Bridges have been built for more than 4,000 years, linking regions together and opening routes for trade and people to pass through. From humble brick arches to mega concrete structures – they’ve all played a role in globalization. Supporters of globalization argue that improvements in communication and transportation have created a more open, tolerant and peaceful world.
In the last 100 years, it has resulted in huge growth for global trade as economies, people and cultures gradually integrated. But globalization hasn’t been without its drawbacks. And Russia’s invasion of Ukraine has helped to push international relations to a breaking point.
So, can globalization still bridge the world’s economies together? I’m here at the International Monetary Fund’s headquarters in Washington, D. C.
to speak to the institution’s chief economist on the topic. The worst is yet to come, and for many people, 2023 will feel like a recession. Pierre Olivier Gourinchas’ warning from the IMF’s World Economic Outlook in October 2022 underlined the significant slowdown in the global economy – and the reliance on global trade to function.
It’s raised questions as to whether the many benefits of globalization outweigh the geopolitical problems it’s helped create. Globalization has delivered, that's the first thing we should realize. It's lifted hundreds of millions of people out of poverty.
It's allowed the rise of emerging markets. It’s on the back of a process of integration into the global economy. So, in many ways, it has succeeded.
The roots of that success, according to historians, dates as far back as the 1st century BC to the Old Silk Road. It transported luxury goods such as gold, silver and of course silk between China and Rome, the two great civilizations at the time.
Then came the spice trade as Islamic merchants dominated the Indian Ocean and Mediterranean Sea routes.
By the end of the 15th century, the Age of Discovery had begun and with it the slave trade. The appalling exploitation of African people helped European explorers conquer and integrate new territories, such as the Americas, into their economies. But these new trade links weren’t truly global.
The first wave of globalization really began at the end of the 18th century with the British industrial revolution, which through improved manufacturing and transportation, saw huge growth in global exports. The two world wars ushered in a new era – dominated by the United States – with the help of new technologies like the car and the plane. Then came the digital revolution which turbo charged globalization to new frontiers, as China joined the U.
S. as the two global powers. But the latest wave of globalization has seen a lot of pushback.
As a result of technological advances, whole industries have been wiped out, causing mass job losses. Worker exploitation and a rise in inequality have also been, at least partly, attributed to globalization. There are a number of people who have been suffering as the economy is changing and how some local labour markets are facing competition from overseas and things like that.
So, these kinds of dislocations happened. Has globalization gone too far? In some ways globalisation has gone too far.
Kevin Gallagher is an economist and director of the Global Development Policy Center at Boston University. You know, how stock markets have bubbles? And then there's a correction, I think there's been a globalization bubble, and we're trying to correct it.
We've spent so much time almost thinking about like the globalization of markets and trade as an end, rather than a means to help us live in a more stable, more equal and, and more environmentally sound way. We have to find better ways in which we can make sure that everyone is going to be benefiting going forward. And that's part of the reason why there is so much resentment is in a sense, a lot of people feel like this is a train that left them behind.
And so why should they vote for a process that has not benefited them? Russia’s invasion of Ukraine has, in Gourinchas’ opinion, revealed underlying ‘geo-political tectonic plates. ’ Imagine the two countries are tectonic plates that rub up against each other to create an earthquake.
That earthquake has had a ripple effect on other tectonic plates. Think rising commodities prices, disrupted trade, a refugee crisis and weaker economies thanks to central banks raising interest rates at a faster-than-expected pace – all rifts that have helped push the world’s economies apart. Without intervention, these plates would become ‘distinct economic blocs’ with trade, currency and political systems that could unravel our current global economic order.
And while the conflict between Russia and Ukraine may be the epicenter of the earthquake, the geopolitical tectonic plates that make up the globalized economy had been drifting apart for years. Major economies began to drop tariff rates on imports, and many nations entered into free-trade agreements following a series of events after the Second World War, including a meeting in 1944 between 44 countries and the fall of the Soviet Union. But over the last ten years, the backlash against globalization has fuelled populist movements all around the world, which in many cases led to protectionist policies.
Protectionism is the economic policy of restricting imports to shield a country’s domestic industries from foreign competition. Data from Global Trade Alert, show that protectionist trade policy interventions have been growing faster than liberalizing ones. The rise of China and other emerging market economies came about largely thanks to globalization.
But this growing economic power may also be contributing to its fragmentation. China has been one of the largest beneficiaries of globalization when it entered the WTO. It really, really grew an incredible amount and it really allowed the rest of the world to grow because we had lower prices.
But while China adhered to the letter, most of the time of our international trade rules, they played a stronger role with their state to make sure that they produced a lot of things at home and moved into the new sectors of the future in ways that markets won't do on their own. Back in 2018, President Donald Trump accused China of unfair trading practices and intellectual property theft and began to slap tariffs on China to encourage U. S.
consumers to buy American products. China hit back with its own tariffs and accused the U. S.
of trying to prevent it from becoming the world’s dominant economic power. Being a large economic power comes great responsibilities and I think by and large, the Chinese authorities are very cognizant of that. Global discussions are taking place.
That needs to continue, that needs to be reinforced and we need to get past sort of the tensions that might be arising. There is a rebalancing of economic power and governance that is taking place. We've had this slow process over the last 40 years the rise of emerging markets as their economic power increases, there is a need for an adjustment in the way we address and deal with global problems.
And so it was bound to happen that there will be little rifts and you know, the plates will start moving apart. According to Gourinchas, the rise in these countries’ economic might was not matched by a similar rise in their financial and global institutional firepower. ’ That’s in part down to the dominance of the U.
S. dollar. But the U.
S. ’s share of global output is likely to decline, due to the growth in emerging markets. ’ We're coming out from a period where we had very strong dominance from one country and groups of countries, but we have to plan and organize the transition to this multipolar world.
A multipolar world is one where there are more than two centers of power. In theory, it would allow emerging economies to better retain and protect the benefits of globalization. But whether the U.
S. and China, the world’s superpowers, would agree to that transition is unclear. This is complicated, this is difficult.
There's a new seat at the table. And so how we organize this in a way that is beneficial for everyone is really the challenge that we're facing. And as these hypothetical tectonic plates move away from each other, Gourinchas argues we’ll need more bridges between them, not less.
Bridges like the IMF. A core mission of the IMF is to guarantee that we have global financial stability. And so it's really important to keep as many countries around the table and to find ways to reach agreements, and a world that sort of what, you know, we don't trade, we don't engage, we don't talk.
We can't do any of this. But Gallagher begs to differ. The IMF on some levels has really been a big part of the problem when it comes to globalization.
They say raise taxes, cut spending, raise the interest rate, put the country into a short-term recession, and hope that the investment community will see that you've tighten your belt and money will start to trickle in. That doesn't pay off so well. What are the key areas that need to be corrected for the global economy to move forward?
Number one is financial markets. The financial system sort of feeds on itself, rather than fuels productive, equal and environmentally sound development, we really need to regulate global finance, to make sure that it's aligned with our broader societal goals. Number two, make sure that there are safety nets so that all the benefits just don't accrue to a small amount of folks and the populism that comes with that that makes folks want to close borders and go to war.
