Is globalisation doomed?
VoxEU Blog/Review Politics and economics

Is globalisation doomed?

Pascal Lamy argues that the future of globalisation depends on our capacity to direct the dominant economic system – capitalism – towards a different course

Editor’s Note: This blog is the text of a speech made at the University of British Columbia in Vancouver in October 2019.

Globalisation has been the main transformation of the world for several decades. What I call globalisation for the purpose ofthis discussion is a phase, among past and future phases, of capitalism. A phase of expansion of market capitalism resulting in an intensification of international exchanges, whether trade in goods, services, capital or people.

For quite some time, the view had prevailed that this reality we live in would be the new normal and would prevail in the future, with a few dissenting opinions.

But more recently, especially since the 2008 financial crisis, the mood has changed. According to some, the growing economic, social and political turbulence which we now have all over the place on this planet should, or will, result in de-globalisation – a reverse of globalisation, with the world economy becoming more fragmented rather than more united. Some like it, others do not. Some see de- globalisation as the solution to our problems, and others see de-globalisation as a threat as it would handicap finding solutions to the problems that cause the present hardship.

In order to try to shed some light on this major debate and to introduce our discussion, I will make three points. The first one is about the main shaping factors of globalisation as we have seen it for the last decades. The second one is about whythis change of mood happened. The third point is about how we could do better in harnessing globalisation in times to come.

Starting with why we had this wave of globalisation, which succeeded previous waves of globalisation in human history, I see two main shaping factors: technology and ideology.

Technology, which I believe remains the main engine of globalisation, produced leaps forward in transportation systemsleading to a reduction of the cost of distance – from wind, to steam, to electricity, to aviation, to containerisation, to the internet, etc. Reducing the cost of distance is the main trade facilitator as it alleviates the main obstacle to the expansion of markets of goods and services and the circulation of capital and people towards an asymptote equal to zero.

The second engine is ideology, a global consensus according to which the opening of international exchange is the right way to go. The vertu of a simple Ricardo-Schumpeterian model according to which the combination of comparative advantage and competition is a source of efficiencies and thus a growth accelerator. Hence the multi-localisation of production systems and the organic proliferation of global supply chains now spanning the planet. Reducing obstacles to trade resulting from public policies that protect producers from foreign competition is the line to take, as it fosters this process. Of course,these efficiency gains are not painless because of the winner–loser equation intrinsic to this model, but as long as growth and welfare systems make it politically acceptable, it works.

Why is this rosy picture now in doubt?

I think there are several reasons for that.

Not that it has not worked. The positive effects of globalisation have happened: many winners, and in a proportion totally unprecedented in human history, starting with Asia. A clear and huge benefit in terms of poverty reduction. But also, more losers, and losing relatively more than was expected. Because of the rapid increase of inequalities everywhere, and because of the poor response of the welfare systems which were built in the western world in the 19th century as a consequence of the previous big wave of change and globalisation. They did not properly cushion the increasing social violence of globalisation for the weakest, hence the political backlash in particular after the 2008 crisis. Trump, Brexit, the rise of populism.

To this well-known problem of capitalism with social justice, globalisation is now seen – rightly or wrongly – as having added a new, fast-growing dimension: climate justice and environmental degradation. Trade expansion, a major feature of globalisation for public opinion, is fingered as the culprit.

Globalisation has also resulted in a rapid geopolitical rebalancing between the previous US hegemony and a growing China which, as predicted by Thucydides, may pit the two countries against one another in a dangerous rivalry. This is the real background to Trump’s ill-conceived, damaging and inefficient tariff wars and of the resurgence of nationalism. A world disorder apparently succeeding a world order.

Democracy, where it exists, is also under threat of illiberalism, or is at least questioned, as a result of social discontent and maybe of the echo chamber of social networks, which have created a new space for polarising and antagonistic political expression (where they were previously seen as a tool for freedom of expression) and which are transforming feelings of belonging and of threats to identity from ‘foreigners’.

Socioeconomic discontent amplified by digitalisation, more fractured societies, protests everywhere, a more dangerous world. Certainly not the implicit assumption of more peace and happiness behind the ‘end of History’ mantra. And more appeals about de-globalisation as the way to go.

Which takes me to my third point: is de-globalisation the way to go?

At the risk of being blunt, my answer is no. For one main reason: given the degree of interdependence we have reached now, it would be extremely costly. Globalisation is efficient and painful. De- globalisation would be inefficient and painful. Justlook at the troubles of Brexit, the impact of Trump’s tariffs, or at studies about the disproportionate impact on growth ofreducing trade on CO2 emissions. Or think about the consequences it would have for poor people in poor countries.

But then, how can we avoid de-globalisation if it is the choice of people tired with globalisation (where people can choose)? My answer: by making globalisation less painful, less stressful for humans and nature, by being better at harnessing it than we have been recently.

Starting with focusing on the right problem, which is not globalisation but capitalism. For those of you who know the Chinese proverb, let’s look at the moon (which is capitalism) not the finger (which is globalisation). And recognise that the present version of capitalism underlying globalisation exacerbates its well-known flaws: instability, social injustice, environmental degradation. Hence, a reform agenda around a few priorities: taming finance and its excesses, new systemsto reduce social insecurity and cope with the digital revolution, turning production systems towards circularity through proper pricing of environmental externalities.

Assuming this direction is accepted, we are left with another challenge of today's version of globalisation, which is the global governance deficit, accentuated by attacks against multilateralism. Here again, let’s accept that the existing racket has many holes and that the Westphalian model we have inherited has structural imitations. But also, that the solution is not to destroy it but to complement it with otherapproaches based on solutions and on non-sovereign stakeholders, like those that led to better results in the case of the fight against HIV/AIDS. These new endeavours are the ones we are helping to succeed with the annual Paris Peace Forum, which I have the privilege of chairing and which was launched last year on the occasion of the centenary of the armistice of WWI. Tapping the formidable source of energy and engagement in civil society to address global problems – be it business, cities or academic institutions – and also the power of digital tools to catalyse new creative coalitions.

To conclude by coming back to the initial question, whether or not globalisation is doomed depends, in my view, on ourcapacity to direct the dominant economic system – i.e. capitalism – towards a different course. The UN SDG agenda offers, inmy view, the right picture of where to go. The present numbers tell us that without a huge collective effort, we will remain far from this target in 2030 in most cases. Reforming capitalism remains priority number one. It is urgent. Still, dreaming of an alternative might help us achieve it.