Can globalisation survive the populist revolts?

Just over a decade ago, in 2002, Joseph Stiglitz, the Nobel Prize-winning economist, published his popular book, “Globalisation and its discontents”. In it, he argued that the discontent with globalisation was giving rise to global movements of anti-globalists. Stiglitz’s critique of globalisation was controversial – and many prominent economists took issues with him – but his view about the rise of anti-globalisation sentiments and movements was accurate. Indeed, in 1999, three years before Stiglitz published his book, the world witnessed its first major anti-globalisation riots in the so-called “Battle of Seattle”, when violent protesters disrupted the World Trade Organisation (WTO) Ministerial Conference in Seattle, Washington. When I worked at the WTO, in Geneva, in 2005, there were protesters outside the organisation’s building virtually every day, railing against the “evil” of globalisation. And the annual meeting of the World Bank and the International Monetary Fund (IMF) in Washington is hardly complete without anti-globalisation protests, and even riots. So, Stiglitz is right, globalisation truly has its discontents, and they have long created tensions in the global economic system.

But something is now different, and fundamentally so! The globalisation backlash has moved from the streets to the corridors of political power. Up until recently, the anti-globalists had expressed their anger through protests on the streets and against the notable institutions of global economic integration, namely the WTO, the World Bank and the IMF. But now they are toppling governments and destabilising the political establishments at the national level, particularly in Western countries, as we have just witnessed with the shocking results of Britain’s EU referendum and the US presidential election.

Of course, Donald Trump, a seeming unlikely winner, beat Hillary Clinton, an establishment figure, in part because of the weaknesses of Clinton’s candidacy particularly her deep unpopularity and vulnerabilities around issues like the email scandal, which the FBI used devastatingly against her just ten days to the election. But, in the end, she was a victim of a working-class revolt, of a rebellion by the anti-globalists. The fact that she won the popular vote, currently by more than one million votes(experts say she may surpass two million when all the absentee ballots in every state are counted), but lost the crucial electoral college vote that determines the presidency, shows that she secured most of her support from voters in the big and affluent states, such as New York and California, while voters in the poor but less populous states, such as Michigan and Ohio, whose electoral college votes were nevertheless critical, deserted her.

It was these disaffected voters, who saw Trump as a “working-class hero”, despite being a billionaire, because of his populist anti-globalisation rhetoric, that gave him his victory, while rejecting the “elitist” Clinton. Thus, Trump won mainly because he exploited the concerns of the poor working class and campaigned as an anti-globalist, on a platform of protectionism and a clampdown on immigration. It is not a coincidence, for instance, that he romped home in counties with large blue-collar, working-class voters, where the median income is under $30,000 a year. Such voters tend to blame immigration, free trade and off shoring – in short, globalisation – for their economic situation.

Indeed, political leaders acknowledge that the discontent with globalisation gave rise to the Brexit vote and Trump’s victory. A day after the British people voted to leave the EU, President Barack Obama said: “I do think that yesterday’s vote speaks to the ongoing changes and challenges that are raised by globalisation”, and last week in Greece, he attributed Donald Trump’s win to “a suspicion of globalisation”. Equally, speaking at the Lord Mayor’s banquet in London last week, Theresa May, the British prime minister, said that “one of the most important drivers” of the Brexit vote and Trump’s success “is that the forces of liberalism and globalisation have left too many people behind”.

Unfortunately, the globalisation backlash, as manifested by the Brexit vote and Trump’s victory, has also boosted far-Right, populist parties and politicians in the West, who are willing to exploit people’s concerns for electoral advantage. Speaking to the BBC shortly after the US election result, Marine Le Pen, leader of the French National Front, a far-Right party, said that the election of Donald Trump “has made possible what had previously been presented as impossible”. Apparently, she felt that her chances of winning the French presidential election next year have been boosted by Trump’s success, and not a few analysts think she might be right!

All of this is, naturally, depressing advocates of liberal democratic and economic orders. For instance, The Economist recently lamented: “The open markets and classically liberal democracy that we defend have been rejected by the electorate first in Britain and now in America”. But could the growing revolt against openness and integration really mark the beginning of the end for globalisation? This is not a trivial question because, let’s face it, there is nothing inevitable about globalisation; it can be reversed! Of the three key drivers of globalisation, one is so pivotal, yet so uncertain it should never be taken for granted.

The first driver is the significant decline in transportation costs, which has helped to facilitate international trade; the second is lower transactions costs, that is, the costs of acquiring information and bringing about international exchange; and the third is government policies, in particular the massive relaxation in most major countries, over the decades, of protectionist trade policies, exchange controls and restrictions on international labour migration. This third driver – government policies – can, if it takes the form of widespread protectionism and nationalism, stall or even stop globalisation altogether.

Several years ago, Susan Strange, a professor of international political economy at the London School of Economics, famously wrote a book titled “The Retreat of the State”, in which she proclaimed the declining authority of states and the limits of politics, and argued that global markets and transactional institutions could constrain the power of the state. She was only partly right. In truth, governments can’t ignore global market or economic forces without paying a price in terms of economic decline. But this does not stop any government from behaving like a bull in a China shop. As Martin Wolf, chief economics commentator at the Financial Times, once put it, “globalisation does not make governments powerless”, even though the exercise of such power in an illiberal or protectionist way could seriously undermine economic efficiency, increase poverty and even lead to trade wars.

For instance, President-elect Donald Trump could, as he vowed, impose 35% tariffs on imports from Mexico and 45% tariffs on imports from China, but history tells us that when the US introduced such measures in the 1930s, with the Smooth Hawley tariffs, they triggered tit-for-tat retaliations and exacerbated the Great Depression. Trump could also, as he threatened during the campaign, tear the North American Free Trade Agreement (NAFTA), stop the ratification of the Trans-Pacific Partnership (TTP)with Japan and others, and the conclusion of Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU. Indeed, he could pull the US out of the WTO, as he also threatened. But, as history also tells us, it was the lack of such trade agreements in the 1920s and 1930s, the interwar period, that encouraged the beggar-thy-neighbour policies that created serious economic crisis during that period, and it was the lessons learned from such experience that led the US itself to negotiate several reciprocal trade agreements (RTAs) and motivated several countries, including the US, to conclude the General Agreement on Tariffs and Trade (GATT) in 1948, which, over several decades, led to the massive reductions of trade restrictions, and eventually morphed into the WTO in 1995.

The truth is that globalisation has benefitted the world, increasing the global diffusion of technology, stimulating economic efficiency and improving standards of living. For instance, thanks to global economic integration, China reduced the proportion of its people living in extreme poverty from 60% in 1990 to 12% in 2010. Of course, not everyone benefits from globalisation. Certainly, for blue-collar workers, individuals with less education, who are normally employed in import-competing sectors, or for those whose jobs can easily be off-shored, globalisation is costly: it can depress wages and even lead to job losses.

But protectionism is not the answer because it reduces general welfare and leads to inefficient allocation of resources and, thus, wasted resources. Instead, it is widely accepted that government can help workers to adjust to the challenges of globalisation through targeted welfare support and, more importantly, through investment in education and worker retraining. Governments must also tackle poverty and inequality by ensuring, for instance, that workers are paid decent living wages and that the benefits of globalisation are fairly shared and not concentrated in the hands of big corporations and the wealthy.

So, back to the question, can globalisation survive the populist backlash? Yes, it can! There is no viable alternative to open markets and free trade. Contrary to the anti-globalist view, the solution to poverty and inequality is not stop globalisation. Without it, more people would be poorer as we saw in the closed economy of the old Soviet Union. Thus, we must not kill the goose that lays the golden egg. The truth is that we need more globalisation, but it must be fairer and more inclusive!

Olu Fasan