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Amid the US-Sino rivalry: how high is the risk of a deglobalisation trajectory for China?

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The ongoing military conflict between Ukraine and Russia has allegedly changed the course of history and revived the era of ‘Great Power Rivalry’. Under this backdrop of re-energised geopolitical competition, the hostile rhetoric and posture have only further aggravated between the U.S. and China, especially regarding the ‘Taiwan issue’. Re-assertion of the international order dominated by the west, and counteraction of it (led by Russia and China), have led to a more fractured world both politically and economically. In the meantime, as most of the world has stepped out of the horror of Covid-19 pandemic, China’s continuing resolute containment measures and minimum border entry have astonished audiences in the west and beyond. These Covid-related restrictions coupled with China’s position in the rivalry with the U.S., have posed the question of whether China is gradually taking a deglobalisation course? Because China is so deeply ingrained in many aspects of globalization, including the global trade network, the answer to this question will not only have a significant bearing on China’s economic development and state-building, but it will also have significant worldwide implications. In this blog, we endeavor to answer this question by taking stock of modern China’s history of globalisation as well as the discourse around it and taking into account the consequences of the present Ukraine-Russia conflict.

Photo credit: KYIV POST

A historical sketch of globalisation in modern China:

Globality has been an essential part of the discourse of modernity in the non-European world, when western history has become world history and those being perceived as oriental or raw have been compelled into this form of world history. The choice of globalisation has never been a given for modern China, and the early encounters with the Europeans has been stamped and memorised as ‘sovereign door being knocked open by the cannons’ and ‘Century of Humiliation’. Since the ‘humiliation’ was primarily caused by techno-scientific backwardness of the old, un-modernised China, the discourse of modernity had mainly been formulated as techno-scientific and economic progress, with even cultural inferiority mostly enunciated as a hindrance to scientific advancement. While globalisation was forced upon China and its past was derogated for absence of any elements of modernity, China paradoxically had been looking outward for its ideal model of modernity and formation of nation-state, especially from nations that bore some similarity with China in the past— ranging from Sun Yat-Sen’s acclaim of Japanese victory in Russo-Japanese war as ‘our own victory’, and communists’ marvel at Soviet Union’s rapid industrialisation during Stalin’s rule, to China’s learning and replication from newly industrialised east Asian countries in post-Mao period. The most notable walking-back of globalisation in modern China was the Soviet-Sino split from 1960 when China severed economic ties and technological exchange with Soviet Union and consequently most of the socialist camp that China once belonged to, with reasons ranging from Soviet Union’s unfulfilled promise of technology transfer to personal enmity between top leaders. Nevertheless, even under the integument of revolutionary discourse of modernity in late Mao-era, huge underlying efforts had been made by the technocrats led by then premier Zhou Enlai to pursue (and had achieved to some extent) techno-scientific progress and capital accumulation in the industrial sector (Yao, 2019). At last, unprecedented economic and technological progress has been most-effectively achieved in modern China since the 1980s, which features deepening globalisation, with China also taking lead on initiatives in issues like global infrastructure development and climate change to gain a bigger footprint in global governance. Nevertheless, recent signs are emerging that the Chinese state is tending to downplay the importance of globalisation to economic achievement (the advocacy of ‘dual circulation’ economic development pattern, in which global economic cycle plays a supplementary role relative to domestic economic cycle) and is willing to compromise the economic benefits of globalisation for political and public-health ends (divergent Covid-19 policy).

 

China’s choices in the ‘Great Power Rivalry’:

Utilitarians put emphasis on material and economic gains and ignore the role of values in driving human and social behaviors, however, the materialistic and individualistic approach of utilitarianism may fail to explain certain strategic decisions based on calculations beyond economic rationalisation. Recent events have shown that, when factoring non-material values into social behaviours, the underprivileged could take on a trade-off between nationalistic values and economic benefits in severely unequal and polarised society, which has been manifested in the form of populism that climaxed in the trade war that former U.S. President Donald Trump (Murshed, 2020) waged against several countries, and in the form of outright war that Russia wages presently against its western neighbor. The mechanism behind such a non-utilitarian rationalisation is that the feeling of deprivation and grievance arising from unequal distribution of economic output is compensated by the sense of fairness arising from the collective glorification or collective insecurity during conflicts (whether armed or unarmed) fought for nationalist rhetoric. Thus, on one hand, a repetition of Russian experience as deglobalisation by outright military conflict in Taiwan strait could happen in China, as two countries bear similarities in both the dynamics of ‘Great Power Rivalry’ with the U.S. and domestic factors pertaining to authoritarian rule and severe socio-economic inequality. On the other hand, the Russian economy has exhibited a certain level of resilience under western sanctions mainly because of Europe’s energy reliance on it, and this dynamic has shown that economic dependence is an advantage to be leveraged even when globalisation is compromised for other political ends.

 

In all, China has been going through considerable reconfigurations in a broad range, including assertion in global economic and political sphere, revival of Confucian values, and strengthening of patriarchal authoritarianism within party-state, since mid 2010s, when China’s share in world economic output approximately reached historical level, which was generally above 20% before mid-19th century (Broadberry et al., 2018). Currently, by displaying strategic behaviors across different issue areas, China is seeking space to further gain techno-scientific and economic prowess, while at the same time, preserving the party-state’s political and economic interests at home and abroad. Russia’s war against Ukraine could also prompt a profound re-calibration of China’s globalisation policy as the possibility of a west-east division resembling the cold war era rises. If any lessons can be drawn from the Soviet-Sino split in the Mao-era and the recent deglobalisation courses that populist governments (Brexit, Trump’s tariff war) and authoritarian regime (Russia’s invasion of Ukraine) have taken, we believe that the level of patriarchal authoritarianism within party-state and socio-economic inequality (not always independent of one another) are the two most significant home elements in any potential reversal of globalisation course for China. Inopportunely, the trends for these two domestic factors are on the side of disruption rather than cooperation within the current international order dominated by the west. However, in the manner that the conditions of deglobalisation have been partly brought about by the rise of China’s relative economic and technological strength in the world, globality will persist in any measured deglobalisation, which should be dynamic and imbalanced among multi-fronts if it would occur.

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the authors:

 

Li Yanbai is a PhD candidate at the International Institute of Social Studies (ISS), Erasmus University Rotterdam (EUR). His research interests lie in China’s resources trade with developing countries and the causes and consequences of socio-economic inequality in China and beyond.

 

 

 

 

 

Hao Zhang is a PhD candidate at the International Institute of Social Studies (ISS), Erasmus University Rotterdam (EUR). Before joining ISS, she was a master’s student majoring in international affairs at School of Global Policy and Strategy at University of California, San Diego. Her current research focuses on policy advocacy of Chinese NGOs in global climate governance. Her research interests lie in global climate politics and diplomacy, and NGO development in China.

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What the war in Ukraine and the COVID-19 crisis teach us about our global interconnectedness and its implications for inequality

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Due to the war in Ukraine not only the country’s inhabitants have come under fire, but also the granary of much of the world. If the war is not stopped, grain prices will rise. This will have severe effects on many countries and vulnerable countries in Africa are likely to bear the brunt. The war, like the corona pandemic, illustrates how closely we are interconnected as nations on a global scale. What effects do such crises have on existing inequality? In this blog, a number of researchers of global development and social justice share their thoughts.

On 17 March, the Institute of Social Studies (ISS) at Erasmus University launched the book ‘COVID-19 and International Development’ (Springer, 2021). During the recent book launch in Amsterdam, ISS researchers have shed light on the unseen faces of the corona pandemic in low-income countries. We spoke with some of the authors of the book about the impact of COVID-19 on the Global South, and their expectations for the future.

What are the main socioeconomic impacts of the COVID-19 pandemic in the Global South? 

Rolph van der Hoeven and Rob Vos: ‘Developing countries have suffered severe economic fallouts due to the pandemic. Between 100 and 160 million more people in low-income countries have fallen into poverty and hunger. The recovery has been bumpy and developing countries have had little fiscal and monetary capacity to respond. Many countries now face severe debt distress. Some progress has been made towards realizing two of four reforms we proposed in the book: international tax coordination and issuance of new SDRs. However, these still need to be tailored to serve the interests of the Global South. Worldwide, we are unprepared for future pandemics and major global crises. Just look at last year’s events: many of the world’s poor also had to cope with a surge in food prices. The current Russian invasion of Ukraine will further increase food prices, while the capacity of the government to protect the vulnerable has eroded. We should expect poverty and hunger to rise even further.’

Natascha Wagner: ‘We still have very little fact-based evidence on the indirect health consequences in the Global South where health information systems are weak. We have observed severe disruptions in the provision of routine health care services, preventive care, and treatment schemes. Foregone health care potentially results in more severe complications, co-infections and uncurable conditions, in particular among the poorest. The combination of ad hoc lockdowns without a social assistance system that just as rapidly reaches the poorest has severely affected the already sluggish progress towards the SDGs.’

Farhad Mukhtarov: ‘The pandemic has made it clear that the global water crisis is not so much about scarcity or affordability of water. These can be resolved in most cases by temporarily augmenting supply and providing subsidies. Rather, it is about societal inequality, racial and class-based patterns of violence and exploitation. Many things are needed: fairer wealth re-distribution, more equal practices of taxation, greater investment in the public sector, as well as greater social provision of marginalized groups. They are all necessary to treat various ailments of contemporary global societies.’

Matthias Rieger: ‘The global nature of the pandemic and insufficient data often render it hard to precisely quantify “impacts”. During the pandemic I noticed confused public and policy discourse around the world on “impacts” without proper counterfactual thinking. I think the pandemic has highlighted the need to use natural experiment approaches in global health research and to routinely collect reliable health data.’

Sylvanus Kwaku Afesorgbor: ‘We are getting more and more confident that our optimism about the quick recovery from the COVID-19 trade shock was justified. Although the omicron is more contagious, it has less health consequences and the impact of the pandemic is weaning off – also amongst the non-vaccinated’.

 

Have you become more (or less) optimistic about the COVID-19 -related impacts since your chapter was written?

Peter A.G. van Bergeijk: Globalization encountered another setback with the Russian invasion of Ukraine. The revival of a Cold War setting is on the verge. This will tend to reduce the world’s openness by another 1.5% points (indication of the increase in the share number): Mr. Putin may have effectively killed the era of globalization.’

 

Binyam Afewerk Demena: NEW The major (COVID-19) implication is that the feasibility of export-oriented growth strategies decreases. In addition, the workings of international organizations will be further frustrated. That is bad news for developing countries. The Global South still has to deal with many challenges posed by the COVID-19 pandemic, due to weak health systems, low socio-economic conditions, extreme poverty rates, and limited access to sanitation to contain impacts.’

Agni Kalfagianni: ‘The COVID-19 pandemic has put further strain on poor health care systems and has reduced even more access to food for the most vulnerable. Not much has changed really to give reason for either optimism or pessimism in that respect. The lack of solidarity towards vaccine access from the Global North to the Global South exacerbated existing problems. Regarding future pandemics; we may react more quickly, given the experience that we gained. But until major changes in the health care systems and global cooperation take place, we will fail again.’


Are we now better prepared to protect vulnerable individuals and communities from future pandemics? 

Zemzem Shigute: ‘The corona virus has proven to be a conundrum that even the most economically powerful nations were not able to control. The virus itself does not discriminate between rich and poor people or nations. However, marginalized groups, including migrants, continue to bear its plight. They face intersecting layers of struggle based on various factors including gender, marital status, education, language, employment, and duration of stay in the country.’

Syed Mansoob Murshed: ‘The COVID-19 pandemic’s initial impact on inequality was negative. However, there are signs that the world’s inequality tolerance may be diminishing. Secondly, the labour supply surge – engendered when China and the former Eastern bloc embraced capitalism – is now also ending. That may be good news for workers and the poor in developing countries but has to be counterbalanced with the bad news about trade disruptions and rising energy prices.’

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

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COVID-19 | Lessons from the COVID-19 crisis for climate change politics by Murat Arsel

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COVID-19 and climate change bear striking – and worrying – similarities and differences. Both are characterized by high uncertainty, but while COVID-19 has been identified as an immediate threat and action has been taken despite the absence of comprehensive knowledge, uncertainty has been touted as impeding concerted efforts to transform energy systems to combat climate change. The global economic system has strongly contributed to our failure to make radical changes. A different system – one that is not so fundamentally focused on maximizing profits over all other concerns – could have been better placed to make the undeniably painful economic adjustments we are forced to make, both before the emergence of COVID-19 and to prevent a catastrophe arising due to climate change. While both crises require dramatic societal transformations, we need to be aware of the potential negative political consequences of declaring them as emergencies.

One thing is certain about COVID-19: we simply do not know enough. Some aspects about it are simply unknown, on others we have conflicting information. Scientists are asked to take shortcuts from their rigorous methods and to offer their ‘best guess’ on hugely consequential questions. Policy makers then take decisions within a fog of uncertainty since experts have also argued that doing nothing is the absolute worst option. This is a terrifying situation for us all, but it is not entirely without precedent.

While the threat of COVID-19 might seem unique, there are some interesting parallels between this threat and that of climate change. At a general level, neither is simply a ‘natural’ phenomenon. This is not to suggest – as some have – that they are a ‘hoax’. Viruses exist, mutate, and infect ‘naturally’. Similarly, the climate of the earth shows variation due to various factors outside of human influence. But what imbues both COVID-19 and contemporary climate change with a catastrophic potential is the political economic context in which they are developing. More specifically, it is global capitalism that takes what is ‘natural’ and weaponizes it against humanity.

In the case of climate change, the problem is not that humans are extracting natural resources in order to secure their livelihoods. The manner in which this extraction is carried out, its continuous intensification and, most importantly, the extraction of resources not necessarily to meet the human need to exist and to thrive, but rather to fulfil the need of capitalism to continuously expand, is what transforms extraction into a planet-altering force captured in the concept of the Anthropocene.

Similarly, the astonishing spread of COVID-19 could not have been possible without the incredible powers of global capitalism. The virus has spread so quickly and so effectively on the back of a global structure that transports goods, humans and – let us not forget – ideas at almost magical speeds. But it is important to not fall into the trap of blaming connectivity and mobility for the spread of the virus but the underlying economic structures that made combatting it so difficult and painful. While such a pandemic could also occur under a different global economic order, the precarity of not just individuals or classes but even some of the richest and technologically sophisticated economies is what makes COVID-19 so dangerous. A different system – one that is not so fundamentally focused on maximizing profits over all other concerns – could have been better placed to make the undeniably painful economic adjustments we are forced to make.

The parallels between climate change and coronavirus do not end there. Climate scientists – those in the natural as well as the social sciences – have long been arguing that if drastic changes are not made to the way we produce and consume, in other words to the way we live, we can expect apocalyptic changes to global ecosystems. When these materialize, their impacts are likely to be just as and probably even more colossal than the toll that COVID-19 will have exacted. Yet scientists’ pleas for radical action have been rebuffed on two grounds – we do not know enough, and dramatic curbs to economic activities are fundamentally against public interest. The effectiveness of these arguments has been far greater in the case of climate change than in COVID-19! As the COVID-19 crisis shows, these two grounds have not prevented governments across the world from acting in response to the COVID-19 threat.

Can we expect a change in attitude to climate change politics once the COVID-19 crisis is over? That is certain though it is possible to expect two dramatically different responses which will depend on how, in the aftermath of COVID-19, societies around the world come to understand the now evolving response. If the response to COVID-19 comes to be seen as an overreaction or a form of mass delusion, this would have massively negative effects on ongoing efforts to respond to climate change. That would mean not only that scientific authorities – not just the epidemiologists or immunologists but the entire enterprise itself – will be discredited, opening the door to an ever-intensifying challenge that will dwarf the anti-vaccination movement. Worse still, such an impression will embolden the Trumps and Bolsanaros of the world (unfortunately not a rare breed!) to challenge and pull back all too necessary measures to reduce greenhouse gas emissions.

However, if the experts as well as politicians and policy makers who follow them are vindicated in making draconian changes (and if those who do not do so are vilified), we can expect a new era in which scientific authority is once again celebrated and valorised (rather than challenged by baseless arguments as has been the case with the anti-vaccination movement). It can also be expected that the spectre of an ecological apocalypse will be taken more seriously, bringing it with it meaningful socio-economic and cultural transformations to adapt to and mitigate climate change.

Authoritarianism creeping in through the back door

Implementation of dramatic societal transformation in response to anticipated catastrophes might at first be seen as an entirely positive outcome. But it is important to remember that all appeals to emergency, such as the declaration of a state of emergency, regardless of how justified they are, contain within them the seed of authoritarianism. A call to urgent action is almost by definition a call to silence dissent, to short-circuit deliberative democracy and to privilege the opinion of a select few over all others.

While rare, the climate movement has long had an authoritarian streak as demonstrated by this statement by no less than the developer of the Gaia hypothesis, James Lovelock: “We need a more authoritative world. We’ve become a sort of cheeky, egalitarian world where everyone can have their say. It’s all very well, but there are certain circumstances – a war is a typical example – where you can’t do that. You’ve got to have a few people with authority who you trust who are running it”[1]. A few years ago, such statements could have been considered fringe opinions intended more for provocation than for actual implementation. With countless leaders and scientists comparing COVID-19 to a war, there is genuine reason to be actively worried about ending up in a situation where climate change too becomes securitized in this manner.

This brings us back to the question of uncertainty and authority. While our knowledge of climate change – how it works, what its impacts are and how we can reverse it – are incomparably better than what we know about COVID-19, the socio-economic and ecological decisions that need to be taken are far from obvious if we are to avoid an economic crisis similar to the one brewing at the moment. How can we transition towards a carbon neutral economy? Which fossil fuel reserves need to be designated as ‘unburnable’? Where do we restore ecosystems and to what state? How, if at all, do we prevent flooding of cities and towns? What are the ecological tipping points and how can we prevent them if they remain largely unseen? These and countless other questions require not only authoritative scientific input but genuine deliberative discussion as well.

No society – regardless of how extensive its education and research attainment – is ready for this challenge. This is because the model of economic development that has dominated since World War II has created a relationship with science that Ulrich Beck has brilliantly described as “organized irresponsibility”[2], in which global capitalism has powerfully capitalized on the explosion of productivity enabled by modern science and technology while brushing under the metaphorical carpet its risks and uncertainties. Debates about the safety of genetically modified foods and nuclear power were harbingers of a brewing crisis of how science and technology can be socialized. COVID-19 is a stark reminder that the challenge remains great. If it is not addressed, we can expect many more war-like situations, not least in relation to climate change.

[1] https://www.theguardian.com/environment/blog/2010/mar/29/james-lovelock
[2] https://www.theguardian.com/education/2015/jan/06/ulrich-beck

This article is part of a series about the coronavirus crisis. Find more articles of this series here.

74804489_10163151698620144_409485347391537152_oAbout the author:

Murat Arsel is Professor of Political Economy of Sustainable Development. His research and teaching focus on the tensions between nature, capitalism, and emancipatory socio-economic development. Additional details of his work can be found at www.marsel.me

Image Credit: Markus Spiske on Unsplash

Europe in Times of Deglobalization by Peter A.G. van Bergeijk

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The current phase of deglobalization is a challenge for social sciences. Peter van Bergeijk discusses what we can learn from previous deglobalizations. What do the periods of the Great Depression and Great Recession currently imply for Europe?

Similarities

Both the “Roaring Twenties” and the “Roaring 2000s” were characterized by ‘globality’, a combination of belief in openness and optimism about our future. With open and global markets, capital freely moved around the globe. The speed and level of global change was unprecedented. New products changed our daily life, new economies emerged, and life expectancy improved, creating hope while strengthening confidence. The pre-crises years were characterized by an increasing share of internationally traded products, as illustrated in Figure 1.

pic 1

Source: van Bergeijk 2019.

However, this changed dramatically with the Great Depression and the Great Recession. First and foremost, there was the impact of the financial crisis that gave rise to the idea of secular stagnation. Openness as we can see in Figure 1 entered a downward phase for more than a decade.  In the international political arena, the erosion of the hegemon’s (in the 1930s the British Empire and nowadays the United States) position associated with the rise of previously peripheral countries in the global trade system was an important element. Countries in the periphery grew faster than the advanced economies and competition from the previous-outs created doubt about the future rules and norms of the world trading and investment system.  Figure 2 illustrates how the position of the hegemon is being handed over roughly at the time when deglobalization made its mark. In the 1930s, we see that an eminent change at the top takes place as the United States undercut economic power of the British Empire. Today we witness how the emergence of China challenges the position of the United States.

pic 2

* UK before 1950 covers the British Empire. Calculations based on Bolt et al. 2018.

Differences

On the other hand, significant differences could be noted between the deglobalization of the 1930s and 2010s. Both in a North–South and South–South context, trade in the Interbellum period relied on specialization based on comparative advantage, and not on intra-industry trade organized in international value chains which is an increasingly important characteristic of today’s trade. Protectionism is often seen as an important reason for trade destruction in the period after the breakout of the world trade collapse during the Great Depression, but much less so for the Great Recession and its immediate aftermath. Trade-wise, the most important difference is perhaps the fact that our deglobalization experience started from a much higher intensity of globalization and that according to current projections, a fall to the level of the 1930s is not likely.

Europe

The very existence of the European Union is a fundamental difference to the 1930s when the European continent was fragmented, confrontational and bellicose. While Europe is missing the military might that is often seen as a necessary condition for world leadership, there could be a possible scenario in which the European Continent has to act as the hegemon of last resort. In this scenario, neither the US nor China may assume the role of the world leader, either by choice or forced by internal and external circumstances. A hot trade war between the United States and China could fit into this scenario, for example, because trade is diverted to Europe. In this scenario, China refocuses its internationalization strategy and reorients from serving export markets to serving domestic markets. The US strengthens its isolationist policies and withdraws from a number of international agreements.

If that happens, European cohesion will increase as the costs of leaving the European Union become very clear to the member states (and their populations) after the dust settles on Brexit. So, while a particular weak spot of Europe currently is the lacklustre support of its basic philosophy amongst the large former communist countries (Poland, Hungary, Romania) and even among increasing parts of the Dutch population, coherence of the European Union may actually increase, especially if the British exit is as disastrous as many predict. With China and the US being unwilling or unable to provide global economic leadership, the world would turn towards Europe.

Indeed, the European Union was built on the idea of the Liberal Peace and can be expected to further democratization and the multilateral trade system. Maintaining good relationships with China, Japan and the United States will be crucial, however, for the extent to which progress can be made with the European external agenda.

References
Bolt, J., R. Inklaar, H. de Jong and J. Luiten van Zanden, 2018, ‘Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development’, GDC Research Memorandum 174, Groningen University: Groningen.
Peter A.G. van Bergeijk, Deglobalization 2.0, Edward Elgar, 2019.

This article is a shortened version L’Europe à l’ère de la démondialisation that appeared in French on Telos. 

In 2018, Bliss Blog featured a series on deglobalisation. Articles of this series can be read here, here and here.

About the author:

pag van bergeijk

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

The New World “Order”: Brexit, Trump and the Developing Countries by Peter A.G. van Bergeijk

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Deglobalisation is not the mirror image of globalisation. The losers of globalisation will thus not be the winners of deglobalisation. Indeed, the vulnerable and poor will be the big losers of deglobalisation both in the Global North and Global South.

In the world economy, the guards are changing: we see the emergence of China as the major trading economy of the world continue and at the same time the crumbling of the economic power of the United States of America. Handing over world economic leadership is always a painful process, and it is certainly not a new phenomenon. The rise of the British Empire ended the period of Dutch hegemony. After the Second World War, the USA became global leader, and now we see China emerging on top of many economic rankings. Both before and during these phases of geo-economic transformation, similar processes occurred that reflected shifts in the costs and benefits of hegemony.[1]

SHIFTING POWER IS PAINFUL

A non-contested hegemon has significant market power and can appropriate a substantial part of the benefits of the rules and regulations of the world order. These benefits enable the hegemon to finance the costs of world order maintenance. However, when an emerging economic power contests the incumbent, the balance of costs and benefits shifts to the detriment of the hegemon. It also becomes apparent that the division of the benefits of the world order are not proportional to the costs. Clearly, US actions currently are being fed by popular sentiments (and also feed these sentiments!), but a rational explanation of what we see happening is certainly not beside the point. Modelling exercises of a great diversity of trade disturbances and trade wars show that the United States hurts itself, but that China has to pay a higher price (Figure 1).

Figure 1

Source: J. Bollen and H. Rojas-Romagosa, 2018, ‘Trade wars: Economic impacts of US tariff increases and retaliations. An international perspective’, CPB Netherlands Bureau for Economic Analysis, The Hague.

Making America the Greatest Again can be done in two ways: either by putting more effort into improving the US economy, or by trying to hurt China more. In the current context, the outcome of the second option is more certain, especially in the short run. Economists therefore cannot but conclude that this form of neomercantilism for the United States in a political sense is quite effective. A trade war that involves the United States, China, and the European Union (the blue bars in figure 1) consistently finds that the negative impact in other regions is always larger than for the United States. For an all-out trade war of the US with all advanced economies (the orange bars in Figure 1), a somewhat different picture emerges, but still China is hurt most.

It is important to recognise that the current context extends well beyond trade disturbances and that this is part of a new long downward phase. Indeed, an important empirical finding is that Make America Great Again and Brexit should be seen as symptoms rather than causes of deglobalisation: already long before the elections and referendum, a significant break could be observed in the pace and direction of internationalisation of leading democratically oriented economies.[2] It is not obvious that a change can be expected with respect to these trends in the near future. Indeed, policy uncertainty is on a clearly upward trend and has entered uncharted territory (Figure 2). This increase in uncertainty already has a negative impact on investment decisions of firms and consumers. Certainly, deglobalisation has a much broader palette than the trade disturbances that presently make the headlines.

Figure 2 Global policy uncertainty (monthly data 2000-2018)

Figure-2.png

Source: S. J. Davis, 2016. “An Index of Global Economic Policy Uncertainty,” Macroeconomic Review, October, http://www.policyuncertainty.com

The impact of deglobalisation goes further and also includes development cooperation and other international flows. Attacks on global institutions and multilateral agreements is an essential element of neomercantilism and its impact is felt all around the globe. A comprehensive deglobalisation scenario of the International Futures Model shows that the long-run losses are large and always negative (Table 1). The impact in the US in this scenario is relatively limited, and strong losses in income level appear on other continents. A recent study of the German Institute for Development has analysed the impact of Brexit and finds that losses outside the UK are important. In particular, the impact on the least developing countries is significant.[3]

Table 1 Estimated impact of deglobalisation on per capita income in 2035

Table-1-615838125-1551382381492.png

Source: Hillebrand, E. E., 2010, ‘Deglobalization scenarios: who wins? Who loses?’ Global Economy Journal 10 (2) article 3 available at: http://www.ifsprev.du.edu/assets/documents/hilldeglob.pdf

The European Union can make a difference here. It is clear that developing countries are not part of the conflict between the big powers and that their plight is due to collateral damage. The European Union has always supported trade as a means to achieve development. It should step up efforts to facilitate trade and help the least-developed countries to divert their trade so as to make up for the losses caused by the deglobalisationists.

[1] Z. Olekseyuk and I.O. Rodarte How Brexit Affects Least Developed Countries, Deutsches Institut für Entwicklungspolitik, Briefing Paper 2/2019

[2] P.A.G. van Bergeijk, On the brink of deglobalization … again, Cambridge Journal of Regions, Economy and Society 11, 59–72. In the same vein China’s support for the multilateral trade and investment system did not come unexpectedly.

[3] P.A.G. van Bergeijk, Deglobalization 2.0: Trade and openness during the Great Depression and the Great Recession, Edward Elgar Cheltenham 2019. https://www.e-elgar.com/shop/deglobalization-2-0 https://www.e-elgar.com/shop/deglobalization-2-0

In 2018, Bliss Blog featured a series on deglobalisation. Articles of this series can be read here, here and here.

About the author:

pag van bergeijk

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

Deglobalisation Series | Will deglobalisation save the environment? by Sylvanus Kwaku Afesorgbor and Binyam Afewerk Demena

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Anti-globalists and some environmentalists argue that globalisation is harmful to the environment because it leads to an increase in the global demand for and supply of goods and increased energy production. If globalisation is perceived as harmful to the environment, then should we expect that the current deglobalisation trend in the Global North can reverse the harmful impacts that globalisation is seen to have borne on the environment?

 

An important global concern has been to understand the way in which the increasing pace of globalisation affects the environment. Although the literature has been fraught with contrasting results, there are many who strongly believe that increased globalisation has had a deleterious effect on the environment. A large number of environmentalists supporting this view base their argument on the premise that globalisation leads to an increase in the global demand for goods, resulting in increased production that exploits and depletes natural resources and the environment—what is known as the scale effect. On the basis of rising environmental concerns, an important question, then, is whether deglobalisation would produce the opposite effect. Put differently, if globalisation is harmful to the environment, then should we expect deglobalisation to inflict less harm?

Currently, this is an important question to ask considering the heightened anti-globalisation sentiments that have engulfed the Global North. In the recent past, we have not only witnessed Brexit, the election of Trump, and the Belgian opposition of the trade agreement between the EU and Canada, but, more recently, we have seen anti-globalisation sentiments reaching a climax even and especially in the United States (USA) that once was the strongest architect and proponent of globalisation. This has culminated in increased uncertainty and an a near-stalemate for NAFTA, with the US pulling out of Trans Pacific Partnership (TPP) trade agreement, proposing the erection of a wall the border it shares with Mexico, and hiking steel and aluminium tariffs as part of the ongoing trade war with China.

Untitled2The adverse effect of globalisation on the environment is supported by race-to-the-bottom hypothesis. This school supports the hypothesis that increased gains from globalisation is achieved at the expense of the environment by economies more open to global trade adopting looser environmental standards. Those who support this view of the detrimental impact of globalisation on the environment allude to how increasing globalisation creates global competition, resulting in an increase in economic activities that deplete natural resources. An increase in economic activities as a result of the thriving of economies of scale leads to increased emissions of industrial pollutants and to environmental degradation. The pressure on international firms to remain competitive forces them to adopt cost-saving production techniques that can be environmentally harmful.

Lower environmental standards

However, deglobalisation may not necessarily translate into the reduced emission of harmful gases such as CO2, SO2, NO2, but could actually produce the opposite effect. Through the technique effect, we know that globalisation can trigger environmentally friendly technological innovations that could be transferred from countries with strict environmental regulations to pollution havens. With globalisation not only entailing the movement of final goods, but also the transfer of intermediate, capital goods and technologies, multinational corporations with clean state-of-the-art technologies could transfer their green technologies to countries with low environmental standards. It is widely recognised that multinational firms use cleaner types of energy than local firms and thus attain more energy-efficient production processes. Thus, deglobalisation could mean a minimal transfer of these environmental-friendly technologies.

Domestic production means greater pollution

Moreover, the rise of anti-globalisation forces would mean less specialisation in sectors of countries with a comparative advantage. The gains-from-trade hypothesis states that this can result in the loss of the associated gains from trade and specialisation, resulting in the inefficient allocation of resources that would lead to the dissipation of scarce economic and natural resources. If every country has to produce goods to meet its domestic demand, this could result in duplication in the production process, with an associated increase in local emissions. Since some countries have weaker environmental standards, this could possibly worsen overall global emissions. For example, the imposition of economic sanctions on Iran (making Iran less integrated into the world economy) has triggered domestic production (of oil) that has resulted in immense damage to the environment. As a result of import bans, Iran started refining its own crude oil that contains ten times the level of pollutants of the oil it formerly imported.

The rise of ‘eco’ products

The notion of globalisation also has been used to create public awareness regarding labour and environmental standards through international campaigns culminating in the Fairtrade and Eco labellings, for example. The success of these public awareness programmes is based on the different preferences of consumers. Producers are able to increase their market access by producing eco-friendly products. Without international trade, consumers would have been presented with limited choices, and may have been forced to only purchase the domestic goods that may have been produced under loose environmental standards. Thus, globalisation can expand the choice of consumers, enabling them to select environmentally friendly products.

Indirect conservation mechanisms

Globalisation achieved through multilateral negotiations on the platform WTO has also demonstrated that although environment protection is not the WTO’s core mandate, it has indirectly stimulated enthusiasm within its member countries for sustainable development and environmentally friendly trade policies. The green provisions of the WTO provide general exceptions that allow countries to protect human, animal or plant life and conserve their exhaustible natural resources.

Apart from the WTO, regional trade agreements (RTAs) are another appendage of globalisation that promote environmentally sustainable policies. As countries seek to join RTAs, they are made to simultaneously embrace environmental co-operation agreements. Many countries (such as Canada and member states of the EU) have developed national policies whereby conducting environmental impact assessments before signing trade agreements is mandatory. Thus, trade agreements can only be signed when they are compatible with the environmental standards of individual EU member states. This thus compels partners to trade agreements to adhere to environmental provisions contained in the agreements.

Leaders and followers

We have seen over the years how countries such as China that used to be pollution havens have had tremendous gains in reducing their emissions, especially after becoming more integrated into the world economy. Because of globalisation and the incentives to increase its global market access for its products, China has moved away from its image as a top polluting country in the world to a global leader spearheading the fight against pollution. In 2017, China closed down tens of thousands of factories that were not complying with its environmental standards.

Untitled
Beijing workers’ stadium on smoggy and clear days from https://www.huffingtonpost.ca/entry/china-air-pollution-2014_us_568e592ce4b0a2b6fb6ecb73

In contrast, we have seen a country like the US that has been at the forefront of fighting against environmental damage slowly drifting away from this fight because of its embracing the anti-globalisation sentiments of the current president Donald Trump. Through its America First Energy Plan, the Trump administration has outlined its preference for polluting industries, the use of fossil fuels, and revival of the coal industry. This points to the fact that countries seeking self-sufficiency or expressing anti-globalisation sentiments may drift away from sustainable development practices towards industrial policies that may be injurious to the environment.

Restricting international trade may have a negative impact on the environment. Deglobalisation would isolate countries, making them less accountable toward other countries for protecting the environment. The gains associated with globalisation could be used as an effective bargaining strategy or as an incentive to demand environmental accountability from countries that want to benefit from global trading systems.

About the authors:

csm_SKA_Picture_Academic_4c02c69704Sylvanus Kwaku Afesorgbor is Assistant Professor at the Department of Food, Agricultural and Resource Economics (FARE), University of Guelph, Ontario, Canada. His research and teaching experiences are in the areas of International Political Economy, Globalisation and Development, Impact Evaluation, Applied Econometrics, and Food and Development.

downloadBinyam Afewerk Demena is a Teaching and Research Fellow at the ISS. His research interests are in the broad area of applied empirical research with a particular focus on applied micro-econometrics in development, international and fishery economics. In his PhD, he examined the impact of transmission channels of intra-industry productivity using applied micro-econometrics, meta-analysis, multi-country micro-panel data, and applied field research via on-site visits.

 

Deglobalisation Series | (de)globalisation and the fear of trade by Ana Cristina Canales Gomez

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While the consequences of globalisation over health and nutrition can be contradictory, trade openness can be a relevant policy for reducing food insecurity. This relatively inexpensive action, when compared to technology or research-based programmes, can increase the availability of nutritional foods, increase higher nutritional variety in diets, and can stabilise the food supply, reducing food shortages.

“One of the biggest ideas to hit the political world in recent years is that politics is increasingly defined by the division between open and closed, rather than left and right” (The Economist, March 24, 2018)

The recent trend of pushing against globalisation is based on different sources of information that varies from science-based evidence to ideas that trade and global agreements form part of a mastermind plan of invisible benefactors of the globalisation system. This phenomenon of deglobalisation has occurred before, but a major difference can be seen between the current and previous manifestations: in the 1930s, deglobalisation was pushed by governments, while the current expression of deglobalisation is pushed by the general public through social media.

When it comes to health and nutrition, the matter of globalisation and its impacts can be somewhat contradictory, and as with most economic matters, the perception of globalisation will depend on the viewer’s position: if you are in the LDCs where malnutrition is a leading cause of mortality, hinders development and entails national losses of around 6% of GDP[1], you might see globalisation as a beacon that could signal the introduction of greater nutritional diversity to local diets. If, on the other hand, you live in countries such as Chile or Mexico where undernourishment is no longer the main issue and the country now faces a transitional economic phase wherein obesity becomes a cause of concern, the increased inflow of foods from countries such as the United States might be viewed in a more negative light—as an influx of unhealthy types of food that contribute to obesity (Giuntella 2017).

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Graph 1 Changes in trade (% of GDP) and the prevalence of stunting in children under 5 years of age, world level. Source: author’s elaboration using STATA and the WDI (Last updated January 25, 2018).

From a descriptive perspective, during the last 30 years, and particularly after the Marrakech negotiations that led to the formation of the World Trade Organization (WTO) and its agreements, there has been an increase in trade openness and a reduction in the prevalence of stunting (PAHO 2017), even though hunger is still the leading cause of death and primary contributor to disease worldwide (Pongou et al. 2006).

We can assess the impact of trade openness using the Depth of the Food Deficit (DFD), an outcome indicator that measures inadequate access to food (Reddy et al. 2016, Santeramo 2015) by determining the amount of calories needed to lift the undernourished out of this position, ceteris paribus (Reddy et al. 2016, World Bank Group. 2017, Dithmer and Abdulai 2017).

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Table 1: Effect of the import and export value indexes (2000=100) over the depth of the food Deficit (kcal per person per day), world level.

Table 1 shows the effect of Export and Import Value Indexes, included in logarithmic form, over the DFD. There is overall a strong and significant relation between both values and the indicator: an increase of one percentage point of the Import Value Indexes reduces the Depth of the Food Deficit in a range of 21 to 37 kilocalories, such change being consistent to the inclusion of all controls. Hence, a reduction of the DFD responding to an increase in both exported and imported values speaks of narrowing gaps between current nutritional status and the average dietary energy requirements of the population, and can contribute to SDG2—Zero Hunger.

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Table 2: Effect of import and export Values (2000=100) over depth of the food deficit (kcal per person per day) in Latin American countries (excluding Haiti, Cuba and the Small Caribbean States).

The same regression can be run for the Latin American countries, including a variable constructed by the author measuring the number of food security programmes per country per year. The impact of trade openness over DFD is still strong and relevant in magnitude, and there is a linear albeit insignificant relation where programmes reduce the prevalence of undernutrition. When the quadratic variable is applied it hints—the coefficients are not significant—that such an effect only goes so far, and that, after a breaking point, these programmes show detrimental results.

Considering all of the above, the evidence shows that trade openness is in fact a relevant policy when it comes to reducing food insecurity, increasing social wellbeing and leading to socioeconomic progress. Furthermore, it would seem that trade openness is a more effective tool than the implementation of specific programmes that attempt to target food insecurity that many times end up doing more harm than good. This could be explained by the fact that there is a trend towards the indiscriminate adoption of programmes, both local and foreign. Additionally, more programmes usually signal the lack of effective stakeholder coordination, the lack of continuity in governmental strategies, and the inefficient expenditure of available resources.

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Table 3: Effect of export and import Values (2000=100) over obesity prevalence for children under 5 years of age, world level.

When it comes to obesity, our research shows inconclusive results: there is a significant albeit small effect of trade openness—both export and import values—on the prevalence of obesity, but this effect fades when controls are included in the models. This can be due to the fact that obesity is a more recent phenomenon and besides integration of economies into global markets responds to many factors, such as economic growth, urbanisation trends, and the rise of the middle class (PAHO 2017).

Conclusion

While the consequences of globalisation over health and nutrition can be contradictory, it is an effective tool for the reduction of hunger, currently the leading cause of death in the world. This relatively inexpensive action, when compared to technology or research-based programmes, can increase the availability of nutritional foods, increase higher nutritional variety in diets, and can stabilise the food supply, reducing shortages in times of dearth. Overall, opening up to trade, at least from the health and nutrition perspective, seems to be a policy worth trying, but there is only so much that trade can do without a strong institutional background.

[1] Which is the case for Central America and the Dominican Republic according to the CEPAL (as cited by Jara Navarro (2008: 9)

[2] According to the WHO, stunting is defined as the impaired growth and development that children experience from poor nutrition, repeated infection, and inadequate psychosocial stimulation. Children are defined as stunted if their height-for-age ratio is more than two standard deviations below the WHO Child Growth Standards median.

References
Dithmer, J. and A. Abdulai (2017) ‘Does Trade Openness Contribute to Food Security? A Dynamic Panel Analysis’, Food Policy 69: 218-230.
Giuntella, O., M. Rieger and L. Rotunno (2017) ‘Weight Gains from Trade in Foods: Evidence from Mexico’, University of Pittsburgh, Kenneth P. Dietrich School of Arts and Sciences. Working Paper Series 17/010 Weight gains from trade in foods: Evidence from Mexico. 17/010.
Jara Navarro, M.I. (2008) ‘Hambre, Desnutrición y Anemia: Una Grave Situación De Salud Pública’, Revista Gerencia y Políticas de Salud 7(15): 7-10.
PAHO (Last updated 2017) ‘Sobrepeso Afecta a Casi La Mitad De La Población De Todos Los Países De América Latina y El Caribe Salvo Por Haití’ (a webpage of PAHO/WHO). Accessed April 12 2017 <http://www.paho.org/chi/index.php?option=com_content&view=article&id=856:sobrepeso-afecta-a-casi-la-mitad-de-la-poblacion-de-todos-los-paises-de-america-latina-y-el-caribe-salvo-por-haiti&Itemid=1005&gt;.
Pongou, R., J.A. Salomon and M. Ezzati (2006) ‘Health Impacts of Macroeconomic Crises and Policies: Determinants of Variation in Childhood Malnutrition Trends in Cameroon’, International journal of epidemiology 35(3): 648-656.
Reddy, A.A., C.R. Rani, T. Cadman, S.N. Kumar and A.N. Reddy (2016) ‘Towards Sustainable Indicators of Food and Nutritional Outcomes in India’, World Journal of Science, Technology and Sustainable Development 13(2): 128-142.
Santeramo, F.G. (2015) ‘On the Composite Indicators for Food Security: Decisions Matter!’, Food Reviews International 31(1): 63.
The Economist (2018) ‘Bagehot: Rethinking Open v Closed’, The Economist March 24th-30th 2018 9084: 33.
WHO (Last updated 2017) ‘Noncommunicable Diseases’ (a webpage of WHO Media Centre). Accessed April 12 2018 <http://www.who.int/mediacentre/factsheets/fs355/en/&gt;.
Winters, L.A. (2004) ‘Trade Liberalisation and Economic Performance: An Overview’, The Economic Journal 114(493).
World Bank (Last updated 2018) ‘World Development Indicators’ (a webpage of The World Bank). Accessed March 1 2018 <http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators#&gt;.

0894f1c-2.jpgAbout the author:

Ana Cristina Canales Gómez is a veterinarian at the Universidad de Chile who holds a Masters degree in Public Policy from the same institution and a Masters degree in Development Studies from the ISS. Currently, she works as a consultant for Food & Foodstuffs Trade and Nutrition Policies in the Food and Agriculture Organization (FAO).

 

Deglobalisation Series | Financial deglobalisation: a North-South divide? by Haroldo Montagu

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The Financial Crisis of 2008/09 led to a structural break in financial globalisation, setting cross-border capital flows back to the average of the 1990s. Do differences between cross-border financial flows of the Global North and Global South disqualify the financial slowdown as deglobalisation? Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation?

While it is clear that trade flows collapsed and slowed down after the global financial crisis of 2008/2009 and that deglobalisation in terms of international trade has occurred ever since, the picture is less clear for capital flows. Forbes argues that financial deglobalisation is visible in the sharp and sustained decline in cross-border financial flows associated with the recent global financial crisis, with no signs of recovery. Leading think tanks and international organisations, such as the McKinsey Global Institute (MGI), the Bank of International Settlements (BIS), and the International Monetary Fund (IMF), have, however, argued that financial deglobalisation is not a reality because the decrease of financial flows is not a broad-based and sustained phenomenon. Closer scrutiny of data related to this can help us to better understand whether financial deglobalisation is happening or not.

Graph 1: Cross-border financial flows (share of world GDP) reached a peak before the crisis and have since been at a lower level, with indications that they are now flattening out
Graph 1.png
Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

As illustrated in Graph 1, the financial crisis created a structural break in the level and pace of financial globalisation. In 2007, international financial flows peaked at more than 50% of world GDP, but then global cross-border flows fell significantly in 2008 and after some recovery levelled out at around 15% of world GDP (slightly above the average for the 1990s).

G7 versus BRICS

This global average, however, does not in itself reflect different experiences in the Global North and Global South. So, let’s take on one side the advanced economies gathered in the G7 (Canada, France, Germany, Italy, Japan, UK, US) representing the Global North and, on the other, emerging economies labelled as BRICS (Brazil, Russia, India, China and South Africa), as a Global South sample, and regard their own experiences to move beyond the aggregate picture that might not reveal differences in the extent of deglobalisation. Graph 2, like Graph 1, shows cross-border financial flows, but rather than focusing on global GDP displays the regional GDPs for the Global North (G7) and the Global South (BRICS).

Graph 2: Different experiences in G7 and BRICS (cross-border financial flows as a share of regional GDPs)
Financial deglobalisation(?)

Graph 2
Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

The graph clearly shows that the G7 grouping reached a financial peak in 2007, followed by a sharp decline in 2008/09 and poor recovery following the crisis. The graph, however, paints a very different picture for the BRICS economies. A number of factors are noteworthy in determining whether financial globalisation is also taking place in the BRICS grouping. First, the decrease in financial flows after the crisis, although important, is not as significant for the BRICS as for G7 countries. While the decline of the advanced economies was about 40 percentage points during 2008/09, amongst the BRICS economies the fall was only about 8 percentage points.

Second, in the BRICS grouping the financial flows recovery (both in level and in terms of speed) was quite remarkable. As a consequence, in 2010 the BRICS had recovered to a level well above the level in the 1990s, while the share of the G7 countries remained around 30 percentage points below the pre-crisis peak. These figures clearly show that nowadays the BRICS countries hold a similar share of financial integration (relative to their own GDPs) as the G7 countries(!). A third point worth mentioning is that BRICS’s financial flows, while insignificant in the 1990s and early 2000s, increased, on average, to about 2% of world GDP following the crisis (2010-2016). Again, this means that the gap between advanced and emerging economies is shrinking.

How global is financial deglobalisation?

The key issue is whether these dissimilarities would disqualify the labelling of the financial slowdown after the crisis as deglobalisation that after all is understood to be a widespread phenomenon. While G7 countries can’t recover financial momentum, the BRICS’s financial decline was neither sharp nor sustained. In short, there does not (yet) seem to be enough evidence to call it a collapse justifying the deglobalisation denomination.

The McKinsey Global Institute also points out here to other differences between advanced and developing countries. They argue that while cross-border capital flows for the whole world remain 60% below their peak finance momentum, in developing countries capital flows have rebounded. By estimating shares in constant terms, different than the current ones I showed, MGI arrived at the same conclusion. In addition, they emphasise the increase in South-South financial flows linked to foreign direct investment (FDI).

In the same vein the BIS argues here that even in the advanced economies, deglobalisation is restricted only to European countries. If focusing only on banking flows, consolidated by bank nationality—and not by bank location as the IMF usually presents—a broad-based deglobalisation trend is not evident. Rather, we are witnessing a European financial retreat.

Resetting financial globalisation

What is this diverse financial flows behaviour telling us? According to Mallaby, after the crisis financial flows show a “healthy correction”, defining the years leading up to the financial peak as an “aberration”. Accepting the “healthy correction” hypothesis would lead us to pose an alternative characterisation to the deglobalisation of financial markets. In this sense, words like “retreat”, “retrenchment” and even or “reverse” would be more appropriate for depicting the phenomenon. Moreover, can we say that post-crisis financial globalisation is healthier than the one registered before the crisis? Maybe it is not about lower shares, but better ones, leading to sounder financial markets where the financial globalisation reach is set by policymakers and regulators and not by an indomitable financial speculation, heading, as usual, to a crisis.

Whether is the rising regulation, the macro-prudential policies or just plain and simple risk aversion after the aberration (or a mix of all of them), financial globalisation’s newest phase looks, in general, the least volatile phase that might be least prone to crisis. However, is this new shape of globalisation good news? As usual, it depends. The Global North cannot afford to cause another boom-and-bust cycle whose impacts and costs are, indeed, globalised while their benefits are not. On the other hand, Global South recovery is not necessarily good news either. It is not clear that financial flows linked to ODA, debt, remittances or even FDI alone can drive economic growth or development.

Hence, cautionary measures should be taken (or reinforced) by governments to allocate foreign capital where is needed and do not validate unregulated financial speculation, especially the one triggered from the Global North. Despite their heterogeneity and criticism, the UN Sustainable Development Goals (SDGs) might be a good starting point regarding what is required to finance with foreign capital and what it’s not. Additionally, countries of the Global South must stand up and speak out, jointly, in international fora, warning about the dangers of financial aberrations. This should be presented as a global problem (even when it originated in the Global North) rather than a regional phenomenon or as a once-in-a-lifetime kind of thing, which it may not be.

Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation? Only time and, hopefully, financial markets regulators, will tell.

Also see: Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

Untitled.pngAbout the author:

Haroldo Montagu is a recent graduate of the ISS. Before studying at ISS, the author was appointed as National Director of Development Strategies and Macroeconomic Policy at the Ministry of Economy and Public Finance of Argentina. He also worked as a consultant for the Economic Commission for Latin America and the Caribbean. He teaches topics in International Economics and Economic Development at university level in Argentina.

 

 

Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

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After benefiting from international trade and investment for the past 30 years, China’s global position is starting to change. This is perhaps most evident when regarding its position at the centre of an ongoing ‘trade war’ with the United States. Given its role as leader in international trade, will China be able to ‘restart’ globalisation and offer an alternative to globalisation and deglobalisation as defined by the West?

As developed countries appear to step back from globalisation, China senses an opportunity to step forward and set new rules for globalisation. A major component of the Chinese strategy to lead changes in how globalisation is thought of and practiced is the One Belt and One Road Initiative (OBOR) of the Chinese government. Aimed at improving infrastructure and connectivity between China and the world, this initiative comprises more than physical connections. The Chinese government argues that this initiative includes not just economic, but also socio-cultural linkages, ultimately leading to mutual benefits for all countries involved. The OBOR defines China’s idea of globalisation in a new era in which emerging economies backed by rising economic power and strong alliances are seeking greater influence on global issues.

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Figure 1. Map of China’s One Belt One Road Initiative, with China in red and the land (black) and sea (blue) routes indicated. Source: https://en.wikipedia.org/wiki/One_Belt_One_Road_Initiative

China’s push for globalisation has evoked mixed reactions across the world, and Beijing has had to deal with multiple obstructions to its vision. Moreover, logistical and bureaucratic issues are plaguing countries participating in the OBOR. For instance, although China has signed bilateral cooperation agreements with Pakistan, Hungary, Mongolia, Russia, Tajikistan, and Turkey, with a number of projects planned under those agreements, the proposed projects have not been implemented. Most such projects are infrastructure-related, for example a proposed train connection between eastern China and Iran, which eventually may be expanded to Europe. Powerful Western economies and neighbouring Asian giants have remained cautious in their assessments and acceptance of the initiative.

Sustaining the benefits of globalisation

An important motivation behind the OBOR is the endeavour to continue to benefit from globalisation. Since 1979, China has implemented an Opening and Reforming Strategy. However, its export in percentage of GDP (trade openness) in 1980 was only 5.9% and outward Foreign Direct Investment (FDI) was 1.7 billion US dollars. Only after the 1990s China’s globalisation process really began. Joining the WTO in 2001 pushed its trade openness to the highest point—higher than the world average and the levels of the UK and US (Figure 2).

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Figure 2. Trade openness from 1960 to 2016 for four of the world’s largest economies, with the world average also indicated. Source: World Development Indicators (2018).

China is said to have been the largest beneficiary of globalisation until the economic crisis hit in 2008. After the economic crisis, the international market became weak and the Chinese economy could no longer count on export as its most powerful economic ‘carrier’ (besides investment and consumption). Immediately following the crisis, the Chinese government injected 4 trillion renminbi (RMB) into the economy and boosted short-term investment and consumption. Its long-term plan, which was not clear until 2012, is to further stimulate trade openness and integration into the world economy. China thus seeks to leverage the global market and resources to boost its economic growth.

At the helm of rebuilding globalisation efforts?

China does not only want to continue to benefit from globalisation, but also wants to lead the rebuilding of a global system where it could assume a leading role. The current deglobalisation phenomenon does not mean that the general globalisation trend will cease, because the core driver of globalisation is technology, which is advancing faster than ever. However, it does suggest a splintering (if not collapse) of the current globalisation system created after World War II and shaped to its current state largely by developed economies.

Trumpism and Brexitism are both symbols of the deglobalisation phenomenon but are not evidence that the traditional leaders of globalisation are deglobalising their economies. Instead, such symbols show the recognition of the need for a new globalisation system by both ‘traditional’ world leaders like the US and UK as well as emerging powers who were largely excluded from the last global rulemaking process and now hold a share of the world GDP so significant that they cannot be ruled out again.

However, globalisation in China has always been selective, well-managed, and restricted mainly to economic and trade-related activities. Besides its achievement regarding global trade, China shows little achievement or/and willingness to be globalised in terms of, for example, finance, human resources, and culture. The exchange rate is under careful control. English education in China is mandatory since middle school, but the real usage of English is still quite limited. China is known to be the most difficult country for foreigners to attain residence permits, and to date it blocks direct access to the global internet. These are all signs that Beijing is not too eager to participate in all forms of globalisation.

China needs to tread carefully

And thus its attitude may jeopardise China’s idea of globalisation through the OBOR initiative. The explanation often used by Chinese government for the selectivity related to the initiative is its desire to minimise the negative effect of Western-Defined Globalisation and to respect China’s special country situation. However, China’s attitude towards the OBOR must be open-minded and holistic, both tolerable of and acceptable to a wide range of ideologies.

The Chinese government seems to realise that and is promoting the OBOR as ‘the most inclusive globalisation system’. Formally, the OBOR emphasises five key areas of cooperation, including economic, financial and social exchanges, and the private sector is encouraged and expected to be the main driver of the initiative. Unfortunately, the current situation suggests that OBOR has been largely driven by state-owned enterprises and government-level trade agreements, and is limited to global trade. The areas that are not engaged by the plan, such as culture, education, data sharing and immigration, are likely to hinder China’s efforts towards globalisation, especially in a digital world where technology is developed at such a high speed.

In conclusion, China will continue to seek leadership in restoring the globalisation system, with the OBOR initiative as its core measure. However, both traditional leaders and other emerging powers still have a say in how and whether the globalisation system is re-established. Consensus may not have been reached between countries, but the globalisation trend is likely to continue—and at a faster pace due to new technologies. If China truly wants to become a major global leader in the quest to ‘restart’ globalisation, private sector involvement in areas other than trade need to be encouraged through a more open-minded attitude.

Also see: Deglobalisation 2.0: Trump and Brexit are but symptoms by Peter. A.G. van Bergeijk and Challenges to the liberal peace by Syed Mansoob Murshed

untitled.pngAbout the author:

Chenmei Li is a Project Analyst at Institute of New Structural Economics, Peking University—one of the top 25 think tanks in China. She is working on economic transformation of developing countries (especially in Africa) and China’s engagement with LDCs. She received a Master’s degree from the ISS in 2016.

 

 

Deglobalisation Series | Challenges to the liberal peace by Syed Mansoob Murshed

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We may have reached a stage where economic interactions have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[1] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow.  

Liberal peace theories posit that peace among nations is not a result of a balance of power, but rests on the pacific nature of commonly held values, economic interdependence, and mutual membership of international organisations. Ideal theories of the liberal peace can be traced back to the work of Immanuel Kant, who in his essay on the Perpetual Peace[2] argued that although war is the natural state of man, peace could be established through deliberate design. This requires the adoption of a republican constitution simultaneously by all nations, which inter alia would check the war-like tendencies of monarchs and the citizenry; the cosmopolitanism that would emerge among the comity of nations would preclude war. The European Union is the most obvious, albeit imperfect, example.

Mirroring Kant’s thoughts is the contemporary philosopher John Rawl’s [3] notion of peace between liberal societies, which he refers to as peoples and not states. He speaks of well-ordered peoples. These are mainly constitutional liberal democracies, which arrive at such a polity based on an idea of public reason. In a well-ordered society, based on public reason, human rights are respected, and the distribution of primary goods (a decent living standard, dignity, respect and the ability to participate) for each citizen’s functioning is acceptably arranged.

Another version of the liberal peace theory based on economic interdependence is the ‘capitalist’ peace notion.[4] The intensity of international trade in an economy is the least important feature in the peace engendered by capitalism. The nature of advanced capitalism makes territorial disputes, which are mainly contests over resources, less likely, as the market mechanism allows easier access to resources. The nature of production makes the output of more sophisticated goods and services increasingly reliant on “ideas” that are research and development intensive, and the various stages of production occur across national boundaries. Moreover, the disruption to integrated financial markets makes war less likely between countries caught up in that web of inter-dependence. It is also argued that common foreign policy goals reflected in the membership of international treaty organisations (such as NATO and the European Union) also produce peace.

The chances of the well-ordered, tolerant societies envisaged by Rawls living in peace within themselves and with one another have greatly diminished with the recent rise in inequality, the growing wealth and income share of the richest 1-10% of the population, and the rise in varieties of populist politics. Also, the quality of Kant’s foedus pacificum has been dealt a severe blow by nations such as the UK choosing to leave the European Union, adversely affecting the utilisation of soft power via common membership of international organisations.

We also may have come to a stage where economic interactions such as the exchange of goods, provision of services and the movement of finance have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[5] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow, given recent developments. This includes the rise in populist politics.

The rise of populist politics

The growth in inequality, but more especially the creeping rise in the social mobility inhibiting inequality of opportunity, has spawned the illiberal backlash manifesting itself in the rise in mainly right wing populist politics. A large segment of immiserated voters vote for populists knowing that, once elected, the populist politician is unlikely to increase their economic welfare, as long as they create discomfiture for certain establishment circles, vis-à-vis whom these voters see themselves as relatively deprived. Immigrants and immigration is scapegoated and made responsible for all economic disadvantage and social evils following the simplistic and simple-minded message of right-wing demagogues. It has to be said that left-wing populism, too, has emerged in many societies, mainly among educated millenarians whose economic prospects are often bleaker than those of their parents, and in regions (such as Latin America) with a strong Peronist tradition.

By contrast, during the golden age, which lasted for a little over a quarter of a century after World War II, no particular group in society was disadvantaged by economic growth and the advance of capitalism. The elites appeared to internalise the interests of the median and below-median income groups in society. Social mobility was palpably present, and social protection cushioned households against systemic and idiosyncratic economic shocks. The growth in inequality linked to globalisation and labour-saving technological progress since the early 1980s has disadvantaged vast swathes of the population: it first pauperised the former manufacturing production worker through either job offshore relocation or stagnating real wages, and latterly it is emasculating even median service sector occupations. At the same time the income and wealth share of the top 1-10% of the population grows at an accelerating pace, faster than the rise in national income.[6]

In developing countries there has been a growth in autocratic tendencies, the liberal half of a liberal democracy, even when the other part of democracy, the electoral process, is broadly respected. The use of plebiscites by strong men to garner greater power has been a frequently used tool. There is even talk of autocratic rulers delivering development and economic growth and autocratic tendencies may be greater in nations that have achieved economic structural transformation. But the logic of the “modernisation”[7] hypothesis that argues that democracy is demanded by society as it becomes affluent may still ring true, even if the process is non-linear, and other complex factors need to be taken into account.

A hyper-globalisation trilemma?

Faced with these challenges, we need to abandon our “Panglossian” faith in the ability of markets to always do good. The rules of globalisation and capitalism only serve elites who are owners of internationally mobile skills and wealth. There may be a hyper-globalisation trilemma[8], whereby the simultaneous achievement of national sovereignty, democracy and hyper-globalisation is impossible. It is worth reiterating that hyper-globalisation refers to a situation where for the collective the pains from increased globalisation in terms of adverse distributional consequences outweigh the gains in terms of enhanced income.

Earlier advances of globalisation was made relatively more acceptable in Europe compared to the United States, given the greater prevalence of social protection in the continent. Gradually, after 1980, and especially since the dawn of the new millennium, more and more groups have been disadvantaged by globalisation, and the politics of austerity has diminished social protection, fraying pre-existing domestic social contracts. Thus, many advocate a more limited globalisation, akin to the halcyon days of the golden age, also known as the Bretton Woods era (1945-73), whose hallmark was that the demands of globalisation never exercised veto powers on the domestic social contract.

A retreat from hyper-globalisation is desirable, but not through channels that diminish international cooperation and partnership, like Brexit and President Trump’s protectionist sabre rattling that undermine agreements like NAFTA. What is needed is internationally coordinated checks on hyper-globalisation and agreements on certain wealth taxes on the richest individuals, which is needed to address the alarming rise in wealth inequality given the fact that social protection can only have a palliative, and not curative, impact on these stupendous inequalities.

References:
[1] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.
[2] Kant, Immanuel (1795) Perpetual Peace and Other Essays on Politics, History and Morals, reprinted 1983. Indianapolis: Hackett Publishing.
[3] Rawls, John (1999) The Law of Peoples, Cambridge, MA: Harvard University Press.
[4] Gartzke, Erik (2007) ‘The Capitalist Peace’, American Journal of Political Science 51(1): 166-191.
[5] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.
[6] Piketty, Thomas (2014) Capital in the Twenty-first Century, Cambridge, Massachusetts: Harvard University Press.
[7] Lipset, Seymour (1960) Political Man: The Social Bases of Politics. New York: Doubleday.
[8] Argued by Dani Rodrik; see, for example, Rodrik (2017), op. cit.

Also see: Backtracking from globalisation by Evan Hillebrand

csm_6ab8a5ef34f1a5efe8b07dff07d52162-mansoob-murshed_0833a7fcf4About the author:

Syed Mansoob Murshed is Professor of the Economics of Peace and Conflict at the International Institute of Social Studies (ISS), Erasmus University Rotterdam in the Netherlands. His research interests are in the economics of conflict, resource abundance, aid conditionality, political economy, macroeconomics and international economics.