Making the right choice
The end of hyper-globalisation need not mean a world where geopolitics trumps everything else
The post-1990s era of hyperglobalisation is now commonly acknowledged to have ended.
The Covid-19 pandemic and Russia’s war against Ukraine have relegated global markets to a secondary role behind national objectives – in particular, public health and national security.
But all the talk about deglobalisation should not blind us to the possibility that the current crisis may produce a better globalisation.
In truth, hyper-globalisation had been in retreat since the global financial crisis of 2007-08. The share of trade in world gross domestic product began to decline after 2007, as China’s export-to-GDP ratio plummeted by 16 percentage points.
Global value chains stopped spreading. International capital flows never recovered to their pre-2007 heights. And populist politicians openly hostile to globalisation became much more influential in advanced economies.
Hyper-globalisation crumbled under its many contradictions.
First, there was a tension between the gains from specialisation and productive diversification. The principle of comparative advantage held that countries should specialise in what they were currently good at producing. But a long line of developmental thinking suggested that governments should instead push national economies to produce what richer countries did.
The result was the conflict between the interventionist policies of the most successful economies, notably China, and the “liberal” principles enshrined in the world trading system.
Second, hyper-globalisation exacerbated distributional problems in many economies. The inevitable flip side of the gains from trade was the redistribution of income from its losers to its winners. As globalisation deepened, redistribution from losers to winners grew ever larger relative to the net gains.
Third, hyper-globalisation undermined the accountability of public officials to their electorates. Calls to rewrite globalisation’s rules were met with the retort that globalisation was immutable and irresistible – “the economic equivalent of a force of nature, like wind or water”, as former US president Bill Clinton put it.
Fourth, the zero-sum logic of national security and geopolitical competition was antithetical to the positive-sum logic of international economic cooperation. With China’s rise as a geopolitical rival to the United States and Russia’s invasion of Ukraine, strategic competition has reasserted itself over economics.
The worst outcome, recalling the 1930s, would be withdrawal by countries (or groups of countries) into autarky.
A less bad, but still ugly, possibility is that the supremacy of geopolitics means trade wars and economic sanctions become a permanent feature of international trade and finance.
The first scenario seems unlikely – the world economy is more interdependent than ever and the economic costs would be huge – but we cannot rule out the second. Yet, it is possible to envisage a good scenario whereby we achieve a better balance between the prerogatives of the nation state and the requirements of an open economy. Such a rebalancing might enable inclusive prosperity at home and peace and security abroad.
The first step is for policymakers to mend the damage done to economies and societies by hyper-globalisation and other market-first policies.
This will require reviving the spirit of the Bretton Woods era, when the global economy served domestic economic and social goals – full employment, prosperity and equity – rather than the other way around. Under hyper-globalisation, policymakers inverted this logic, with the global economy becoming the end and domestic society the means.
Some might worry that emphasising domestic economic and social objectives would undermine economic openness. In reality, shared prosperity makes societies more secure and more likely to countenance openness to the world.
Trade benefits a country as a whole, but only as long as distributive concerns are addressed. It is in the self-interest of wellmanaged, well-ordered countries to be open. This is also the lesson of actual experience under the Bretton Woods system, when trade and long-term investment increased significantly.
A second important prerequisite for the good scenario is that countries do not turn a legitimate quest for national security into aggression against others. Moscow may have had reasonable concerns about Nato enlargement, but its war in Ukraine is a completely disproportionate response that is likely to leave Russia less secure and prosperous in the long run.
For great powers, and the United States in particular, this means abandoning the quest for global supremacy. The US tends to regard American predominance in global affairs as the natural state of affairs. In this view, China’s economic and technological advances are inherently and self-evidently a threat, and the bilateral relationship is reduced to a zero-sum game.
Leaving aside the question of whether the US can actually prevent China’s relative rise, this mindset is both dangerous and unproductive. For one thing, it exacerbates the security dilemma: American policies designed to undermine Chinese firms such as Huawei Technologies are likely to make China feel threatened and respond in ways that validate US fears of Chinese expansionism.
A zero-sum outlook also makes it more difficult to reap the mutual gains from cooperation in areas such as climate change and global public health, while acknowledging that there will necessarily be competition in many other domains.
In short, our future world need not be one where geopolitics trumps everything else and countries (or regional blocs) minimise their economic interactions with one another. If that dystopian scenario does materialise, it will not be due to systemic forces outside our control. As with hyper-globalisation, it will be because we made the wrong choices.
Dani Rodrik, professor of international political economy at Harvard University’s John F. Kennedy School of Government, is president of the International Economic Association and author of Straight Talk on Trade: Ideas for a Sane World Economy. Copyright: Project Syndicate
Such a rebalancing might enable inclusive prosperity at home and peace and security abroad