We need to find a path to peaceful coexistence and co-operation, fixing the social and economic damage of the last three decades.
Hyper-globalisation is exhausted. The smoke of (commercial) war between China and the United States, followed by (real) war in Ukraine and more recently in the middle east, is compounded by the flames of ever-growing inequalities and wage stagnation, which have propelled a populist backlash in advanced economies and fully-fledged illiberal regimes in many developing countries. Even globalisation’s biggest boosters now concede that it has produced lopsided benefits and that the threats which became evident during the pandemic, and the supply-chain catastrophe, provide no justification for weak regulation and low labour costs.
The outlook for the world economy is uncertain. In the US, Joe Biden’s administration is pursuing a course correction, looking inwards for economic security while in quest of global supremacy. Many other countries are taking this approach and now look at bilateral relationships essentially as zero-sum games. The supremacy of geopolitics means trade wars and economic sanctions might become a permanent feature of international trade and finance.
Avoiding a scenario that would make it impossible to reap the mutual gains from co-operation and provide global public goods of critical importance—such as a world within planetary boundaries and global public health—relies on acknowledging multipolarity and abandoning the goal of pre-eminence. It also requires fixing the social and economic damage done by decades of market centrality under hyper-globalisation, recovering the spirit of the postwar Bretton Woods consensus while leaving more space to domestic objectives.
Today’s woes have their roots in the 1990s. After the collapse of the Berlin wall, taking advantage of their dominant position on the global scene western economies extended their model, grounded in market fundamentalism, to regulate relations between countries through ‘liberalising’ trade and capital flows. To convince ‘the markets’—that is to say, the major financial institutions—about their commitment not to intervene, they set in motion a seemingly irreversible process of delegating power to external rules and autonomous, ‘technocratic’ agencies.
Nowhere was this more evident than in the decision to replace the General Agreement on Tariffs and Trade, regulating international trade, with the World Trade Organisation in 1995. The countries joining the WTO also signed up to ‘trade-related intellectual-property rights’ (TRIPS), incorporating stringent patent and copyright rules which severely limited space for anti-trust initiatives against monopolies. They accepted the institution of international investor tribunals in trade agreements, which notably reduced their margin to adopt policies that could affect the profits of multinational corporations. More generally, they abdicated to external rules a significant share of domestic responsibilities related to trade, technology and investments.
Important issues have been excluded from the domestic political agenda in many democracies, with policy-makers increasingly more accountable to corporations than voters. Thirty years of hyper-globalisation have led to sharp increases in global market concentration and a proliferation of rentierism, whereby the world’s largest corporations attempt to protect their market power through rent-seeking activities, such as lobbying or systematic abuse of intellectual-property laws. As with the rise of the Medicis in renaissance Florence, market power accrues political power, in turn enhancing market power and so on.
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The other side of the coin has been inequality reaching unprecedented heights in industrial and developing countries alike, leading some scholars to talk of a new Gilded Age. Indeed, paradoxically, while globalisation has been about integration among countries it has also entailed disintegration within individual economies.
A further paradox is that the countries that benefited most from globalisation are the ones that did not play by its rules. Over the last three decades over 800 million Chinese have lifted themselves out of poverty—70 per cent of the world’s poverty reduction took place in China. This would certainly not have been possible had China not turned itself towards world markets, becoming an exporting superpower. But China ignored the globalisation playbook, certainly in spirit, before and after its accession to the WTO in 2001. Its industrial policy has been key to transforming the country into a factory for the world and eventually a competitor with the US in technologically intensive sectors.
Finally, over the almost 30 years separating us from the Uruguay trade round, a system sanctifying egoistic utilitarianism has proved utterly unable to provide essential global public goods in timely and equitable fashion. Just look at the stalled negotiations to reduce greenhouse-gas emissions and the shaming debate over a TRIPS waiver to increase developing countries’ access to Covid-19 vaccines.
The pandemic has fused with what has recently been labelled the ‘polycrisis’. This cluster of interdependent and mutually compounding global threats—high indebtedness and rising interest rates, inflation and a cost-of-living crisis feeding social unrest, geopolitical confrontation associated with food and energy crises and an onrushing catastrophe of climate change and biodiversity loss—is fostering a ‘lowbalisation’ or ‘slowbalisation’, partly reversing the trends of the hyper-globalisation era.
This scenario is sinisterly reminiscent of the end of the Bronze Age between the 13th and 12th centuries BC: amid interconnected crises, communicable diseases—smallpox, bubonic plague and tularemia—paved the way to widespread societal collapse. At that time, the Mediterranean was characterised by intense trade flows and important episodes of mass migration, which historians later defined as pre-modern globalisation.
The first reactions to this intricate situation and to the recent geopolitical tensions are not encouraging. In many capitals, decisions in this difficult conjuncture seem predominantly to be inspired by the ‘realist’ school of international relations, rather than universalism.
The mainly US-based realists contend that the absence of a supranational authority to impose order inevitably produces anarchy in the international system, which requires rational states to rely on themselves to achieve security. States, then, pursue their interests through the accumulation of relative, often material, power. Under such zero-sum conditions, competition and conflict are natural and inevitable. As John Mearsheimer put it, ‘the world is condemned to perpetual great-power competition’.
The US Treasury secretary, Janet Yellen, recently drummed up support from America’s allies to carve up more resilient supply chains among trusted partners through ‘friend-shoring’. The administration is reviewing gaps in domestic manufacturing and supply chains, including those for semiconductors, high-capacity batteries and rare-earth metals, dominated by (or running through) foreign countries. These initiatives have prompted fears of a global economic decoupling, particularly as the US and other advanced economies seek to avoid their emerging counterparts.
This worry is reinforced by the long list of measures, adopted or under discussion, reflecting the advanced economies’ determination to decide alone on the regulation of trade between themselves and the rest of the world. This ever-growing list includes the competition over subsidies, the ban on trade in deforestation products, the due-diligence obligation imposed on European companies, the anti-coercion regulation, the reciprocity instrument in public procurement and the exceptional trade measures implemented in the context of the pandemic and the geopolitical tensions. The defence of domestic interests through trade policy and regulation on the part of rich countries risks undermining the industrial sovereignty of developing countries.
Ensuring national security in the absence of a global enforcer does not however have to imply a world of conflict and minimal economic interdependence. During the hyper-globalisation era, most states have been unable to manage the tension between national democracy and global markets—most ended up erroneously restricting democracy in the interest of minimising international transaction costs. We now need to rebalance the prerogatives of nation-states and the requirements of an open economy.
The path ahead is narrow, as we need to expand the scope of national democratic politics and repair social contracts, while reviving multilateral governance to tackle global emergencies. The starting point should be prioritising the domestic agenda and stability. This is not inimical to an open economy—it is in fact essential to it. To overcome distrust and sustain multilateral co-operation we must ensure a fairer distribution of benefits from production and trade, and provide citizens with greater security and confidence in the face of change.
National democratic authorities should therefore be granted more space to regulate markets and influence their outcomes, in a way not dissimilar to what was possible under the Bretton Woods regime. This would entail more permissive rules on intellectual property, subsidies and standards and leave national governments free to tailor their regulations and tax regimes. Countries are different and at different levels of development. A pluralist approach, building in acceptance and respect for different political and economic systems—and for different approaches to governance and industrial policies among diverse nations—is essential to sustain social and economic progress.
Restoring national social contracts is not enough, however. We need to reform global governance and build capacity to provide global public goods. As the pandemic has shown, in our interdependent world no one is safe unless everyone is safe.
In this multipolar world, where many countries are capable of shaping reality, gaining legitimacy and fostering consensus, we need to expand the global community, giving more voice within the United Nations system and the Bretton Woods financial institutions—the International Monetary Fund and the World Bank—to countries long under-represented. Global public institutions must be accountable to their full membership, open to diverse viewpoints, cognisant of new voices and with balanced dispute-resolution systems. The calls from countries of the global south for a greater role in global governance, which echoed during the UN General Assembly in September, should be attended to carefully.
Finally, the principle of common but differentiated responsibilities, in light of varying circumstance among states in a multilateral system seeking to produce global public goods and protect the global commons, should not be forgotten when it comes to climate and trade negotiations. If we are to make any advance on these delicate topics, a positive agenda is needed: developing economies cannot be burdened beyond their capacities and should preserve space to sustain social and economic development priorities while reducing green-house gas emissions.
Piergiuseppe Fortunato is an economist at the United Nations Conference on Trade and Development, where he leads projects on global value chains and economic integration, and an external professor of political economics at the Université de Neuchâtel.