The top of globalization as we all know it by Jean Pisani-Ferry
The tension between the unprecedented need for global collective action and the growing drive to rebuild political communities behind national borders is a critical challenge facing policymakers today. And it is currently unclear whether they can reconcile the two agendas.
PARIS – For most people, globalization has been another name for nationwide liberalization for decades. In the 1980s in particular, governments allowed goods, services, capital and data to move across borders with few controls. Market capitalism triumphed and its economic rules applied worldwide. As the title of Branko Milanovic’s latest book rightly suggests, capitalism was finally alone.
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True, there were other aspects of globalization that had little to do with market capitalism. The globalization of science and information has expanded access to knowledge in unprecedented ways. Through increasing international civic engagement, climate activists and human rights defenders coordinated their initiatives like never before. Meanwhile, governance advocates argued early on that only globalization of politics could offset the advancement of markets.
But these other sides of globalization never did justice to the economic dimension. Globalization of politics was particularly disappointing as the 2008 financial crisis epitomized failure of governance.
This phase of globalization is now ending for two reasons. The first is the sheer magnitude of the challenges facing the international community, of which global public health and the climate crisis are only the most important. The shared responsibility for the global commons is undisputed. So far the achievements here have been meager, but global governance has won the battle of ideas.
The second reason is political. Country after country has seen a rebellion among those left behind, from Brexit to the election of Donald Trump as US President to the French “yellow vests” protests. Each community has expressed its unhappiness in its own way, but the common threads are unmistakable. As Raghuram Rajan put it, the world has become a “nirvana for the upper middle class” (and of course the rich), “where only the children of the successful are successful”. The marginalized increasingly end up in the nativist camp, which conveys a sense of belonging. This calls into question the political sustainability of globalization.
The tension between the unprecedented need for global collective action and the growing drive to rebuild political communities behind national borders is a critical challenge facing policymakers today. And it is currently unclear whether they can resolve this contradiction.
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Pascal Canfin, chairman of the European Parliament’s Committee on the Environment, Public Health and Food Safety, advocates what he calls “the advancing age of globalization” in a far-reaching recent paper. Canfin argues that the fiscal and monetary activism that almost all advanced economies advocate in response to the pandemic, the increasing convergence of their climate change plans and the recent G7 deal on taxing multinational corporations suggest that globalization of governance is becoming a reality. Similarly, the greening of global finance is a step towards “responsible capitalism”.
One may question the magnitude of the victories Canfin lists, but he’s right that advocates of global governance have recently taken the initiative and made enough progress to regain credibility. Advancing globalization is no longer a pipe dream; it becomes a political project.
But while the globalization of governance may placate the left, it will hardly alleviate the plight of those who have lost good jobs and whose skills are being devalued. Workers who feel threatened and find protectionist solutions attractive expect more concrete answers.
In a recent book, Martin Sandbu of the Financial Times outlines an agenda for restoring economic belonging while keeping borders open. His idea, in short, is that every country should be free to regulate its internal market according to its own preferences, as long as it does not discriminate against foreigners. For example, the European Union can ban chlorine washed chicken (which it does), not because the chicken is made in the United States, but because the EU doesn’t trust the product.
Likewise, every country should be able to ban wood from deforestation or loans from undercapitalized banks, provided that the same rules apply to domestic and foreign companies. Transactions would remain free, but national standards would apply across the board.
This is a healthy principle. But while application to products is straightforward and actually there, processes are notoriously difficult to do. A certain product or service ultimately comprises all applicable standards along its value chain. It is true that multinational corporations are now being forced to identify and end the dependence on child labor with their direct or indirect suppliers. However, it would be difficult to do the same with working conditions, trade union rights, local environmental damage or access to subsidized credit.
Furthermore, attempting to do so would create stiff opposition from developing countries, whose leaders argue that submission to advanced economic standards is the surest way to lose competitiveness. Earlier attempts to include social clauses in international trade agreements failed in the early 2000s.
An important test will come in July, when the EU announces its plans for a mechanism that would require importers of carbon-intensive products to purchase credits in the EU emission allowance market. As long as decarbonization does not proceed at the same speed everywhere, the economic arguments for such a border adjustment system are impeccable: The EU wants to prevent producers from circumventing their emission limit values by moving. But it sure is controversial. The US has already expressed concern about the idea, China is cautious and developing countries are sharpening their arguments against it.
The upcoming negotiations on this issue will be of enormous importance. At stake is not just whether and how the EU can move forward with its decarbonization plans. The more fundamental question is whether the world can find a way out of the tension between dispersed national and regional preferences and the increasingly pressing need for collective action. The climate has become the testing ground for this.
Ultimately, the outcome will show whether the dual agendas of rebuilding economic belonging and managing the global commons can be reconciled. It will take time to find out the answer. The old globalization is dying, but the new one has yet to be born.