The opinion that the era of hyperglobalization that began at the end of the 90s of the 20th century is inexorably going down in history is now generally accepted. The covid-19 pandemic and the Russian invasion of Ukraine pushed global markets into the background and assigned them at best a secondary role in the fight to protect national interests - primarily in the domain of public health and national security. However, we must not lose sight of the fact that the current crisis can bring about a different and better globalization.
Hyperglobalization has been in retreat since the global financial crisis of 2007-08. The share of trade in world GDP began to decline in 2007, when the export of goods and services from China, expressed as a percentage of GDP, fell by a full 16 percent. The global financial crisis has halted the expansion of global supply chains. International capital flows have never returned to pre-2007 levels. Populist politicians who openly oppose globalization have gained considerable influence in advanced economies.
Hyperglobalization collapsed under the weight of internal contradictions. The first contradiction is a consequence of the tension between the benefits of specialization and the benefits of diversification of production. The principle of comparative advantage states that countries should specialize in production in the sectors in which they achieve the best results. Theories of economic development, on the other hand, teach that governments should focus on producing what rich countries already produce. The consequence is a discrepancy between the interventionist policies of the most successful economies, such as China, and the "liberal" principles embedded in the foundations of the world trade system.
Second, in many economies, hyperglobalization has deepened the problem of uneven distribution. The inevitable flip side of the profit made by trade is the redistribution of income in favor of the winners, and at the expense of the losers in this process. With the acceleration of globalization, such redistribution is increased in relation to net profit. Economists and technocrats who ignored the logic of their discipline shook the public's faith in economics.
Third, hyper-globalization has enabled public officials to bypass their accountability to the electorate. Calls to change the rules of globalization were met with the response that globalization is an irreversible and unchanging process - "the economic equivalent of the forces of nature, like wind or tide", as the President of the United States, Bill Clinton, once said. To those who challenged the prevailing system, the Prime Minister of Great Britain Tony Blair replied "that we can also argue whether autumn should come after summer or not".
Fourth, the zero-sum logic imposed by the interests of national security and geopolitical competition conflicts with the positive-sum logic of economic cooperation. With the rise of China as a geopolitical rival of the United States and Russia's invasion of Ukraine, building strategic positions has once again become more important than developing economic cooperation.
After the collapse of hyperglobalization, everything will be possible. The worst outcome would be a situation similar to that of the 30s - the withdrawal of states (or groups of states) into autarky. In a slightly less bad, but still unfavorable scenario, due to the primacy of geopolitics, trade wars and economic sanctions will become a permanent element of the new system of international trade and finance. The first scenario is not too likely - the degree of interdependence in the world economy has never been higher and the economic losses would be huge - but we cannot rule out the second possibility.
It is possible to imagine a more favorable scenario in which we would be able to harmonize the powers of national states and the needs of an open economy and thus ensure more inclusive prosperity within each country and peace and security on the international stage.
The first task of state policies is to repair the damage that hyper-globalization and giving absolute priority to the market have already done to our economies and societies. This means reviving the spirit of the Bretton Woods era, when the global economy served the accepted goals of society and national economic interests - full employment, prosperity, equality - and not the other way around. In the period of hyperglobalization, that logic was reversed, so the global economy became the goal, and society only a means. Global integration has led to internal disintegration.
Some will worry that too much insistence on the economic needs of society may threaten economic openness. But there is no doubt that a more even distribution of prosperity makes every society safer and better prepared to support an open global economy. A key lesson of economic theory is this: countries as a whole always benefit from trade, provided that distribution is orderly. Economic openness is in the interest of any well-governed country. This is taught by the historical experience of the system established in Bretton Woods, which brought significant growth in the volume of trade and long-term investments.
Another important prerequisite is that the legitimate protection of national security interests does not turn into aggression. It is possible that Russia had reason to be concerned about the expansion of the NATO alliance, but invading Ukraine is a completely inappropriate response that will make Russia less safe and prosperous in the long run.
This means that the great powers, especially the United States, must accept a multipolar world and abandon the project of global supremacy. The United States perceives its dominant position on the global stage as a natural state of affairs. From such a perspective, China's economic and technological successes are seen as a direct threat, so bilateral relations return to the zero-sum logic.
Even leaving aside the question of whether the United States can stop China's relative rise, such an approach is inherently dangerous and counterproductive. First of all, this deepens the security dilemma: American policies directed against Chinese companies such as Huawei are expectedly interpreted as a threat in China and produce reactions that confirm American fears of Chinese expansionism. In such an environment, it is much more difficult to achieve mutual benefit through cooperation in areas such as climate change and global public health, while accepting the inevitability of competition in other areas.
In short, the world that awaits us does not have to be a world sovereignly ruled by geopolitics and in which economic interactions between states (or regional blocs) are minimized. If such a dystopian scenario comes true, it will not be the result of systemic forces over which we have no control, but the result of our wrong choices.
(Project syndicate; Peščanik.net; translation: Đ. Tomic)
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