Is globalization passe?
The onset of the economic crisis and its aftermath striking hard on reality has led policymakers, think tanks and academia to recast their perceptions about global integration. After globalization contagion gripped the whole world in the broad swing of a pendulum, has it taken a backseat, or is it going to become demode, or has it lost its lifetime appeal?
Here, I argue that globalism is very much in force, and only the face and perception has changed. Therefore, reversal without some degree of adjustment will be painful. In other words, given the extent of trans-border activities that people engage in, globalization is not quaint; rather, with some localizing factors, it is very much in vogue.
The credit crunch and the debacle causing a systemic crisis in 2007-2009 did not only hurt the Western world, but also policymakers and economics as a scientific discipline, casting doubt on regional integration schemes such as a free trade agreements (FTAs) and European accession. Idiosyncratic animal spirits and irrational exuberance lie at the core of the unsustainable debt crisis striking hard in the West.
This led to the emergence of a mercantile spirit whereby restrictions of imports via government policy and export promotion for stockpiling assets were promulgated. Policymakers are afraid of a backlash of trade embargoes and apprehensive of effects like the Smoot-Hawley tariff during the Great Depression in the 1930s. In this context, we must be careful about mythical “self-defeating expediency” where myopic and narrow objectives prohibit expansion of the economy.
Judging reality is important as former U.N. Secretary General Kofi Annan remarked aptly in 2000: “The main losers in today’s unequal world are not those who are too much exposed to globalization. They are those who have been left out.” Given the fact that, historically, differences and diversities in climate, talent, soil and resources across geographies being naturally rooted, the role of a global relationship ― social and commercial ― cannot be ignored.
Following Adam Smith’s doctrine explaining the creation of “wealth of nations,” in this juncture “Trade and Exchange” could be a tour de force. Smith observed: “The propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals.” Emphasis was laid on the static and dynamic productive efficiency, and specialization.
However, the recent crisis has recast trade as the villain because of a jobless recovery due to offshore outsourcing by footloose multinational enterprise (MNEs); the phenomenal growth of Chinese and other newly industrializing countries’ exports; the threat to climate change; and soaring oil and food prices owing to trade bans.
But the trade-technology nexus is shaping global commerce. For instance, a fragmented supply chain increasingly disperses production across locations of choice as workshops, thanks to geographical relocation.
In a borderless world, we see a shift to “trade-in-bytes” from “trade-in-atoms” ― the new face of industrialization and digitalization of the economy ― in an electronically integrated world economy. This is ascribed to the removal of “behind the border” and “beyond the border” artificial constraints.
As nations have become more integrated in every aspect, dynamic comparative advantages are acquired via trade-mediated spillover effects. All these rest on invention and innovation potential affecting productivity. Current work shows that the globalization paradigm has placed “homo sapiens” on central stage. Hence, trade-linked growth depends on a soft view of globalism.
The central focus on human development is quintessential for global population to survive the onslaught of a triple crisis ― food, fuel, and financial ― turning into humanitarian crisis. All said, trade is necessary, but not a sufficient driver of growth. Think about the cases of South Korea and other Asian tigers along with the BRICSAM ― the emerging engines of economic growth ― as exemplars. (BRICSAM stands for Brazil, Russia, India, China, South Africa, ASEAN states and Mexico.)
All these show the importance of developing human capital, learning, and technological upgrading. If workers and factors are displaced by the iron fist of comparative advantage, then adjustment with policy is needed to address disruptive changes. To that end, victims of trade need to be taken care of.
The burden of such adjustment falls on the developed and rapidly emerging nations where, as Tyler Cowen of George Mason University has noted, low-hanging fruits are exhausted. The need of the hour is not only to overcome the innovation deficit and cherry picking the high-hanging fruit via path-breaking invention and nurturing human capability, but also sharing the benefits with laggard African nations, suffering from multi-faceted crises and civil unrest.
Isolating the potential brains from the fruits of gains from global integration would hinder any catch-up, concentrate the benefits to a few, and disintegrate the world via conflict. This is antithetical to the pursuit of integration and cooperation among global citizens.
Emerging giants India, China, and South Korea have roles to play to conquer jobless growth and offer a new paradigm via promoting South-South cooperation, or even triangular exchange involving developing the North.
For that, without leaning on the shoulders of the giant MNCs, entrepreneurial skills have to be channeled to face the evils of unemployment and embrace the boon of self-reliance. Technology and globalization could shape local talent. Domestic policy should aim high to transcend the plateau that stagnation and crisis has led us into.
To search of Zuckerberg, Edison or Einstein, globalization should encompass aspects of localization, access to local markets, plucking high-hanging fruits, and brain-circulation. Ultimately, with every mouth, God sends a pair of hands with enormous human capability.
Gouranga G. Das is professor at the Department of Economics, Hanyang University’s Erica Campus in Ansan, Gyeonggi Province. He can be reached at firstname.lastname@example.org.