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Globalization

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Ideology in Reverse: De-Globalisation or De-Growth?
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Decreasing levels of international trade, wildcat strikes in the UK over the use of foreign labour, and a ‘Buy American' campaign in the US Senate all suggest that we may be entering a period of ‘economic nationalism.' Does this process signal the start of ‘de-globalisation', and if so, is this such a bad thing?


10th February 09 ~ STWR

Following last week's meeting of high-level government and business officials at the Swiss resort of Davos, Gordon Brown has warned against the impending ‘threat of deglobalisation', suggesting that international governments continue with a strategy of market-liberalisation and trade expansion. Echoing his call, Pascal Lamy, the head of the WTO, cautioned against ‘the dangers of sliding into isolationism and tit-for-tat measures,' urging that government leaders complete the latest Doha Round of trade talks.

Disagreement is rife, however, over the need to maintain the ‘open, free-market, flexible' approach to the global economy that many politicians have championed in response to the crisis. John Hilary argues that policy-makers fail to appreciate the root causes of the crisis by taking such a narrow approach. He notes that the creation of commercial openings in the poorest nations, coupled with trade liberalisation and deregulation of financial markets underpins the crisis. Even before the current economic downturn, such an approach to development has led to increasing levels of poverty and inequality in the Global South.

In addition, Larry Elliott asks whether government policies of ‘protectionism' and ‘economic nationalism' are necessarily a harmful thing.  Elliot suggests that British economic nationalism contributed to the country's recovery from the Depression in the 1930's, and that that no country since the dawning of the modern age has industrialised without protectionist policies.

Even if the stimulus packages now being fashioned around the world succeed to get the economy moving again, critics of the free market approach warn that the current economic orthodoxy is itself unsustainable.  As an alternative to the dominant thinking on how to tackle the financial crisis, one source of inspiration can be found in an article written in 2004 by Serge Latouche, titled ‘Degrowth Economics'.  Latouche notes that an addiction to growth theory has created ‘a tyranny that makes imaginative thinking outside of the box impossible,' and suggests that the idea of ‘de-growth' rather than ‘economic growth' should guide our direction towards a sustainable economy.

The global financial crisis has created a long-awaited opening for such alternative visions of economic development that can point the way to a successful post-growth society. Although a world of closed economies is no lasting solution to global financial turmoil, the blind belief that colossal bailouts and free trade is the only path to economic salvation will prove equally dangerous in the long term. It is nigh time for policy-makers, economists and civil society to expand the debate on responses to the economic crisis to include discussions on self-sufficiency, sustainability, and limited growth models of development that emphasise environmental limits and equality.

The Death of the Globalization Consensus - Project Syndicate

The Perils of more Globalisation - The Guardian (UK)  

Is Free Trade the Best Way to Beat Recession? - The Guardian (UK)

Degrowth Economics - Why Less Should be So Much More - Le Monde Diplomatique  

Further Resources


The Death of the Globalization Consensus

10th February 09 - Dani Rodrik, Project Syndicate

The world economy has seen globalization collapse once already. The gold standard era – with its free capital mobility and open trade – came to an abrupt end in 1914 and could not be resuscitated after World War I. Are we about to witness a similar global economic breakdown?

The question is not fanciful. 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 pillars. Unlike national markets, which tend to be supported by domestic regulatory and political institutions, global markets are only “weakly embedded.” There is no global anti-trust authority, no global lender of last resort, no global regulator, no global safety nets, and, of course, no global democracy. In other words, global markets suffer from weak governance, and therefore from weak popular legitimacy.

Recent events have heightened the urgency with which these issues are discussed. The presidential electoral campaign in the United States has highlighted the frailty of the support for open trade in the world’s most powerful nation. The sub-prime mortgage crisis has shown how lack of international coordination and regulation can exacerbate the inherent fragility of financial markets. The rise in food prices has exposed the downside of economic interdependence without global transfer and compensation schemes.

Meanwhile, rising oil prices have increased transport costs, leading analysts to wonder whether the outsourcing era is coming to an end. And there is always the looming disaster of climate change, which may well be the most serious threat the world has ever faced.

So if globalization is in danger, who are its real enemies? There was a time when global elites could comfort themselves with the thought that opposition to the world trading regime consisted of violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. Meanwhile, they regarded themselves as the true progressives, because they understood that safeguarding and advancing globalization was the best remedy against poverty and insecurity.   

But that self-assured attitude has all but disappeared, replaced by doubts, questions, and skepticism. Gone also are the violent street protests and mass movements against globalization. What makes news nowadays is the growing list of mainstream economists who are questioning globalization’s supposedly unmitigated virtues.

So we have Paul Samuelson, the author of the postwar era’s landmark economics textbook, reminding his fellow economists that China’s gains in globalization may well come at the expense of the US; Paul Krugman, today’s foremost international trade theorist, arguing that trade with low-income countries is no longer too small to have an effect on inequality; Alan Blinder, a former US Federal Reserve vice chairman, worrying that international outsourcing will cause unprecedented dislocations for the US labor force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalization, writing of his disappointment with how financial globalization has turned out; and Larry Summers, the US Treasury chief and the Clinton administration’s “Mr. Globalization,” musing about the dangers of a race to the bottom in national regulations and the need for international labor standards. 

While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz, the Nobel-prize winning economist, they still constitute a remarkable turnaround in the intellectual climate. Moreover, even those who have not lost heart often disagree vehemently about the direction in which they would like to see globalization go. 

For example, Jagdish Bhagwati, the distinguished free trader, and Fred Bergsten, the director of the pro-globalization Peterson Institute for International Economics, have both been on the frontlines arguing that critics vastly exaggerate globalization’s ills and under-appreciate its benefits. But their debates on the merits of regional trade agreements – Bergsten for, Bhagwati against – are as heated as each one’s disagreements with the authors mentioned above.

None of these intellectuals is against globalization, of course. What they want is not to turn back globalization, but to create new institutions and compensation mechanisms – at home or internationally – that will render globalization more effective, fairer, and more sustainable. Their policy proposals are often vague (when specified at all), and command little consensus. But confrontation over globalization has clearly moved well beyond the streets to the columns of the financial press and the rostrums of mainstream think tanks.  

That is an important point for globalization’s cheerleaders to understand, as they often behave as if the “other side” still consists of protectionists and anarchists. Today, the question is no longer, “Are you for or against globalization?” The question is, “What should the rules of globalization be?” The cheerleaders’ true sparring partners today are not rock-throwing youths but their fellow intellectuals.

The first three decades after 1945 were governed by the Bretton Woods consensus – a shallow multilateralism that permitted policymakers to focus on domestic social and employment needs while enabling global trade to recover and flourish. This regime was superseded in the 1980’s and 1990’s by an agenda of deeper liberalization and economic integration.

That model, we have learned, is unsustainable. If globalization is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes.

Link to original source


The Perils of more Globalisation

3rd February 09 - John Hilary, The Guardian (UK)

With the London summit of the G20 just two months away, Gordon Brown has launched a new offensive in support of free market globalisation. Speaking in the rarefied air of the Davos world economic forum, the prime minister pleaded for a continuation of the "open, free market, flexible" approach to globalisation that he has championed over the past dozen years. Back in the real world, he attacked as "indefensible" the wave of industrial action by British workers whose jobs have been sacrificed to the market flexibility he applauds.

The perils of protectionism have been enlarged upon by many commentators, with differing degrees of lurid detail. Yet rejecting Brown's free market model of globalisation does not entail an instant return to the 1930s or the reappearance of Adolf Hitler, as some would have us believe.

On the contrary, suggesting that the solution to today's economic turmoil is another dose of open, free market, flexible globalisation fails to appreciate the root causes of the current crisis. What the world needs now is a completely new approach to solving the problems of the global economy, not more of the same.

The globalisation programme of the past 30 years has been based precisely on the liberalisation and deregulation of existing markets, plus the creation of new markets where none existed previously. The Washington consensus – and its Swiss variant, the Davos consensus – entailed the enforced opening of many emerging economies to international competition, the widespread privatisation of public services and state-owned enterprises, as well as new freedoms for banks and other financial institutions to boldly go where no one had gone before.

We are already witnessing the chaos caused by such financial deregulation on a grand scale. Yet despite the growing consensus on the need for re-regulation to correct the errors of the past, Gordon Brown persists in calling for the rapid conclusion of the Doha round of world trade talks, which include their own subset of negotiations to open up and deregulate financial markets still further.

These negotiations could entail the removal of prudential regulations which protect many developing countries from suffering even greater fall-out from the financial crisis. Thankfully, an outbreak of acrimonious finger-pointing between trade ministers at Davos has once more torpedoed the prospect of negotiations being resumed any time soon.

Yet even before the current crisis hit the finance sectors of the rich world, free market globalisation had signally failed to deliver for the majority of working people on the planet. Last year, the World Bank was forced to admit that its previous estimates of the numbers living in poverty had been too optimistic, and that three decades of globalisation and open markets have left some 1.4 billion people still facing extreme want.

The only saving grace has been China's achievements in reducing poverty over the past 30 years – notably by following its own, more balanced path of development rather than the Washington consensus approach to globalisation. Without this, the Bank admitted, the world would be hopelessly off course in its attempt to meet the millennium development goals.

The World Bank figure was calculated well before the current crisis, and has now been updated by the ILO's prediction that 200 million more workers and their families face the prospect of falling into extreme poverty as a result of the global recession. These grim warnings do not come as the result of a lack of open, free market, flexible globalisation in the economies concerned, but quite the opposite.

Having been exposed to the most extreme form of market opening over three decades of structural adjustment, the countries of sub-Saharan Africa have seen their share in global exports collapse by almost 70% in the past 30 years, and four in five of the continent's workers remain mired in poverty. According to UN studies, those countries which liberalised their trade regimes most dramatically have also experienced the highest increase in poverty levels.

Rejecting Brown's free market fundamentalism does not mean swinging to the other extreme and shutting down trade in favour of North Korean self-sufficiency, even if such a scenario were possible. The same UN studies show that autarky has led to increases in poverty almost as great as those which accompany full scale liberalisation. Instead, it means taking back democratic control of the global economy and redirecting it towards principles of public benefit and environmental sustainability rather than unfettered private profit. That is the challenge for our common future.

In terms of historical parallels, this would be less a return to the 1930s and more an attempt to rediscover for the 21st century the "golden age" of the 1950s and 1960s. That period between the second world war and the crisis of the 1970s was characterised by strong and balanced economic growth with high employment levels and an equitable distribution of the spoils – a welcome change from the increased inequality and boom-bust crises of the past three decades.

While the high priests of globalisation were calling for more of the same in Davos, over 130,000 activists meeting at the world social forum in Brazil issued their own call for a radically new approach to the world economy. Joined by a record number of government leaders from Latin America, this year's forum demanded the wholesale reorientation of the global financial architecture, and set the date for a week of international mobilisations to coincide with the G20 London summit in April. Gordon Brown would do well to listen.


Is Free Trade the Best Way to Beat Recession?

4th February 09 - Larry Elliott, The Guardian (UK)

Wildcat strikes at UK oil refineries and the international storm created by Barack Obama's "buy American" clause in his $800bn reflationary package have brought the cloistered world of trade officials out of the shadows over the past week.

The backlash against globalisation has prompted fears that the world stands on the brink of a new protectionist era.

French trade unionists have a long tradition of defending their living standards against what they see as unfair competition from countries that frown upon organised labour. The protests in Britain over the past few days suggest that the willingness to take industrial action has spread in the face of rising unemployment and what threatens to be the deepest recession since the second world war.

Policymakers are clearly alarmed by these developments. Gordon Brown, while expressing sympathy with UK workers worried about having their pay and conditions undercut by cheaper foreign workers, has insisted that there must be no retreat from open markets. There was a warning from Brussels yesterday that any special treatment from the White House for American steel and manufacturing companies would prompt retaliatory action. The director-general of the World Trade Organisation, Pascal Lamy, said last week that failure to finish the Doha round of trade negotiations would risk a new era of protectionism.

The argument in favour of free trade is that it allows countries to specialise in what they are good at. This leads to greater efficiency, lower prices, higher levels of growth and more jobs. Countries that shut themselves off from the global economy - North Korea, for example - are much poorer than those, such as South Korea, that open their markets. As a result, it is universally accepted in the world of economics that the worst thing that could befall the global economy in its current parlous state would be the sort of tit-for-tat trade war that marked the 1930s. The historical evidence is conclusive: free trade is good, protectionism is bad.

Except that isn't what the evidence actually shows. The Cambridge economist Ha-Joon Chang has demonstrated that no country since the dawning of the modern age has managed to industrialise successfully without protectionism. During the first century of the industrial revolution, Britain was one of the world's most protectionist countries and only converted to free trade in the middle of the 19th century. The US had a 40% manufacturing tariff in its period of rapid expansion at the end of the 19th century. All the postwar Asian tigers - Japan, South Korea, Taiwan and China - have deployed protectionist measures to defend their fledgling industries.

Nor is the lesson of the 1930s quite as clear cut as the free trade camp argues. The US Smoot-Hawley tariff of 1930 is blamed for turning the Wall Street crash of 1929 into capitalism's worst-ever depression - up until now, at least - but the American Paul Krugman has shown that this was a statistical impossibility, and that the immense contraction in the economy between 1929 and 1932 could not have been the result of higher tariffs. Instead, it was the result of a contraction in credit associated with policy errors by the Federal Reserve and the collapse of thousands of banks.

The real lesson of the 1930s is that if you think protectionism is in the offing, it makes sense to raise your barriers first. Lord Skidelsky, the biographer of Keynes, says that Britain's economic recovery from the Great Depression was based on three policies - devaluation, cheap money and protectionism. London created a system of "imperial preference" - free trade within the empire but barriers to trade with the rest of the world. Other countries followed suit, abandoning the gold standard so they could devalue and increasing tariffs, and this contributed to the collapse in trade and the prolongation of the slump.

Yet the data shows that Britain had one of the shallowest downturns of all the major industrial nations in the 1930s - a 5% fall in GDP. By contrast, Brown's devotion to free trade and open markets sits uneasily with Britain's massive - and growing - trade deficit. Policymakers today say that the problem with free trade is that the winners often fail to recognise the benefits they are getting from lower prices, while the losers are all too aware when the job they were doing is lost to a textile mill on the other side of the world. The downturn has made not just the actual losers - but millions of potential losers - painfully aware of their vulnerability. 

Link to original source 


Degrowth Economics - Why Less Should be Se Much More

November 04 - Serge Latouche, Le Monde Diplomatique  

Last December we published an article about contraction economics - décroissance or ’degrowth’- a topic that has become a major subject of debate, not just within the counter-globalisation movement but in the wider world. The big question is: how should ’degrowth’ apply to the South?

THE logic of advertising so dominates the media that it views anything new - material, cultural or otherwise - as a product launch. And in any product launch, the key word is concept. So as discussion of décroissance (literally "degrowth", that is economic contraction or downscaling) spread, the media naturally started to ask what was the concept. We are sorry to disappoint the media, but degrowth is not a concept. There is no theory of contraction equivalent to the growth theories of economics. Degrowth is just a term created by radical critics of growth theory to free everybody from the economic correctness that prevents us from proposing alternative projects for post-development politics.

In fact degrowth is not a concrete project but a keyword. Society has been locked into thought dominated by progressivist growth economics; the tyranny of these has made imaginative thinking outside the box impossible. The idea of a contraction-based society is just a way to provoke thought about alternatives. To accuse its advocates of only wanting to see economies contract within the existing system rather than proposing an alternative to that system, and to suspect them (as do some counter-globalisation economists) of wanting to prevent the underdeveloped world from resolving its problems reflects at best ignorance and at worst bad faith.

Proponents of contraction want to create integrated, self-sufficient and materially responsible societies in both the North and the South. It might be more accurate and less alarming if we replaced the word degrowth with "non-growth". We could then start talking about "a-growthism", as in "a-theism". After all, rejecting the current economic orthodoxy means abandoning a faith system, a religion.

To achieve this, we need doggedly and rigorously to deconstruct the matter of development. The term "development" has been redefined and qualified so much that it has become meaningless. Yet despite its failings, this magical concept continues to command total devotion across the political spectrum. The doctrines of "economism" (1), in which growth is the ultimate good, die hard.

Even counter-globalisation economists are in a paradoxical position: they acknowledge the harm that growth has done but continue to speak of enabling Southern countries to benefit from it. In the North the furthest they are prepared to go is to advocate slowing down growth. An increasing number of anti-globalisation activists now concede that growth as we have known it is both unsustainable and harmful, socially as well as ecologically. Yet they have little confidence in degrowth as a guiding principle: the South, deprived of development, cannot be denied at least a period of growth, although it may cause problems.

The result is a stalemate where neither growth nor contraction suit. The proposed compromise of growth slowdown follows the tradition in these debates in that it lets everyone agree on a misunderstanding. Forcing our economies to grow more slowly will never deliver the benefits of a society free from constant growth (that is, being materially responsible, fully integrated and self-sufficient) but it will hurt employment, which has been the one undeniable advantage of rapid, inequitable and environmentally catastrophic expansion.

To understand why the creation of a non-growth society is so necessary and so desirable for North and South, we must examine the history of the idea. The proposal for a self-sufficient and materially responsible society is not new; it is part of the tradition of development criticism. For more than 40 years an international group of commentators had analysed economic development in the South and denounced the harm it has done (2).

These commentators do not just address recent capitalist or ultra-liberal development: for example, they have considered Houari Boumediene’s Algeria and Julius Nyerere’s Tanzania, which were both officially socialist, participatory, self-reliant and based on popular solidarity. And they have also noted that development has often been carried out or supported by charitable, humanist NGOs. Yet apart from a few scattered success stories, it has been an overwhelming failure. What was supposed to bring contentment to everyone in every aspect of life led only to corruption, confusion and structural adjustment plans that turned poverty into destitution.

Degrowth must apply to the South as much as to the North if there is to be any chance to stop Southern societies from rushing up the blind alley of growth economics. Where there is still time, they should aim not for development but for disentanglement - removing the obstacles that prevent them from developing differently. This does not mean a return to an idealised version of an informal economy - nothing can be expected to change in the South if the North does not adopt some form of economic contraction. As long as hungry Ethiopia and Somalia still have to export feedstuffs destined for pet animals in the North, and the meat we eat is raised on soya from the razed Amazon rainforest, our excessive consumption smothers any chance of real self-sufficiency in the South (3).

If the South is to attempt to create non-growth societies, it must rethink and re-localise. Southern countries need to escape from their economic and cultural dependence on the North and rediscover their own histories - interrupted by colonialism, development and globalisation - to establish distinct indigenous cultural identities. The cultural histories of many societies reveal inherently anti-economistic values.

These need to be revived, along with rejected or forgotten products and traditional crafts and skills. Insisting on growth in the South, as though it were the only way out of the misery that growth created, can only lead to further westernisation. Development proposals are often born of genuine goodwill - we want to build schools and health clinics, set up water distribution systems, restore self-sufficiency in food - but they all share the ethnocentrism bound up with the idea of development.

Ask the governments of countries what they want, or study surveys of populations duped by the media, and they do not ask for the schools and clinics that western paternalism considers fundamental needs. They want air conditioning, mobile phones, fridges and, above all, cars (Volkswagen and General Motors are planning to start producing 3m vehicles a year in China, and Peugeot is also investing heavily there). For the benefit of their governing elites, we might also add nuclear power stations, fighter jets and tanks to the wish list.

Or we could listen to the exasperated Guatemalan leader cited by Alain Gras (4): "Leave the poor alone and stop going on about development!" All the leaders of popular movements, from Vandana Shiva in India to Emmanuel Ndione in Senegal, say the same thing. Advocates of development may pontificate about the need to restore self-sufficiency in food; but the terms they use prove that there was self-sufficiency and that it has been lost. Africa was self-sufficient in food until the 1960s when the great wave of development began. Imperialism, growth economics and globalisation destroyed that self-sufficiency and make African societies more dependent by the day. Water may not have come out of a tap in the past, but most of it was drinkable until industrial waste arrived to pollute it.

Are schools and clinics really the right ways to achieve and maintain good standards of education and health? The great polemicist and social thinker Ivan Illich (1926-2002) had serious doubts about their effectiveness, even in the North (5). As the Iranian economist Majid Rahnema puts it, "What we call aid money serves only to strengthen the structures that generate poverty. Aid money never reaches those victims who, having lost their real assets, look for alternative ways of life outside the globalised system of production which are better suited to their needs" (6).

There is no prospect of just returning to the old ways - no more than there is a universal model of progress on contraction or non-growth lines. Those millions for whom development has meant only poverty and exclusion are left with a weak mixture of lost tradition and unaffordable modernity, a paradox that sums up the double challenge that they face. But we should not underestimate the strength of our social and cultural achievements: once human creativity and ingenuity have been freed from the bonds of economism and development-mania, there is every reason to believe that they can tackle the task.

Different societies have different views of the shared basic aim of a good life. If we must give it a name, it could beumran (thriving or flourishing), as used by the Arab historian and philosopher Ibn Kaldûn (1332-1406); Gandhi’s swadeshi-sarvodaya (self-sufficiency and welfare); bamtaare (shared well-being) in the language of the West African Toucouleurs; or fidnaa/gabbina (the shine of someone who is well-fed and free of all worry) in the vocabulary of Ethiopia’s Borana people (7). What really matters is that we reject continuing destruction in the name of development. The fresh and original alternatives springing up point the way towards a successful post-development society.

However, neither North nor South will overcome their addiction to growth without a collective and comprehensive detoxification programme. The growth doctrine is like a disease and a drug. As Rahnema says, Homo economicus had two strategies for taking over virgin territories: one operated like HIV, the other like a drug pusher (8). Growth economics, like HIV, destroys societies’ immune systems against social ills.

And growth needs a constant supply of new markets to survive so, like a drug dealer, it deliberately creates needs and dependencies that did not exist before. The fact that the dealers in the supply chain, mainly transnational corporations, benefit so much from our addiction will make it difficult to overcome. But our ever-increasing consumption is not sustainable; sooner or later we will have to give it up.

References

1. Any system that gives precedence to (capitalist) economics as a way of organising society.

2. This group produced The Development Dictionary, Zed Books, London, 1992.

3. Not to mention the environmental destruction these forest clearances cause, nor the speculative cultivation by big landowners that deprives poor Brazilians of beans, nor the risk of mad cow disease-style biogenetic disasters.

4) Alain Gras, Fragilité de la puissance, Fayard, Paris, 2003.

5. Medical nemesis: The expropriation of health, Calder and Boyars, London, 1976 and Deschooling Society, Penguin, London, 1971.

6. Majid Rahnema et Victoria Bawtree, Quand la misère chasse la pauvreté, Actes Sud, Paris, 2003.

7. Gudrun Dahl and Gemtchu Megerssa, "The spiral of the Ram’s Horn: Boran concepts of development", in Majid Rahnema and Victoria Bawtree, The Post-development Reader, Zed books, London, 1997.

8. Majid Rahnema and Victoria Bawtree, Quand la misère chasse la pauvreté.

Link to original source


Further Resources

Link to STWR page on Globalization

Link to STWR page on the Global Financial Crisis

Don't Repair the Economy, Change It - Peter G. Brown and Geoffrey Garver, 28th January 09

Paradigm Reclaimed: A Financial System that's Fit for Purpose -  Dr. Stephen Sprat, 4th November 08

The End of Economic Growth - Adam W. Parsons, 24th April 07