By Ricardo Evangelista
SINCE the financial crisis of 2008, the idea that globalisation is doomed gained traction in some circles, fed by the rise of nationalist movements, trade wars, the COVID pandemic and, most recently, the war in Ukraine. The free capital flows and open borders trading, which characterised the global economy over the past four decades, currently face a serious backlash.
Market optimisation is giving way to security concerns, as several states take steps to repatriate supply chains or prioritise business with like-minded partners, rather than embracing a politically neutral trading strategy. In principle, such policies are not wrong, but common sense must be applied to avoid going too far.
It is easy to lose perspective amid the noise generated by events such as Brexit, Donald Trump’s election to the US presidency or the ongoing war in Ukraine, and how how the latter exposed the West’s dependency on Russian gas and oil. However, an objective analysis of data from the last 40 years reveals that extreme poverty at a global level dropped from 42 percent in 1981 to 8.6 percent in 2018. In great part, such change was driven by globalisation.
Interconnected and interdependent economies offer greater diversity, in a dynamic that drives competition and leads to greater efficiency.
This is the opposite of what happens when markets are closed within themselves. Absolute self-sufficiency may sound like a good idea to some, but in practice it limits options, potentially leading to complacency, nepotism, corruption and poverty for large segments of the population.
Another issue detractors of globalisation tend to bring to the table is the rise in inequality recorded over the last four decades - a phenomenon that is behind the rise of populist movements across the world, which promise simple solutions for complex problems.
While it is undeniable that the top one percent of earners has, since 1980, increased its share of wealth, while that held by the bottom 50 percent has decreased, this is not necessarily a by-product of globalisation. Fair redistribution of wealth, or the absence of it, is the real problem. Fiscal authorities have so far failed to create mechanisms to compensate for the inequities exacerbated by the cross-border circulation of goods and capitals, in what concerns the distribution of the income generated by these flows. This problem can be mitigated through the implementation of fairer and more efficient taxation regimes, as well as legislation conducive to greater financial transparency.
The global economy needs re-thinking. The blind pursuit of profit must be kept in check by greater state and corporate responsibility. Trade deals must consider governance and sustainability criteria. Turning a blind eye to such concerns, provided the price is right, often leads to undesirable outcomes. The short-term advantages of pursuing a profitable contract with an autocracy do not compensate for the risks. Germany certainly regrets betting its long-term energy security on dependence on Russian natural gas.
Clearly, the globalisation of the last 40 years came with undesirable side-effects. However, it would be a mistake to completely undo it.
We must not throw the baby out with the bath water. Instead, now is the time to rethink the world’s supply chain and capital markets, and to engineer a new global order; one that strives to eliminate dependency on unreliable partners, and stimulates the adoption of positive values, such as fairness and respect for human rights, sustainability and financial transparency.
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