Globalization and Systemic Asymmetries

The question is how did we get here and why?

In Joseph E. Stiglitz’s “Globalization and its Discontents”, the former vice president of the World Bank argued that the turn of the last century witnessed a series of protests against global inequalities perpetuated by unrestrained corporate capitalism and their vested interests. These protests were directed primarily at international financial institutions (IFIs) like the International Monetary Fund (IMF). In the 1980’s all the way through the 1990’s these organizations developed initiatives that apparently promoted equal terms of trade between developed and developing countries, while promising to solve the economic challenges facing developing countries.

These initiatives were the beginning of what would drive us towards intensive globalization that focused on free trade and integration. These initiatives emphasized three main areas, trade liberalization, economic austerity, and privatization. These policies recommended structural reforms that increased the role of market forces in exchange for immediate financial help.  Following that, lowering barriers to international trade was on the agenda for countries everywhere, especially developing countries. Tariffs were cut and regulations loosened, trade unions had to be put out and governments rivaled with each other to make their country more competitive for businesses. This basically meant making labor cheaper and increased deregulation, often in countries that had spent years protecting their local industries with tariffs.

As many economists have argued, the problem with this approach is that it proposes a one size fits all solution, which often does not account for the devastating long-term socio-economic and social impacts on already struggling countries. Dani Rodrik, in The Globalization Paradox, uses the example of Argentina in the early 1990’s. Argentina was facing hyperinflation, a weary private sector, and an increasing amount of debt.  Foreign minister at the time Domingo Cavallo enforced the Convertibility Law, which essentially pegged the US dollar at 1 peso per dollar. In addition to that, Cavallo hastened privatization, deregulation and opened-up the Argentinian economy rapidly. Ten years on, Argentina was yet again struggling to keep its economy afloat, and this time in even worse circumstances than it was ten years prior.

The Lancet—University of Oslo Commission on Global Governance report published in 2014, attributes the origins of the political inequities in health existing in developing countries to the deep imbalances and inequities existing in the global governance structure. The report cites unfair, exclusionary and eco-aggressive globalization processes as culprits of increasing food security issues, irregular migration, deepening economic inequality, and violence and conflict in the contemporary world.

A global survey in 2014 by Pew Research Center revealed that only 26% share the opinion that trade helps lower prices. Another 2007 survey done in 47 countries revealed a majority consensus that the state should be actively involved in the welfare of those affected by globalization.  In 46 of 47 countries surveyed, the majority believed their traditional ways of life were negatively affected. In addition, 23 countries expressed that they want to have their traditional way of life protected against growing foreign influence.  These concerns were found in both economically advanced and emerging economies. 

Given the current political climate, we see that large constituencies in many countries have voted for anti-free-trade policies, or at least candidates that assure to limit them. That is, in a time when we’ve already acknowledged that since the 1990s the international political economy has been developing in hyper-globalization landmarks, which although has generated a lot of positive developments, but has also caused huge asymmetries. The concern is that hyper-globalization without suitable governance and regulation mechanisms ultimately generates imbalances that make it unsustainable in the long run.

Economists can no longer ignore the issues of globalization. And yes, although globally public opinion indicates that free markets are still broadly accepted, only a few want a totally de-regulated approach. The underlying issue is a question of governance. Therefore, we need to enforce the initiative to govern globalization through the modification of existing regulations in terms of capital flows, increasing the number of supervisory mechanisms of international financial institutions, and the restructuring of the international financial system to meet the present socio-economic and social needs of countries and communities most affected.   

Bibliography

Kohut, Andrew and Richard Wike. “PEW PRESENTS... Assessing Globalization: Benefits and Drawbacks of Trade and Integration.” Harvard International Review, vol. 30, no. 1, 2008, pp. 70–74.

Milanovic, Branko. “Global Income Inequality by the Numbers: in History and Now” World Bank Research Department. 2012. http://documents.worldbank.org/curated/en/959251468176687085/pdf/wps6259.pdf

Rodrik, Dani. The Globalization Paradox: Democracy and the Future of the World Economy. WW Norton, 2011.

Saval, Nikil. “Globalisation: the Rise and Fall of an Idea That Swept the World.” The Guardian, Guardian News and Media, 14 July 2017, https://www.theguardian.com/world/2017/jul/14/globalisation-the-rise-and-fall-of-an-idea-that-swept-the-world

Stiglitz, Joseph E. Globalization and Its Discontents. W.W. Norton & Co., 2002.
Stokes, Bruce, Wike, Richard. “Faith and Skepticism about Trade and Integration: Spring Global Attitudes survey. Q27-Q32. Pew Research Center. 2014. https://www.pewresearch.org/global/2014/09/16/faith-and-skepticism-about-trade-foreign-investment/


Otterson, Ole Petter, et al. “The Lancet-University of Oslo Commission on Global Governance for Health: The Political Origins of Health Inequity: Prospects for Change.” The Lancet (British Edition), vol. 383, no. 9917, Elsevier, 2014, pp. 630–67.