4 July 2017

Can we be saved from the Grave New World?


The year is 2044. An American politician steps onto the stage. “I am truly honoured to be the Republican party’s first female presidential candidate,” she says. The candidate explains how she will defend American interests in a dangerous world: by designing weapons that “more than match the Chinese”; by demanding that “America’s borders are impenetrable”; by steering clear of the Pacific, which is now in China’s sphere of interest; by only engaging with countries that “100 per cent believe in the American way”; and by protecting “the remaining American jobs come what may”.

“They used to think that ‘splendid isolation’ was an insult,” she tells the rapt audience. “Let me tell you the truth. I’m proud that we’re ‘splendidly isolated’.”

The crowd go wild. “Trump! Trump! Trump!” they chant.

This is the imagined episode, featuring an unnamed Trump daughter hoping to govern a diminished America, with which economist Stephen D. King, mischievously ends Grave New World, his new study of globalisation past, present and future. The epilogue is more a warning than a prediction. Such a grave new world will come to pass if “those who favour insularity and protectionism” prevail.

That warning may seem a statement of the obvious, but its implication – that globalisation is a contestable political issue – is something many have missed. Typifying the consensus, Bill Clinton described globalisation as “the economic equivalent of a force of nature: like wind or water”. It was elemental, unstoppable.

Such a mindset has led to a complacency among those who welcome the change globalisation brings: believing themselves to be on the right side of history, they haven’t felt the need to engage with the troglodytes on Left and Right who are fighting against it. But while technological progress has provided a significant tailwind, ultimately, globalisation is the product of political decisions.

As King’s book makes clear, there is nothing inevitable about the increasing ease with which capital, goods, services and people move around the world and the deepening links associated with that. Globalisation has had its ebbs and flows in the past, and as he suggests, it will have them in the future.

Part of the problem, King explains when we meet to discuss the book, is that globalisation gets blamed for things that are actually the result of bad domestic policy or technological change. “If you want to come up with a political narrative as to what has gone wrong,” he says, “then explaining the difficulties of technology, for example, is quite a complicated idea to get across… Saying it is all the fault of China and Mexico may be a lot less accurate, but it is something which works politically.”

It isn’t just the trumpeting right-wing populists who are blaming foreigners and globalisation for their country’s problems. During last year’s presidential election, Bernie Sanders said “the global economy is not working for the majority of people in our country and in the world. This is an economic model developed by the economic elite to benefit the economic elite. We need real change.”

As King points out, this claim may make for an effective soundbite, but it is at odds with the facts: “While there may be serious differences of opinion about the distribution of the spoils of globalisation within the US, it is much more difficult to support the claim that ‘the global economy is not working for the majority of people in the world’.” Consider the number of people living in extreme poverty. Between 1990 and 2015, it halved. And it did so because of – not in spite of – economic liberalisation.

If globalisation’s advocates are struggling to win this argument today, their job is about to get much harder. Technology, once an accelerator of globalisation, could soon become the opposite.

King explains that while technology helped in “the creation of global supply chains – the idea that capital goes in search of the best combination of wages, productivity, corporate governance, which has been the dominant feature of globalisation since the 1960s, robotics and reshoring could send that into reverse”.

The political consequences could be dire. Sketching out one of the problems that might arise, King warns that “if you’re suddenly trapped in a part of the world that isn’t getting any capital at all, you’re going to go to other parts of the world – or try to get to them – to take advantage of the opportunities that might exist there”. In other words, the result could be an upheaval that makes Europe’s present migrant crisis look a slight inconvenience.

Strengthening the headwinds for globalisation is a lack of global leadership. “The idea that you can all just happily live together in an orderly fashion went out of the window with the financial crisis,” argues King. The institutions that helped to deliver 20th-century globalisation – the WTO, the IMF, for example – were designed in an era when America was eager to take charge.

“As the global economy became more complicated after the fall of the Berlin Wall, these institutions began to become weaker,” says King. “And America’s share of the global economy started to fall, so it couldn’t perform the domineering role it had occupied previously.”

King’s fear, as he explains in Grave New World, is that “as the US loses its appetite for supporting the global institutions that have established the ‘rules of the game’, it is not impossible to imagine that the twenty-first century will increasingly be characterised by Nineteen Eighty-Four-style superpower rivalry” between the US, Russia and China. (King’s inclusion of Russia in this gloomy picture may be in line with its president’s ambitions, but at odds with its economic strength.) This multi-polar world would be bad news for globalisation – which works when their are universal rules of the game.

Moreover, where is Europe in this changing landscape?  While King recognises the EU as one of the institutions that has helped open up the global economy in the past half century, he wonders if its internal contradictions and pressures are holding globalisation back.

The eurozone – in many ways the apotheosis of a borderless world – is particularly problematic. “The euro may not be able to survive,” he says in the book, “if some countries are condemned to permanent stagnation, even as others continue to flourish.” This is part of a broader warning that “the current temples of globalisation may need to be demolished”.

Which brings us to Brexit. It plays a paradoxical role in the globalisation story. On the one hand there are those (Leavers and Remainers) for whom Brexit is a straightforward case of a country putting up borders to the outside world. Then there those for whom Brexit is an opportunity to build a “global Britain”, trading freely with as much of the world as will do business with us.

King’s message to the latter group is that there is more to a global Britain than free trade:

“If you say we are going to trade with other countries but we are very concerned about the movement of people, then you may not attract the capital you want, because, suddenly, the flexibility of the labour market is not what it once was . . . So you end up with this weird push me pull you situation whereby you say you want to globalise and trade with the rest of the world while the rest of the world is thinking, ‘should we really invest in Britain if it turns out Britain no longer has open access to the single market’ … and where Britain is unwilling to hire the best people for the jobs in the country.”

The lesson, then, for the British government is that free trade in goods isn’t necessarily enough. Britain must be open for business in a broader sense – welcoming of foreign investment and foreign labour, neither of which Theresa May has embraced with open arms.

Beyond Britain, what will save globalisation from itself? King offers some familiar answers. “We need to invest in education,” he says, “and, in particular, on-going education throughout one’s life” so that the workforce can treat economic change as an opportunity, and not an insurmountable challenge.

The retirement age also needs to rise, he says: “It is worth remembering that when the retirement age was first chosen as 65 by Bismarck in the 1800s, life expectancy was about 50. It was something very few would enjoy; it was a right.”

King also thinks there needs to be “somewhere other than Davos” to meet and discuss globalisation. The Swiss resort has become a byword for global hobnobbing and, according to King, when you go to the annual World Economic Forum there, there is an unfounded “sense of celebration that we can solve all these problems by drinking champagne in the mountains. There isn’t really a voice for those who have lost out.”

The most original, and significant, of King’s proposals is what he calls GOFF (the Global Organisation for Financial Flows), a new global institution for resolving financial disputes in much the same way the WTO works for trade.

Were creditors to walk away from a country, that country could appeal to GOFF for temporary funding. If the country is found to have raised loans fraudulently or irresponsibly, it would lose the funding. If the country is instead found to have been a victim of avaricious investors, GOFF could take action, “underscoring the principle that creditors and debtors have obligations to each other”.

King acknowledges that the political climate is hardly right for another supranational institution, which voters would likely see as “technocratic and unaccountable”. However, GOFF would smooth the edges of globalisation by providing “a powerful incentive for both creditor and debtor nations to consider very carefully their contributions to global financial imbalances”.

But King acknowledges that a bold new proposal such as GOFF is no panacea. Saving ourselves from the Grave New World sketched out in his epilogue depends on getting a thousand different tweaks to the system right. But that cannot start until those who appreciate the benefits of globalisation realise they are not destined to be on the right side of history.

Oliver Wiseman is the Deputy Editor of CapX