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Published On  Oct 16,  2011
   
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 My Opinion Share
   
 

Recasting Globalization Narrative Timely

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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. 

 

By Dani Rodrik

Dani Rodrik is Professor of International Political Economy at Harvard University.

 
 
 
 
   
   
   
 
 
 

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