Sunday
25 February | 2024

Lahore, Pakistan

Globalization, technical change can easily lead world into a trap!

‘One must recognize that combination of new technology and enhanced interconnectedness has fundamentally uncontrollable implications’

Globalization brings the world together through the movement of people, things, ideas, money, and much else. But talk of globalization has become increasingly divisive, with competing assessments of the process now splitting the globalized world itself. While middle-income countries – emerging markets – remain gung-ho about tapping into global markets and globalization-driven dynamism, and while many low-income countries see opportunities to leapfrog to greater prosperity with new technologies, the rich world is generally unhappy with the state of things. In mature industrial societies like the US, the very idea of globalization is met with suspicion, if not outrage.

In keeping with the mood, BlackRock Chairman and CEO Larry Fink struck a chord last year when he proclaimed the end of globalization, and politicians across the Western world have been touting friend-shoring and other forms of decoupling from China. Most of these descriptions are new variants of an old mantra: Stop the world – I want to get off. Yet for all its power, the rhetoric about global fragmentation does not correspond to reality. The concept of deglobalization may be everywhere in political speech, but it is not borne out by the statistics. Not only is world trade still expanding, but so, too, is US-China trade.

‘No one can ever accurately predict which country will end up as number one’

Internet communications and data flows continue to grow exponentially, and, post-pandemic, people are once again moving across borders. It is rich countries’ unhappiness that makes contemporary debates so acrimonious. As globalization’s allure fades, it becomes more tempting to see the world economy as a zero-sum game: If you are winning, I must be losing; but if I can ensure that you are losing, I will be winning. Hence, the US strategy is to preserve a technological lead over China, not least by depriving it of the most advanced semiconductors. Even globally minded intellectuals who like the idea of competition now insist that the US can prevail in this race.

Yet this fixation on being number one naturally triggers a confrontational response, especially from other large economies that aspire to catch up to and overtake the US. The belief that the US will do anything to stop China from becoming number one leads China to adopt zero-sum rhetoric of its own. Diplomats stop being diplomatic and become braying wolf warriors. Although China does not traditionally engage in alliances, the sense that it is under threat has led it to cultivate closer ties with Russia, another nuclear-armed country with an anti-Western stance.

In the current context, a closer relationship with Russia looks like a potent way to augment China’s own bid for global dominance. The decoupling narrative thus creates a yo-yo effect in which both the US and China try to pull away, only to realize that they are both still dependent on the globalized economy – and each other. After making waves last year with her call for friend-shoring, US Secretary of the Treasury Janet L. Yellen (and National Security Adviser Jake Sullivan) is now backpedaling somewhat in an effort to repair the broken process of mutual engagement.

‘Globalization brings world together through movement of people, things, ideas, money, and much else’

India, meanwhile, is experiencing a softer version of the same anxiety. Even though Indians appreciate the strength of their economic and personal ties with the US and see these as a foundation for effective development, they worry about the West’s motives. In India, as in most other emerging economies, this outlook reflects anti-colonialism (or decolonization). Globalization becomes a form of revenge for the abuses of empire, and rich former colonial powers’ attempts to decouple or halt globalization are viewed as new versions of the old colonial oppression. The struggle over the future of globalization is a clash over historical legacies.

Disagreement about whether globalization is good or bad makes managing it much more difficult. The old institutions that were supposed to coordinate policies are under strain. The World Trade Organization was crippled over a decade ago by the failure of the Doha Round of negotiations to achieve further global reduction of trade barriers, and then former US president Donald Trump rubbed more salt in its wounds with his aggressively nationalistic trade policies. Similarly, while the World Bank and the International Monetary Fund are still vital, they now must work with a multitude of new, smaller, and narrowly focused cooperative institutions.

‘The less cause there will be for suspicious minds, and the less world will be divided by anxiety about winning and losing’

Around the turn of the century, politicians and economists debated whether the IMF should reinvent itself as an international lender of last resort. Then came the 2008 financial crisis, when it positioned itself as part of a structure comprising regional institutions and alternatives that China and Europe had developed (the 2000 Chiang Mai bond initiative, the Asian Infrastructure Investment Bank, the European Stability Mechanism, and so forth). Now, managing international money is about coordinating an ever-denser network of regional bodies. That task requires effective communication, but such dialogue is often obstructed and frustrated by disputes over the language and political valence of globalization.

Is there a way out of the impasse? Can we rid ourselves of the suspicions preventing stronger global cooperation? One prerequisite is for everyone to recognize that the combination of new technology and enhanced interconnectedness has fundamentally unknowable (and thus uncontrollable) implications. No one can ever accurately predict which country will end up as number one. The linked processes of globalization and technical change can easily lead the world into a trap. Not only are outcomes uncertain, but the uncertainty is paralyzing. The task of government is thus to provide some assurance. The more effective it is in doing so, the less cause there will be for suspicious minds, and the less the world will be divided by anxiety about winning and losing.

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