The future of globalisation is at risk!

The cover of the 27 July 2006 issue of The Economist magazine showed a large shipwreck stranded on the sand with the caption, The Future of Globalisation, and its lead article referred to the failure among members of the World Trade Organization to reach conclusion on the Doha Development Round that began in November 2001.

What The Economist lead article says

“When the Middle East is ablaze, oil prices near record highs, the American economy cooling and the climate warming, it is hard to get excited about the beaching of trade talks. After all, globalisation is unstoppable: so what if a few technocrats in Switzerland packed up their briefcases and went home?

So a lot. Such attitudes were behind the wrecking of the Doha Round of trade talks this week. This disaster, born of complacency and neglect, signals a defeat of the common good by special-interest politics. If the wreck is terminal – and after a five-year stalemate, that seems likely – everyone will be the poorer, perhaps gravely so.

It is not just the narrow business of the Doha Round (if narrow is a fit adjective for an ambition to lift millions out of poverty, curb rich countries’ ruinous farm support and open markets for countless goods and services) that is at stake. In the long run, the lack of commitment to multilateral trade that sank the Doha Round this week will also start to corrode the trading system as a whole”.

Where are we today?

Dohafailure

Dohafailure

That was almost seven years ago. Where are we now? The Doha Round has still not been concluded. It has been all but abandoned, though there is some hope that a morsel or two might be salvaged. The harm done to the multilateral rules-based trade regime, however, remains incalculable. That it is the most important foundation stone in the edifice of globalisation is what makes the stalemate a matter of particular concern.

Of equal and aggravated concern is the fact that the major powers should be seeking regional or bilateral deals at the expense of the multilateral. The latest foray of that nature is the proposed Transatlantic Trade and Investment Partnership (TTIP), which would bind the US and EU (still the world’s two biggest markets and trade/investment partners) in a bilateral Free Trade Agreement (FTA). This initiative would possibly be a good thing if it was taking place in parallel to the revival of the multilateral system. Failing that, what we are witnessing is more global fragmentation.

There is no place for complacency

The fact that in July 2006 The Economist envisaged the end of globalisation and that it has not happened yet induces a false sense of security. But there is no place for complacency, especially the form of complacency that imagines a world where globalisation functions on self-perpetuating momentum immune to the hazards of global politics and economics. History has shown that was not the case in the past.

The first decade of the 20th century probably marked the highest point ever achieved of globalisation (see a quotation below from John Maynard Keynes in relation to that period for a vivid illustration), and there was much naively optimistic complacency. The “Peace Palace” was officially open in the Hague in August 1913, and one year later we had World War I.

The outbreak of war in Europe in 1914 reversed globalisation for decades during which untold human misery on a global scale occurred. It is only since 1991, with the collapse of the Soviet Union and the reforms undertaken in a number of emerging economies, that globalisation returned, with its fruits being enjoyed by a much greater proportion of the world population than in Keynes’ day. But it remains fragile.

As we approach the centenary of August 1914 we should reflect on what happened then and try to ensure it does not happen again in some modified form. Partly to that end, I strongly recommend reading the column by Gideon Rachman in the Financial Times of 4 February 2013 entitled “The shadow of 1914 falls over the Pacific”

I would also note that more often than not globalisation gets derailed not so much because of the intent of political leaders, but because of lack of governance and lack of strengthening of appropriate global institutions and forums. The Economist was right to sound the alarm back in 2006.

 

Quotation of John Maynard Keynes in The Economic Consequences of The Peace

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement.

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