out their own economic objectives, within a somewhat international ambit. When nations contravened the agreement’s terms on specific areas of national interest, they found that it “contained loopholes wide enough for an elephant to pass”, in Rodrik’s words. If a nation wanted to protect its steel industry, for example, it could claim “injury” under the rules of GATT and raise tariffs to discourage steel imports: “an abomination from the standpoint of free trade”. These were useful for countries that were recovering from the war and needed to build up their own industries via tariffs – duties imposed on particular imports. Meanwhile, from 1948 to 1990, world trade grew at an annual average of nearly 7% – faster than the post-communist years, which we think of as the high point of globalisation. “If there was a golden era of globalisation,” Rodrik has written, “this was it.”

GATT, however, failed to cover many of the countries in the developing world. These countries eventually created their own system, the United Nations conference on trade and development (UNCTAD). Under this rubric, many countries – especially in Latin America, the Middle East, Africa and Asia – adopted a policy of protecting homegrown industries by replacing imports with domestically produced goods. It worked poorly in some places – India and Argentina, for example, where the trade barriers were too high, resulting in factories that cost more to set up than the value of the goods they produced – but remarkably well in others, such as east Asia, much of Latin America and parts of sub-Saharan Africa, where homegrown industries did spring up. Though many later economists and commentators would dismiss the achievements of this model, it theoretically fit Larry Summers’s recent rubric on globalisation: “the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good.”

The critical turning point – away from this system of trade balanced against national protections – came in the 1980s. Flagging growth and high inflation in the west, along with growing competition from Japan, opened the way for a political transformation. The elections of Margaret Thatcher and Ronald Reagan were seminal, putting free-market radicals in charge of two of the world’s five biggest economies and ushering in an era of “hyperglobalisation”. In the new political climate, economies with large public sectors and strong governments within the global capitalist system were no longer seen as aids to the system’s functioning, but impediments to it.

Not only did these ideologies take hold in the US and the UK; they seized international institutions as well. GATT renamed itself as the World Trade Organization (WTO), and the new rules the body negotiated began to cut more deeply into national policies. Its international trade rules sometimes undermined national legislation. The WTO’s appellate court intervened relentlessly in member nations’ tax, environmental and regulatory policies, including those of the United States: the US’s fuel emissions standards were judged to discriminate against imported gasoline, and its ban on imported shrimp caught without turtle-excluding devices was overturned. If national health and safety regulations were stricter than WTO rules necessitated, they could only remain in place if they were shown to have “scientific justification”.

The purest version of hyper-globalisation was tried out in Latin America in the 1980s. Known as the “Washington Consensus”, this model usually involved loans from the IMF that were contingent on those countries lowering trade barriers and privatising many of their nationally held industries. Well into the 1990s, economists were proclaiming the indisputable benefits of openness. In an influential 1995 paper, Jeffrey Sachs and Andrew Warner wrote: “We find no cases to support the frequent worry that a country might open and yet fail to grow.”

But the Washington consensus was bad for business: most countries did worse than before. Growth faltered, and citizens across Latin America revolted against attempted privatisations of water and gas. In Argentina, which followed the Washington Consensus to the letter, a grave crisis resulted in 2002, precipitating an economic collapse and massive street protests that forced out the government that had pursued privatising reforms. Argentina’s revolt presaged a left-populist upsurge across the continent: from 1999 to 2007, left wing leaders and parties took power in Brazil, Venezuela, Bolivia and Ecuador, all of them campaigning against the Washington consensus on globalisation. These revolts were a preview of the backlash of today.

Rodrik – perhaps the contemporary economist whose views have been most amply vindicated by recent events – was himself a beneficiary of protectionism in Turkey. His father’s ballpoint pen company was sheltered under tariffs, and achieved enough success to allow Rodrik to attend Harvard in the 1970s as an undergraduate. This personal understanding of the mixed nature of economic success may be one of the reasons why his work runs against the broad consensus of mainstream economics writing on globalisation.

“I never felt that my ideas were out of the mainstream,” Rodrik told me recently. Instead, it was that the mainstream had lost touch with the diversity of opinions and methods that already existed within economics. “The economics profession is strange in that the more you move away from the seminar room to the public domain, the more the nuances get lost, especially on issues of trade.” He lamented the fact that while, in the classroom, the models of trade discuss losers and winners, and, as a result, the necessity of policies of redistribution, in practice, an “arrogance and hubris” had led many economists to ignore these implications. “Rather than speaking truth to power, so to speak, many economists became cheerleaders for globalisation.”

In his 2011 book The Globalization Paradox, Rodrik concluded that “we cannot simultaneously pursue democracy, national determination, and economic globalisation.” The results of the 2016 elections and referendums provide ample testimony of the justness of the thesis, with millions voting to push back, for better or for worse, against the campaigns and institutions that promised more globalisation. “I’m not at all surprised by the backlash,” Rodrik told me. “Really, nobody should have been surprised.”

But what, in any case, would “more globalisation” look like? For the same economists and writers who have started to rethink their commitments to greater integration, it doesn’t mean quite what it did in the early 2000s. It’s not only the discourse that’s changed: globalisation itself has changed, developing into a more chaotic and unequal system than many economists predicted. The benefits of globalisation have been largely concentrated in a handful of Asian countries. And even in those countries, the good times may be running out.

Statistics from Global Inequality, a 2016 book by the development economist Branko Milanović, indicate that in relative terms the greatest benefits of globalisation have accrued to a rising “emerging middle class”, based preponderantly in China. But the cons are there, too: in absolute terms, the largest gains have gone to what is commonly called “the 1%” – half of whom are based in the US. Economist Richard Baldwin has shown in his recent book, The Great Convergence, that nearly all of the gains from globalisation have been concentrated in six countries.

Barring some political catastrophe, in which right wing populism continued to gain, and in which globalisation would be the least of our problems – Wolf admitted that he was “not at all sure” that this could be ruled out – globalisation was always going to slow; in fact, it already has. One reason, says Wolf, was that “a very, very large proportion of the gains from globalisation – by no means all – have been exploited. We have a more open world economy to trade than we’ve ever had before.” Citing The Great Convergence, Wolf noted that supply chains have already expanded, and that future developments, such as automation and the use of robots, looked to undermine the promise of a growing industrial workforce. Today, the political priorities were less about trade and more about the challenge of retraining workers, as technology renders old jobs obsolete and transforms the world of work.

Rodrik, too, believes that globalisation, whether reduced or increased, is unlikely to produce the kind of economic effects it once did. For him, this slowdown has something to do with what he calls “premature deindustrialisation”. In the past, the simplest model of globalisation suggested that rich countries would gradually become “service economies”, while emerging economies picked up the industrial burden. Yet recent statistics show the world as a whole is deindustrialising. Countries that one would have expected to have more industrial potential are going through the stages of automation more quickly than previously developed countries did, and thereby failing to develop the broad industrial workforce seen as a key to shared prosperity.

For both Rodrik and Wolf, the political reaction to globalisation bore possibilities of deep uncertainty. “I really have found it very difficult to decide whether what we’re living through is a blip, or a fundamental and profound transformation of the world – at least as significant as that one brought about the first world war and the Russian revolution,” Wolf told me. He cited his agreement with economists such as Summers that shifting away from the earlier emphasis on globalisation had now become a political priority; that to pursue still greater liberalisation was like showing “a red rag to a bull” in terms of what it might do to the already compromised political stability of the western world.

Rodrik pointed to a belated emphasis, both among political figures and economists, on the necessity of compensating those displaced by globalisation with retraining and more robust welfare states. But pro-free-traders had a history of cutting compensation: Bill Clinton passed NAFTA, but failed to expand safety nets. “The issue is that the people are rightly not trusting the centrists who are now promising compensation,” Rodrik said. “One reason that Hillary Clinton didn’t get any traction with those people is that she didn’t have any credibility.”

Rodrik felt that economics commentary failed to register the gravity of the situation: that there were increasingly few avenues for global growth, and that much of the damage done by globalisation – economic and political – is irreversible. “There is a sense that we’re at a turning point,” he said. “There’s a lot more thinking about what can be done. There’s a renewed emphasis on compensation – which, you know, I think has come rather late.”

https://www.theguardian.com/world/2017/jul/14/globalisation-the-rise-and-fall-of-an-idea-that-swept-the-world