Globalisation

For all its benefits in spreading wealth, globalisation has not come without drawbacks, making the process one of the most complex forces of modern times, writes Martin Wolf

Globalisation is the great economic theme of the past three decades, affecting not just business but much of the world as a whole. Behind it are technical factors such as the revolution in information and communications technology, and market-oriented liberalisation – principally of trade and finance but also to some extent of movement of people.

Globalisation has created huge increases in prosperity, notably in emerging markets, above all in China. It has reshaped the activities of business, creating integrated chains of innovation, production, marketing and distribution. Yet it has also caused huge stresses as production has shifted to low-wage economies, “winner-takes-all” markets have increased inequality and destabilising speculation has unleashed huge global financial crises.

In response, the financial sector is being re-regulated. New currents in post-crisis regulation risk balkanising the global banking industry.

Even the impulse towards trade liberalisation has slowed, though not yet reversed, as unemployment has soared in high-income countries gripped by the global and eurozone financial crises.

Some might fear a collapse of this era of globalisation, as happened in the late 19th and early 20th centuries. Yet the position today is not so dire. What we are seeing, instead, are inevitable tensions between two powerful forces.

On the one hand, the market economy seeks opportunities across national borders. Most manufacturing, finance and any service that can be digitised are highly tradable. On the other hand, political institutions, regulatory frameworks and human loyalties are national or even local. Destabilising this uneasy balance has been a loss of trust in the justice and efficiency of the market economy.

The 1980s and 1990s saw the collapse of Soviet communism and the abandonment of state planning in China and India; the completion of the Uruguay Round of trade negotiations, which incorporated emerging countries into the trading system; abandonment of exchange controls in almost all high-income countries and many emerging economies; privatisation of state-owned enterprises; and the emergence of a mass consumer market across the globe.

This was the heyday of market optimism, unleashed by the US and the UK and, more importantly (and more pragmatically), China and India. Since then, financial crises have undermined such easy confidence. The Asian crisis made many emerging economies wary of the embrace of global market forces. The crisis in the high-income countries is now doing the same to them.

Yet the forces driving globalisation remain powerful. They include the rise of English as a world language; the cross-border movements of people seeking better education and jobs; the rise of a planetary economic and business elite running global companies and living in global hub cities; and the trans-border flows of ideas, including religion.

The backlash against globalisation is also real, though. The desire to regulate markets more tightly, reduce inequalities and achieve a greater measure of personal economic security are all potent.

The outcome will probably be a complex balance of globalisation and regulation. The glad, confident morning of the global market economy has passed into a cloud-covered day.