OPINION: The agony and ecstasy of globalisation
By Andrew Sheng
18 March 2017

KUALA LUMPUR (The Star/ANN) - In essence, globalisation is about open systems. Those who realise that the world is better off through open systems welcome globalisation. Those who want to be protected and to keep the “purity” of genes and faith argue for more closed systems.

Depending who you talk to, globalisation happened either in 1492, when Christopher Columbus discovered America in search of the Orient, or sometime in the middle of 19 th century, when America decided to look outwards for global trade after its Civil War.

By 2000, when global trade, technology, finance and investments seemed unstoppable, Thomas Friedman celebrated globalisation and a borderless world as the driver of global success in his bestseller, “The World is Flat” (Farrar, Strauss & Giroux, 2005).

Globalisation had lifted billions from poverty and the logic of free trade and capital flows was accepted from Beijing to Zanzibar. But in 2007, when the North Atlantic financial crisis revealed the flaws of excessive financialisation, doubts about globalisation began to creep in.

Writing in the Financial Times this week, former Economist magazine editor Bill Emmott agonised over the irony that “the west invented what we now call globalisation and it is America, epicentre of the west, that is demonising its own invention.”

Globalisation, in the form of the spread of trade, money, people and information, is inevitable, essentially because of expanding demographics and technology. 

Human beings cannot sit still and migrate all over the world, and it was technology – the invention of railways, ships, aircraft and now information communications, that accelerated the spread of global ideas and genes.

Between 1870-1913, the invention of steamships brought the cost of freight by more than half between the US and Europe, and the price of wheat and wool converged. In the 20 th century, discounted for the price of freight, commodity prices like oil and gas, palm oil and grain became almost uniform worldwide.

Technology enabled the dramatic cutting of transaction costs, making markets and prices global.

As Nobel Laureate economist Joseph Stiglitz, author of “Globalization and its Discontents (Allen Lane 2002) aptly put it, globalisation is either positive or negative, depending on how it is managed. Stiglitz also authored “Making Globalization Work (Norton 2006)”, because like any national system, the system works well with someone providing public goods.

The internet is such a public good. It opened up the access of even the most remote of people and places to global knowledge, thus making the world more inclusive. But if the masses cannot benefit from such access, and it is easy to make wealth and income more exclusive, technology and globalisation can widen inequalities, giving rise to anger, frustration and the rise of populist sentiments. 

In essence, globalisation is about open systems. Those who realise that the world is better off through open systems welcome globalisation. Those who want to be protected and to keep the “purity” of genes and faith argue for more closed systems.

The reality is that globalisation cannot be stopped, for both positive and negative reasons. But it can be managed better. The issues that arouse anti-globalists can and should be managed. These are the inter-related issues of climate change, disruptive technology, human migration (to cities as well as abroad), and toxic politics.

Being a businessman, Trump’s basic instinct is to manage these issues bilaterally, which is why intuitively he does not like multilateral deals like WTO, IMF and the United Nations. But these multilateral institutions provide exactly the global public goods that make globalisation positive rather than damaging. What is “fair” to a behemoth that accounts for 22% of world GDP may not be “fair” to a small bilateral trading partner one-tenth its size. The world’s multilateral rules, which took years to negotiate, are there because they bind everyone, large or small, to global mutual benefit and shared stability.

What does China President Xi’s commitment to globalisation in Davos this January really mean?

There are several guiding principles behind that gesture.

First, there is Chinese recognition that global problems like climate change, disruptive technology and human migration involve costs that can only be solved from new resources generated through growth in trade and investments.

Second, China sees globalisation as not a zero-sum game, but one where there can be benefits for all, provided the down-sides are managed on a mutually shared basis, according to mutually agreed multilateral rules.

Third, being only 15 per cent of world GDP, China on its own cannot push globalisation.

She must work with the current advanced economies like Europe (25 per cent of world GDP) and Japan (6 per cent), India, Brazil, Russia and South Africa (7 per cent), Asean (3 per cent) and the other emerging markets. In short, globalisation is already too deeply entrenched for any single country to lead or manage. This is a shared venture, making the task very complex, because there many competing interests involved. Fourth, to be realistic and pragmatic, China’s contribution to globalisation must work on the principle of comparative advantage.

Being a late-comer to globalisation, China has considerable first-hand experience in building infrastructure, supply chains and urban conglomeration under Third-World conditions. The comparative advantage came from adaptation of modern technology such as Internet platforms for the lowering of trading and transaction costs to the bottom of the pyramid. India, Kenya and other emerging markets are also moving in the same direction.

In short, to promote the good side of globalisation, we must apply 21 st century tools and experience to manage 21 st century problems. It was the failure of globalisation to be inclusive that gave voice and power to its discontents.

Going forward, the complexity is that Trump is pushing the leading economy to swing from a major contributor of global public goods to a “taxer” on globalisation. That is the true meaning of the border-tax and chiding of allies and partners alike that they need to contribute to any bilateral efforts in defence or in building of walls.

But America works on the basis of freely importing resources and talent way in excess of domestic production. That manifests itself in its larger and larger current account and fiscal deficits and its growing global debt.

Which is why everyone prays that saner heads will prevail in America’s commitment to globalisation. America First cannot operate on the basis of everyone else loses. Just as business is too important to be left to businessmen, globalisation is too important to be left to its discontents. 

(Andrew Sheng writes on global issues from an Asian perspective)

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