Globalisation in a time of populism

Dhaka,  Sun,  04 December 2016
Published : 24 Nov 2016, 20:41:55

Globalisation in a time of populism

Hasnat Abdul Hye
To say that globalisation is at a crossroads would be an understatement; it is very much under threat. Even in its heydays globalisation had its critics among whom were policy makers, economists and hard-nosed trade unionists. Of late they have been joined by common people who have vented their opposition through the ballot box in the referendum on Brexit and during the American Presidential election. In the case of the former the ire of voters was directed mostly against immigration, a visible component of globalisation. In the latter, the targets of the voters were immigration and free trade, two other aspects of globalisation. Another aspect of globalisation, movement of capital and investment abroad, was also mentioned by the Republican candidate, now President-elect Donald Trump, for loss of jobs by American workers. Across the Atlantic, so far critiques of globalisation have focused on influx of refugees who as immigrants are seen a threat to employment and as a drain on public resources for social welfare benefits. All told, a populist frenzy has been whipped up in a number of developed countries against the process of globalisation.

The backlash from electorate is not the first manifestation of anti-globalisation feelings and anger. The rowdy throngs of placard-brandishing jean-clad young men and women who demonstrated violently against World Trade Organisation (WTO) and G-7 meetings, from Seattle to Genoa in the recent past, were against capitalist exploitation and growing inequality allegedly embodied by globalisation. But their agenda was based on ideological ground and the objective was to put human face on capitalism and not press for its demise. 

From the crescendo of criticism and vitriol it would appear as if globalisation is a recent phenomenon. Along with trading and goods, movement of capital and men took place across the borders for mutual benefit. The theory of comparative advantage rationalised this process and remains the underlying force of globalisation. It became institutionalised with the flowering of capitalism in Europe. After colonisation, globalisation - particularly trade - was tilted in favour of the colonial powers. Individual benefits of indigenous traders minimised the sense of loss for the country in general. The end of the Second World War hastened the process of colonisation opening a new phase in international trade. Being the producers of raw materials and mineral resources, the newly independent countries were at a disadvantage in trading with industrially developed countries. As early as 1950, Raul Prebisch, a Latin American economist, in his seminal report to the United Nations showed how developing countries suffered from trade because of adverse terms of trade. 

Among the three international institutions established after the Second World War was General Agreement on Tariff & Trade (GATT) whose task was to reduce tariff to allow greater access of goods from developing countries to the market of developed countries and also to help the latter to expand trade with each other. Established in 1947, GATT was almost a still-born baby, having no mandate to cover agriculture, services, investment and competition. But even this restricted role was rendered ineffective because of the non-binding nature of its decisions. To kick-start tariff reduction across a wide range of goods and services a round of trade talks was initiated in the eighties. The eight-round talks held in Uruguay came to be known by its eponymous name. In 1991 the director general of GATT submitted a 15-point proposal to promote trade and investment most of which took greater care of developed countrys' interest. GATT held its last meeting of the Uruguay Round in Marrakesh in 1994 which led to the formation of the World Trade Organisation (WTO) in 1995.

As in the various Rounds of talks under GATT, discussion on tariff reduction, subsidy withdrawal and opening up services sector in WTO meetings became contentious and consensus proved elusive. If globalisation in trade and investment was expected to get a shot in the arm, the outcome of successive meetings of WTO at ministerial and summit levels belied that. What is worse, WTO was bypassed by many countries, particularly developed ones, who struck bilateral and regional deals that undermined WTO. The Americans in particular fought tooth and nail against liberalisation of trade that could harm their national interests and no concession was made in the interest of accelerating globalisation.

It was at America's initiative that North American Free Trade Agreement (NAFTA) was concluded. America perceived not only mutual benefits out of NAFTA but disproportionately greater benefits for itself. Again, it was America guided by its national interests that concluded the Trans-Pacific Partnership (TPP) and proposed Trans-Atlantic Trade and Investment Partnership (TTIP) to Europe. 

Globalisation that has come under attack by populists and their politicians in America has been shaped by their astute and hard-nosed negotiators. It defies belief that now the Americans should be crying foul as if they have been short-changed by other countries. They refuse to accept the fact that in all trade deals there are winners and some losers. 

Globalisation is not a zero-sum game, rather on balance it has produced a win-win situation for all participating countries. If a section of American population has been hurt by globalisation a greater number has benefited as otherwise their government would not have agreed to the trade deals. The answer to this asymmetrical benefit is not to turn away from globalisation but to take care of those who have been adversely affected. Taxing the beneficiaries of globalisation to compensate the losers through various programmes is one solution that has not been tried so far. The failure of politicians lies in this and not in agreeing to globalisation through free trade. The 'course correction' mentioned by President Obama in his farewell speech in the Asia-Pacific Economic Cooperation (APEC) meeting in Peru should focus on alleviating measures to be taken by governments to help the vulnerable groups in their countries. 

In the backdrop of populist ire against globalisation and the politicians realisation about the so-called downside of globalisation, what course of action is likely to be taken by the principal actors, particularly America? Raising a protectionist wall with 35 per cent tariff on Mexican and 45 per cent on Chinese goods cannot be an option. It will invite retaliatory measures unleashing a protectionist war reminiscent of the Great Depression years of the last century. More immediately, it will disrupt the supply chain of American industries causing more unemployment. In the medium-term the world economy will go into a tailspin shrinking growth across the world. 

If America takes refuge behind an isolation policy, the outside world will not sit idly by. Even xenophobe Britain, Austria and Netherlands where populist forces are gaining ground, will not be motivated to upset the apple cart of free trade. While Britain after Brexit will look for bilateral trade deals, the other members of the European Union (EU) will stick to the Common Market about whose benefits they have no doubt. China, on the other hand, has already taken steps to usher in new initiatives in free trade, to begin with in Asia. At the last meeting of the 21-member APEC group in Peru on 20 November 20 the Chinese President Xi Jinping took the opportunity to urge support for two potential accords his country is backing. These are an APEC-wide deal, and a 16-nation agreement whose members will include South Asian countries including India but notably excluding America. China is now paying America back in its own coins because it was excluded from TPP by America. The immediate effect will be to give China a free hand to push its regional trade accords. This will be a heavy blow to America which had hoped that TPP would allow the US to write the region's trade rules before Beijing got there. Before this China initiated the establishment of BRICS Bank to compete with the World Bank which is dominated by America. In addition, China has already gone ahead with its One Belt, One Road Project that will bind it closer with South Asian, Middle-Eastern, Central Asian and European countries promoting growth and investment. 

It is ironic that while China is expanding the net of globalisation, America is shrinking its role in it. On the other hand, myriad small-scale trade deals have already mushroomed in Asia in recent years as efforts to forge truly global accords under the WTO have proved difficult, not least because of the non-compromising attitude of America. If America under President Trump significantly alters its trade policies with Asia (TPP) and elsewhere (NAFTA) this could prompt more bilateral and regional trade deals in Asia and Latin America.  

Globalisation will not be stopped in its tracks but proceed on a different trajectory, leaving America by the wayside. In this new dispensation America will certainly lose out. American companies will be behind their peers in other countries in competitiveness and forced to curtail production exacerbating unemployment. Domestic market will be unable to compensate for the loss of external market. Before long America will realise that the economic problems that have given rise to populism is not because of trade and globalisation but more due to economic and social change. Growing income inequality, unemployment caused by new technologies and, half-literate workers and broken-down infrastructure are at the root of America's economic malaise. Blaming globalisation is barking at the wrong tree.

America cannot do without foreign trade, in fact no country can. So America will enter into bilateral deals which would be time-consuming and not so beneficial. The benefit of a region-wide or global trade agreement will elude its grasp. As trade volume shrinks, so will domestic production. Meanwhile, globalisation will gain momentum in other parts of the world, most likely led by China. It will be difficult for America to maintain its apex position in the world economy. Cut off from the rest of the world, American economy will go backward, diminishing the standard of living of all sections of people, including the present populists. It is a prospect no democratic government can brook for long. After paying a price America will come back to the fold of globalisation.                                                               

hasnat.hye5@gmail.com

 
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