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The basic globalization narrative has lost its credibility and appeal.
It will be quite some time before any policy maker
can be persuaded that financial innovation is an
overwhelming force for good, that financial markets
are best policed through self-regulation, or that
governments can expect to let large financial
institutions pay for their own mistakes. The world
needs a new narrative to shape the next stage of
globalization. The more thoughtful that new
narrative is, the healthier economies will be.
Developing nations have always complained that the system is biased
against their interests since it is the big boys
that make the rules. A motley collection of
anarchists, environmentalists, union interests, and
progressives have also occasionally made common
cause in their opposition to globalization for
obvious reasons. But the real big news in recent
years is that the rich countries are no longer very
happy with the rules either.
The rather dramatic decline in support for economic globalization in
developed countries reflects this new trend. And
surprisingly, the dismay has also begun to show up
in mainstream discourse. The intellectual consensus
that sustains the current model of globalization had
already begun to evaporate before the world economy
became engulfed in the great financial crash of
2008. Today, the self-assured attitude of
globalization’s cheerleaders has all but
disappeared, replaced by doubts, questions, and
skepticism.
Although economic globalization has enabled unprecedented levels of
prosperity in advanced countries and has been a boon
to hundreds of millions of poor workers in China and
elsewhere in Asia, it rests on shaky ground. Unlike
national markets, which tend to be supported by
domestic regulatory and political institutions,
global markets are only “weakly embedded.” There is
no global antitrust authority, no global lender of
last resort, no global regulator, no global safety
net, and, of course, no global democracy. In other
words, global markets suffer from weak governance,
and are therefore prone to instability,
inefficiency, and weak popular legitimacy.
This imbalance between the national scope of governments and the global
nature of markets forms the soft underbelly of
globalization. A healthy global economic system
necessitates a delicate compromise between the two.
Give too much power to governments, and you have
protectionism and autarchy. Give markets too much
freedom, and you have an unstable world economy with
little social or political support from those it is
supposed to help.
The problems of international trade and finance arise from too much
globalization, and not properly managed. By
contrast, one large segment of the world economy is
not globalized nearly enough. Further economic
openness in the global labor markets could
potentially provide huge benefits, especially to the
bottom billion.
Even a minor liberalization of the advanced countries’ restrictions on
the use of foreign workers would produce a large
impact on global incomes. In fact, the gains would
outstrip comfortably any other proposal currently on
the table, including the entire package of trade
measures being considered. Labor markets are the
unexploited frontier of globalization.
If the leaders of the advanced nations were serious about boosting
incomes around the world and in doing so equitably,
they would focus single-mindedly on reforming the
rules that govern international labor mobility.
Nothing else on their agenda comes even close in
terms of potential impact of enlarging the global
pie.
Instead of viewing globalization as a system that requires a single set
of institutions or one principal economic
superpower, the world should accept it as a
collection of diverse nations whose interactions are
regulated by a thin layer of simple, transparent,
and common-sense traffic rules. This vision will not
construct a path toward a “flat” world; a borderless
world economy. Nothing will. What it will do is
enable a healthy, sustainable world economy that
leaves room for democracies to determine their own
futures.
Placing our economic world on a safer footing requires a better
understanding of the fragile balance between markets
and governance. The alternative narrative should be
based on two simple ideas. First, markets and
governments are complements, not substitutes. Having
more and better markets call for having more and
better governance. Markets work best not where
states are weakest, but where they are strongest.
Secondly, capitalism does not come with a unique model. Economic
prosperity and stability can be achieved through
different combinations of institutional arrangements
in labor markets, finance, corporate governance,
social welfare, and other areas. Nations are likely
to and are indeed entitled to make varying choices
among these arrangements, depending on their needs
and values.
Therein lays the ultimate paradox of globalization. A thin layer of
international rules that leaves substantial room to
maneuver for national governments is a better
globalization. It can address globalization’s ills
while preserving its substantial economic benefits.
What the world needs is smart globalization, not
maximum globalization. |
