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July 23, 2010 / Lukasz Cerazy

Is the world economy on rout to reversing the degree of globalisation?

This might seem as an almost impossible scenario to most observers. However, globalisation has been reversed before and in a significant way. Most recently after the Wall Street Crash (1929) following the First World War, which saw protectionism become the preferred policy amongst most of the developed countries. It is not the first time the world has seen great migrations and leaps in commerce and international trade. The term globalisation encapsulates the idea of international influences and operations, which has been well known from very ancient civilisations and their trading routs or migrations. The ultimate degree of globalisation is a complete integrated world economy with identical standards, perfect mobility of goods, services, capital and labour. However there is a long way to fulfil this potential and perhaps it is not a feasible one. It is, however, widely recognised that the level of globalisation is the most advanced it has ever been, despite periods of remarkable de-globalisation. The fear is therefore not unfounded.

Some therefore fear that the current era of globalisation might be heading for the same dismal future. The same critics express their discontent with the word that has increasingly become a term of abuse rather than a term of praise. Much like the term Capitalism it has too often become a popular target for explaining all sorts of misery, which is unfair. This is of course not to say that there are not serious issues associated with globalisation. It is rather the way in which it is being managed that is deeply critical, when it appears to always be in favour of the developed world and their corporations. There is therefore much scope for improving globalisation, which first and foremost must happen through political integration and agreement. The creation of an international body, that has the power to effectively enforce agreements and to make governments adhere to its rules, is of the highest priority. Otherwise, for example, countries like the USA, who can best afford to prevent environmental degradation, will continue not to ratify the Kyoto Protocol and other international obligations.

There are overall five significant factors that make globalisation different today than in the past. These are:

1)   Free Trade. Organisations like the GATT and the WTO have been instrumental in achieving multilateral trade agreements. Most notably China and India have removed barriers to trade in order to drive their economies through exports.

2)   Outsourcing. Corporations have moved much of their operations to areas of lower production costs, where – controversially – regulation is much more lax.

3)   Communication costs. These have been brought down significantly through the standardisation of container shipping and the over investment in broadband communication during the euphoria of the dot-com boom in the 1990s.

4)   Liberalisation. Following doctrines from Thatcher and Reagan many countries have opened up their borders to flows of goods and services, as well as capital. This has – not without controversy – opened up markets for Western nations to enter these markets and as well as letting hot short-term speculative capital investment flow quickly in and out. Labour, however, still remains less immobile.

5)   Legal harmonisation. International standards are becoming more prevalent and property and intellectual property rights more widely respected.

All of the above factors can and should contribute to a beneficiary level of globalisation. So in order to avoid the risk of reversing the process and furthermore contributing to its fairness, the way in which it is being managed should come under scrutiny. Many of the factors, which have led to the current stage of globalisation, are irreversible, so they cannot be undone unless newer technology makes them obsolete or international scepticism deepens. The second point is much more critical at present, which is not surprising when, for example, examining the IMF’s conditions of receiving aid and universally applying the Washington Consensus. The G8 should therefore initiate the creation of an international organisation that could address the issues of globalisation. Let us make people believe in globalisation again and the best way to do that is to let its benefits reach more people. The potential is certainly there. This is possible because globalisation it is not a zero-sum game and it has made millions of people better off already. There has never been a time, where life expectancy and living standards have been higher, to which globalisation has been a the key element. There are therefore good reasons to promote a higher degree of globalisation, if it can be managed fairly.

By Lukasz Cerazy.

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