The Waning Phase Of Globalization Has Begun
The economic slump has slowed the globalization process, but it's not just cyclical. As alliances crack and problems spread, the interconnected world system may have just maxed out.
BUENOS AIRES — There has been an upheaval in how modern societies function in recent decades, with the dizzying integration of global trade and finance, cheaper transport and easier communications through the Internet.
What is roundly referred to as globalization has ushered in an explosion of new productive capabilities. International trade has grown at rates superior to that of the global GDP, capital crosses frontiers seeking opportunity, and foreign investment has multiplied at the hands of multinational firms.
In many emerging countries, accelerated growth has substantially raised the living standards of hundreds of millions of people. The citizens of developed countries have benefited not only from lower interest rates but also from numerous, cheaper imported products.
But the financial crisis that began in the United States in 2008 and extended across the world has slowed the world economy's integration process. International trade has become fragmented, and there has been a break in the trade talks that helped forge an institutional framework for the expansion of global trade in past decades.
The last round of talks, the Doha Round, broke down, and the World Trade Organization's recent efforts to forward particular items, such as trade facilitation from the Bali Package, have been halted.
In regional terms, European integration is faltering. The Mercosur bloc — comprised of Argentina, Brazil, Paraguay, Uruguay and Venezuela — is paralyzed, and U.S. efforts to forge ambitious trade liberalization accords face problems. International flows of capital have shrunk compared to pre-crisis levels. Banks are lending less, and liquidity has decreased on secondary bond markets.
The economic downturn has shown the need to reform multilateral financial institutions (the IMF and World Bank, especially), though there has been little progress so far. Meanwhile, emerging powers such as China and Russia are promoting alternative mechanisms (direct loans or currency swaps) to resolve crisis situations outside the multilateral system.
Coordination of economic policies among the great powers worked in the first phase of the crisis, through the G7 and G20, before its efficacy began to fade. The next increase in U.S. interest rates could generate exchange and financial tensions among countries whose macroeconomic cycles are not aligned.
After the failure of the 2012 Copenhagen meeting, global warming negotiations have faltered, and the main actors seem to have found no common denominator allowing progress in this issue.
Virtual threats too
Globalization is also threatened on the Internet. The idea that everyone can access the same information on the Web is being questioned. Countries with authoritarian governments such as China and Russia are trying to block Internet to suppress dissent and silence opponents.
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Protests in 2011 in Athens. Photo: Ggia
Privacy issues are also threatening the Web's universality. Spying by U.S. and other governments and repeated violations of user privacy by some Web and IT firms are threatening fragmentation.
The internal policies of many states, and increasingly vigorous "anti-establishment" parties and separatist movements in Europe, confirm and contribute to these tendencies. Protectionism is back on the agenda, with the imposition of discreet, non-tariff barriers.
The main geopolitical conflicts (Russia/Ukraine, Middle East, China vs. Japan and other states of the South China Sea) have prompted a string of trade and financial sanctions that thwart economic integration and undermine confidence among countries.
The current slowing down may of course pass. The process of integration may partly recover its pace when the crisis ends and with the mitigation of some of its negative consequences — reduced growth, job losses and problems of competition. Yet there are structural reasons for believing that globalization will slow down in the future. For it requires a political architecture to sustain it: a hegemonic nation or concert of great powers that define and administer the rules of the game.
In the second half of the 20th century, U.S. strategic and economic interests were aligned with globalization's progress. Pushing for the liberalization of global trade and finance, promoting European unity, incorporating China into global capitalism and forging North American economic integration through NAFTA — all were U.S. national objectives in line with the march of globalization.
Now, the U.S. doesn't seem ready to pay the costs of maintaining its leading role as guarantor of a system that is swiftly redistributing power and riches to its main rivals. China, India and Russia seem in turn disinclined to accept responsibilities and become garantors of the multilateral system they have helped create.
We are entering globalization's waning phase. The benefits of global interdependence are showing their limits, and conflicts among nations and a more brutal rivalry between the great powers ushers in a new era of fragmentation around the world.
* Felipe de la Balze is an economist, academic and businessman specializing in international issues.