Globalization’s ongoing challenge
Are
politics and aid—in lieu of free trade—to blame for the issues facing
globalization today?
The short-term nature of election
cycles coupled with tough tariffs and foreign subsidy programs are just some of
the factors that have led to the globalization quandary, particularly in
emerging markets. In this interview with McKinsey’s Rik Kirkland, global
economist and author Dambisa Moyo discusses the current state of globalization
and what can be done to better deliver on its promises.
I think that there are good reasons for people to feel
aggrieved, and I think that a lot of people feel that globalization has not
delivered on its promise to “lift all boats.” And therefore, in a nutshell, it
is broken.
Broken promises
In order to think about whether or not globalization is
broken, I think it’s important for us to remember what was promised around the
Washington Consensus. And there were essentially four pillars of the Washington
Consensus.
One was around trade—free trade of goods and services.
Two, the free
movement of capital across border capital flows.
Number three was about immigration and the ability for free movement of people.
And finally, the size of government. And for each of these, I would argue,
we’ve seen a number of failures over time.
If we take trade and cross-border capital flows, they
have an overarching governance system at the global level. So with trade, it’s
the World Trade Organization. With capital flows, it’s the International
Monetary Fund, the IMF. We actually never established an international
immigration agency; that has actually always been within the purview of the
nation-state.
If you look at trade and cross-border flows, what has
happened in retrospect is that we actually never saw full globalization. We
were supposed to get to a point where everyone—essentially through comparative
advantage—was producing what they were best at producing.
But what we’ve seen is that governments have much more
power than the international agencies. And essentially we’ve had a lot of trade
barriers over the last multiple decades. Over the last year alone, according to
Global Trade Alert, we’ve had 644 new tariffs.
So we essentially have had a situation where common
culture policy and foreign subsidy programs have locked out goods and some
services from the emerging-market countries, thus creating a class of winners
and losers from the globalized system.
Free trade, not aid
What I’d like to do is walk you through a simple
example. Governments sign up for the idea of trade being a good idea and
globalization is fantastic. But they decide—because they’re trying to protect
their local farmers, for example—to impose tariffs against this (for argument’s
sake, take your pick of any) emerging-market country.
The problem is, as a substitute for the money that is
lost to trade revenues for those countries, many international voices decided
that the best way to sort of bridge that gap was to give those countries aid. I
won’t get into the details of why aid might be problematic, but what has essentially
happened is that, because those countries did not have the proceeds from trade,
they were unable to invest in education, in health care, other public goods,
national security, and infrastructure.
So we have seen, over time, an increase in both political
and economic uncertainty, because many people in those countries no longer have
access to opportunity. As you know, 90 percent of the world’s population lives
in an emerging market. And for many countries, 80 to 85 percent of the economy
is agriculture based. So it is a significant impact if there are trade barriers
that do not allow for the sale of those goods.
You then end up in a situation where those countries
that are losing revenue from the trade regime are starting to have political
and economic uncertainty, potentially leading to a lot of violence. And you
then see the massive immigration; we’ve seen a lot of economic but also
political immigration across Europe in just the last few years.
Now, the response, ironically enough, is to say, “We’d better
give more aid to these countries to help secure the system, wherever they’ve
come from.” But there’s not a good analysis of what the original problem
actually is.
‘It’s politics,
stupid’
Essentially, the problem with globalization is a
mismatch of the economic intergenerational aspects of economics versus the
short-termism that we see in the political decision-making process. Put another
way, politicians are basically very rationally courting and catering to their
national electorates and will always very rationally want to protect their
voters. But as a consequence, they can never have a global interest as the
priority, because ultimately [issues] will be decided in terms of their
political opportunities based on national agenda.
Although there are many reasons to pursue globalization,
and I, myself, love the idea of globalization, I do believe it can lift all
boats. The problem is, the only way that you can have effective
globalization is if you have global institutions who oversee the
aspects of the key pillars of globalization—trade, capital flows, and
immigration.
Unfortunately, it’s very hard to see that kind of a
regime, because that would effectively require national governments to cede
some of their power. Now, how that could be done or whether it could be done: I
think the European Union is one where power was ceded and, many people would
argue, to not-great effect.
The problem with the economic discussion and public
policy is that there’s no clear route out of the globalization quandary without
really reforming the global governance environment. And so do these
institutions exist? Yes, they do. But are they effective? No, they’re not,
because they do not have the ability to make effective and authoritative
decisions on these key pillars, and they constantly get usurped by national
governments.
One of the big and obvious challenges around democracy
is myopia—the fact that policy makers behave very rationally but within the
confines of these short-term cycles [in the United States,
elections are every two years]. We’re essentially trying to
deal with and solve for very long-term economic problems that are
intergenerational: education, healthcare, infrastructure. There is an implicit
tendency for policy makers to want to kick the can down the road.
Now, I believe in democracy. I think the idea of one man,
one vote is a laudable one, but I think that there have been clear challenges
with the system, and I think it’s a responsibility for all of us to think about
how we could reform and improve on democracy rather than assume it has reached
a particular equilibrium.
http://www.mckinsey.com/global-themes/employment-and-growth/globalizations-ongoing-challenge?cid=other-eml-alt-mip-mck-oth-1705&hlkid=32e27d2327824fbf947d68215bb9a619&hctky=1627601&hdpid=9a315674-fe37-4651-9809-27cb62d94b1d
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