The dangers of anti-globalization and moves against economic openness
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This lecture was delivered as part of an online symposium organized by Trends Research and Advisory on the subject of Reopening of the National and Global Economies: The Lessons Learned.
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The dangers of anti-globalization and moves against economic openness
- 1. The dangers of anti-globalization and moves against economic openness: Current trends and lessons learned from the past TRENDS Global Economic E-Forum: Covid-19 and the Global Economy Simon Lacey | University of Adelaide
- 2. Overview Seeds of discontent | anti-globalization in the 1990s The Global Financial Crisis | European Sovereign Debt Crisis The Lost Decade | The Rise of China Brexit | Trump COVID-19 | Global Economic Crisis Challenges| Opportunities
- 3. The Battle for Seattle 1999
- 4. The Global Financial Crisis
- 7. COVID-19
- 9. Thanks for listening and keep in touch
Editor's Notes
- So I think the first thing to remember is that the antecedents to the current backlash against globalization can essentially be found in the late 1980s, 1990s and early 2000s where you have to remember we had an unprecedented wave of trade and investment liberalization starting in 1992 with events in the EU such as the Treaty of Maastricht, the Agreement on the European Economic Area. Then in 1994 you had the coming into force of NAFTA, which was itself preceded by a lot of soul searching in the United States as to the merits of the Agreement, particularly from labour groups fearing low-wage competition from Mexico. Then in 1994 you had the Marrakesh Agreement and in 1995 the establishment of the WTO. The 1990s were also characterised by increasing engagement with China just emerging from the deep freeze it had imposed on itself by violently supressing pro-democracy protests in Tiananmen Square in 1989 and the back and forth in the Clinton administration on whether to make renewal of China’s most favoured nation status contingent on its human rights record, something Clinton decided to ultimately abandon fairly early on in his tenure. And while all of this closer economic integration was taking place, a backlash was building amongst the anti-globalization movement starting in the late 1980s but really picking up momentum in the 1990s, bringing together representatives from the global labour movement, as well as disenfranchised farmers from both rich and poor countries, as well as environmentalists and of course your run of the mill anarchists. These groups regularly demonstrated at events like the annual World Bank and IMF meetings, the World Economic Forum in Davos, and of course, very visibly on the streets of Seattle in 1999 as the WTO Ministerial collapsed over disagreement between developed and developing countries on whether or not to launch the planned Millennium Round. This was really the height of the neoliberal Washington Consensus and although there seemed to be agreement on these values and principles in many capitals, the truth was and is that globalization produces both winners and losers, and governments have consistently failed to come up with effective policy solutions to address the concerns of those whose livelihoods and ways of life are the most negatively impacted by globalization. In addition to the efforts at closer economic integration I just described, one mustn’t forget that much of the anger directed at proponents of the Washington Consensus really came out of a series of financial and monetary crisis, such as the Mexican Pesos Crisis in 1994, the Asian Financial Crisis of 1997 and the Russian Rubel Crisis of 1998, all of which resulted in harsh austerity measures being imposed as part of IMF conditionalities which tended to hit the poor hardest and which were really just more red meat for the anti-globalization movement.
- Fast forward now to 2007 where a downturn in the US housing market sparks the sub-prime mortgage crisis in 2008, which leads to a lot of instability in the US banking sector, so that Bear Stearns ends up being purchased at fire sale prices by JP Morgan, and Merrill Lynch being similarly saved by its sale to Bank of America, but the decision to let Lehman Brothers fail really sparked off a collapse in confidence around the world and massive interventions by governments in many countries to bail out entire industries and sectors. In Europe, clouds had already been gathering in 2007 with the first bank run in 150 years in the UK as Northern Rock began to falter due to its exposure to the US mortgage market. The Lehman collapse in September 2008 set off a chain of events that saw the banking sector of Iceland stumble to the brink of insolvency, with similar repercussions felt in Portugal, Italy, Ireland, Greece, and Spain in 2009 The EU as a block entered into a long period of suppressed economic growth due to the austerity measures that had to be imposed in order to recover from the European Sovereign debt crisis which peaked between 2010 and 2012.
- The 2010s were something of a lost decade for much of the West, with productivity growth never returning to pre crisis levels, arguably because both the US and European economies lost a lot of productive capacity during the crisis as people exited the labour force and never re-joined, or factories were shuttered and never reopened. On the other side of the world, in China, it was a very different story. China due to its exposure to international markets had suffered some short-term hardship due to the collapse in demand that the GFC and the resulting downturn unleashed but this was partially mitigated by massive stimulus from the Chinese government, and it was in the 2010s that many Chinese exporters saw huge gains in global market share. Chinese outbound investment also grew to a record high in 2016, with the United States and Europe being the preferred destinations. It was also in the 2010s that China overtook Japan to become the world’s second largest economy and also overtook the US economy in purchasing power parity terms (2013) as well as becoming the world’s largest trading nation (also 2013). The 2010s and certainly the second half of the decade were the moment when one could say that China had really arrived, and this newfound status and a new and assertive leadership started to attract the ire of a newly elected US president.
- The Brexit referendum (June 2016) and Trump’s surprising election victory (November 2016) were both symptoms of the broader malaise affecting liberal democracies and global market capitalism in the second half of the 2010s. They should both be seen as protests votes by their respective electorates, which for two decades had experienced a hallowing out of both the working and middle classes and stagnant wage growth and relative declines in the standard of living. Globalization was clearly not working to the benefit of all, and inequality was and is at record highs in advanced industrialized countries. Trumps ascendency to the White House would spell the end to efforts by America to demonstrate leadership in overseeing the global system of alliances it had built and nurtured since the end of the Second World War. Trump has proven to be a wrecking ball and a decisive figure both at home and abroad. By the end of 2019, after almost 18 months of a punitive tariff war with China, confidence in the global economy was at historic lows, with the IMF and the World Bank predicting only sluggish global economic growth, due largely to the uncertainty that Trump’s trade war with China had unleashed. The world was already in a very tenuous and precarious position and that was before COVID-19 hit.
- As we’re all well aware now, nobody more so than in the United Arab Emirates, COVID-19 has been an unmitigated disaster for the global economy and we are not yet out of the woods. In fact we are not likely to see a return to any kind of normality until we either discover a vaccine or most of the world’s population develops herd immunity, which would require much higher rates of infection and recovery. This has without doubt been the greatest challenge many of us have every faced, and the impact of this crisis and its effects are likely to be long-lasting. But where there is unprecedented hardship, there is also the opportunity to embrace radical change and reform, of the kind that would never have been palatable in less distressed times.
- And this is where I will conclude this presentation, with some words on what governments need to be thinking about as they prepare for recovery. Number one is the long-term impact on labour markets. This crisis has shown that governments have a role to play in cushioning the blow that comes from sudden and unexpected economic hardship, but that people also have a responsibility to re-skill and pivot to something new when this is called for. I think this crisis will ultimately result in greater resilience on the part of workers, but governments must make sure people can come out of this with their livelihoods and basic financial positions intact. Another long-term impact will be in the area of technology. This crisis has shown how reliant we are on online connectivity and the tools that allow us to stay connected even if we can’t physically travel. I think this will ultimately lead to a reemphasis on connectivity infrastructure, especially now as we are at the dawn of a new generation of communication network technologies (5G). Another long term impact will be in the area of supply chain resilience as companies and governments develop so-called China+1 strategies and consider reshoring what can be reshored and rebalancing or redistributing among different suppliers what can be. The almost mindless focus we have seen on maximizing economic efficiency will be replaced by a greater concern for systemic resilience. And finally and somewhat optimistically I would think that as we come out of this crisis, this will bolster and give rise to a new era of international solidarity as we all come to realize that we all rise and fall together and our fates are all intrinsically intertwined. This of course presupposes that we can get past the current tensions besetting relations between China and the United States, which is as much to do with US presidential election politics as it is anything else. I would hope that the world can emerge from this with a renewed sense of the importance of a rules-based international order, the operative terms their being rules and order.
- I’ll leave it at that. Am happy to take questions, either now or via email. Many thanks and please keep in touch.