Is Globalization Sowing the Seeds of Its Own Undoing?

By Jay Ogilvy

OCTOBER 12, 2016

https://www.stratfor.com/weekly/globalization-sowing-seeds-its-own-undoing 

Globalization is driving wedges between upper and lower classes in the developed economies and, in so doing, driving further wedges between the lower classes in developed economies and the citizens of other nations. (MARK MAKELA/Getty Images)

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In a recent article in The New York Times, "Put Globalization to Work for Democracies," Dani Rodrik, a professor of economics at Harvard's John F. Kennedy School of Government, argues "that unmanaged globalization is undermining democracy. . . Simply put, we have pushed economic globalization too far — toward an impractical version that we might call 'hyperglobalization.'"

Rodrik's argument echoes a refrain that Philip Bobbitt and I have sounded in this space: the increasing influence of economics on politics or, as Bobbitt would put it, the emergence of the market state as the successor to the nation-state.

Rodrik's argument is pretty simple:

"Democratic politics remain tethered to nation-states, while institutions that make the rules for global markets are either weak or seem too distant, especially to middle- and lower-class voters.

"Globalization has deepened the economic and cultural divisions between those who can take advantage of the global economy and those who don't have the resources and skills to do so."

Rodrik is talking about the growing divide so well described in Charles Murray's excellent book, Coming Apart,where the peeling away of the privileged from the rest of society over the past 50 years is made starkly clear in graph after graph displaying diverging statistics in areas like education, employment and income.

Those "who can take advantage of the global economy" are clearly benefiting from globalization and tend to cluster in the same clubs, colleges and communities. "Those who don't have the resources and skills" to benefit from globalization get left behind in decaying cities whose industries have, in fact, suffered from foreign competition, very likely from China or Mexico. See Murray's portrayal of the blue-collar poor in his grim portrait of a fictionalized but representative community he calls Fishtown.

Is It Heresy to Question Free Trade?

While promoting free trade has been holy writ among most economists for decades, a few like Rodrik are starting to acknowledge the differential effects of trade on different parts of society. MIT economist David Autor and his colleagues have analyzed data from 722 different "commuting zones" in the United States to show the differential effects of trade since China joined the World Trade Organization and increased its exports to the United States in the early 2000s.

In a recent article in the MIT Technology Review on Autor's work, Peter Dizikes writes:

"Most recently, Autor has argued that resentment over the ill effects of trade is helping to transform American politics. In areas hard hit by job losses caused by trade with China, he and his collaborators found in a new study, unhappy voters have since 2002 been electing 'more extreme legislators, especially on the right,' exacerbating the polarization that has made Congress so dysfunctional."

Once again sounding the refrain of the influence of economics on politics, Rodrik concludes:

"The new model of globalization stood priorities on their head, effectively putting democracy to work for the global economy, instead of the other way around. The elimination of barriers to trade and finance became an end in itself, rather than a means toward more fundamental economic and social goals. Societies were asked to subject domestic economies to the whims of global financial markets; sign investment treaties that created special rights for foreign companies; and reduce corporate and top income taxes to attract footloose corporations."

Does Rodrik want to restrict free trade? Not exactly. But he does want to sprinkle "some sand in the cogs of globalization." In his effort to "reassess the balance between national autonomy and economic globalization," he makes five recommendations.

First, we should embrace a humble pluralism that acknowledges different national and cultural approaches to getting the right balance between governmentally distributed social welfare and free market-driven economic growth. Second, countries should be able to prevent "regulatory arbitrage" by keeping out goods whose manufacture drives down the bar for acceptable labor practices. I'll skip the third because it's not easy to summarize succinctly, and jump to, "Fourth, global governance should focus on enhancing democracy, not globalization." Rodrik wraps up his recommendations with a slap at "nondemocratic countries like Russia, China, and Saudi Arabia," saying they don't deserve the level playing field that free trade is supposed to afford.

I offer this quick summary of a subtler argument not so much to advocate Rodrik's specific recommendations but rather to offer a sense of their granularity. This is not grand ideology or revolutionary rhetoric, but fairly commonsensical thinking.

Nonetheless, he concludes:

"When I present these ideas to globalization advocates, they say the consequence would be a dangerous slide toward protectionism. But today the risks on the other side are greater, namely that the social strains of hyperglobalization will drive a populist backlash that undermines both globalization and democracy. Basing globalization on defensible democratic principles is its best defense."

I've given Rodrik's article this much attention because I think he makes a very important point: Economic globalization is having a distorting effect on politics. By its uneven distribution of gains, economic globalization is fostering undemocratic tendencies.

The Mixed Consequences of Hyperglobalization

Globalization, he is saying, is sowing the seeds of its own undoing. By distributing its fruits so unevenly, globalization is driving wedges between upper and lower classes in the developed economies. In so doing, it is also driving further wedges between the lower classes in developed economies and the citizens of other nations, who are painted as enemies by populist demagogues.

The promise of free trade is undeniable: Everybody likes those everyday low prices. But the consequences of the differential distribution of the benefits of globalization are becoming disturbingly clear: For the upper classes, the world is their oyster. For the lower classes, the world is their competitor.

So what is to be done? Autor thinks protectionism would be a mistake. Instead he recommends, "'trade adjustment assistance' for affected workers. This idea has been an 'orphan' in policy circles, he says, adding that the current federal program is 'stingy.'"

More money for education and retraining, and higher-quality jobs — this is a familiar refrain. It has been a component of party platforms both right and left for decades. But now the newly increased pressure of globalization renders it less of a platitude and more of an imperative.