We live in strange and usual times. Actually, this is what people always do. And all people always think that their era is unique. We seem to live in the times of Trumpism, Brexitism and deglobalisation. It definitely feels like something unique. But it is not.
Our grandparents have been here before. Of course, the voices and characters on the world stage are different. But the stories of the Great Depression of the 1930s and the Great Recession that we are still living today are similar.
The start is a financial crisis. Then follows a collapse of world trade and world investment that marks the end of decades of intensifying globalisation characterised by increasingly free international trade and capital flows. This collapse starts a period of deglobalisation that at first is hidden under the veil of recovery, but later becomes clear as a reduction of the share of international trade in production. This happened in the 1930s and it is happening now.
Many observers make the error of blaming Trump and Brexit for deglobalisation. They are wrong and confuse the symptoms and the causes of the disease. Why are Trump and Brexit only symptoms? Because the virus of deglobalisation is widespread: the Dutch referendum opposing the treaty with the Ukraine, and the Belgian opposition of the trade agreement between the EU and Canada, are just two examples. And in other countries such as Austria, Germany and France, anti-globalist election platforms have gained significant strength. An interesting observation is that anti-globalism now has a strong foothold in the Global North, with much different attitudes in the Global South, particular among the BRICS countries.
Déjà Vu: The 1930s (and today)
Although deglobalisation is a recurring phenomenon, scientists have so far treated the different periods of deglobalisation as isolated cases, limiting our knowledge of deglobalisation to a hermeneutic understanding of this real-world phenomenon. In science “one” is typically not enough, but economists and political scientists have unfortunately limited their research to the most recent manmade trade disaster at hand.
The problem is that we therefore do not learn from history, do not compare it with other occurrences of the phenomenon, and cannot correctly understand our current situation.
Of course, the two major phases of deglobalisation are not identical twins. I would like to add: fortunately so. One can only learn if both similarities and differences occur. The two phases of deglobalisation were equally triggered by a demand shock in the wake of a financial crisis. Both in the 1930s and in the 2000s the composition of trade was a second key determinant: manufacturing trade bore the brunt of the contraction.
Before the start of deglobalisation, income inequality increased significantly, and the recent rise in inequality has been linked to international trade. And as in the 1930s, the political institutions are key for understanding where and when deglobalisation of economies occurred. Unlike is often assumed, a “world” trade collapse and its deglobalisation aftermath is characterised by significant heterogeneity of country experiences and practices, implying that a one-size-fits-all approach to deglobalisation will be deemed to fail.
Democracy and deglobalisation
The differences, however, are equally important. In the 1930s, democracies supported free trade, and deglobalisation was driven by autocratic decisions to strengthen self-sufficiency. In the 2010s, political institutions are just as significant, but now democratic decisions drive the deglobalisation process worldwide. Indeed, while the industrialised countries this time avoided the pitfalls of protectionism and deflation, they have experienced different political dynamics.
It is important that their significance measurably and significantly occurs well before the presidential elections in the US or the Brexit referendum. Trump and Brexit are consequences of the underlying political dynamics. These manifestations have a self-reinforcing character, but fighting them will not cure the world economy from the deglobalisation virus.
This raises an important question regarding the concept of the liberal peace (trade between democracies reduces the probability of war by increasing the cost of conflict) that underpins the Bretton Woods institutions. Now that the 19th and 20th Century hegemons are repositioning towards lesser integration into the world economy, the maintenance of the multilateral rules for trade and investment are under threat; thus the very concept of the liberal peace may be eroding. It is interesting to see that the developing and emerging economies understand the importance of these rules and regulations against the power play of economic world leaders. China, the emerging hegemon of the 21st Century , is one of those important voices. In the era of Trump and Brexit, it is essential that this voice is heard.
Peter van Bergeijk