Is there a threat to economic globalization?

On 26 May 2016 at the Dahrendorf Forum in Berlin, Hendrik Enderlein (Associate Dean, Professor of Political Economy and Dahrendorf Board Member, Hertie School, Berlin; Director of the Jacques Delors Institute, Berlin) led a panel session addressing the question of whether economic globalization – that is the integration of national, regional and local markets – is under threat.

The expert panel consisted of Brian Burgoon (Professor of International and Comparative Political Economy, University of Amsterdam), Domenico Lombardi (Director, Global Economy Program, Centre for International Governance Innovation, Waterloo, Canada), Vladimir Popov (Central Economics and Mathematics Institute, New Economics School, Moscow), Linda Yueh (Fellow in Economics at St Edmund Hall, Oxford University) and Jeromin Zettelmeyer (Chief Economist at the German Ministry of the Economy). In short, the answer to this challenging question was clear and resounding: Yes, there is a threat – and it is political!

The panelists first established that there has recently been a distinct reaction against the continuous integration of national, regional and local markets that we have seen over the past decades. Economic globalization is clearly being challenged and this manifests itself not only in increasingly skeptical attitudes towards deeper market integration but also in the more frequent adoption of protectionist political measures. Nonetheless the panelists were quick to point out that these skeptical attitudes remain a minority voice and protectionist measures are limited in scope and depth. The panel also emphasized that people are much more negative about immigration than economic openness. Critical attitudes towards continuous integration are mostly held among less educated citizens and in the United States rather than in Europe. According to Jeromin Zettelmeyer, resentment in the US has found its most prominent voice in Donald Trump, the presidential candidate of the Republican Party, who “is essentially completely against the consensus that has been driving US policy for decades”, namely that global trade is good.

Vladimir Popov outlined possible reasons for these ‘political threats’ to the continued integration of markets. He argued that the consequences of economic globalization do in themselves put globalization at risk. He emphasized that the rise of right wing populist parties across the OECD is related to the increasing number of people who are – or in any case feel they are – disadvantaged by trade openness. Popov explained that not everyone has benefitted from globalization; inequality is on the rise: “The middle class has trouble getting a job, that’s why they vote for Trump”. Also Brian Burgoon concurred that poor people in OECD have profited very little from globalization. Seen from a global perspective, the OECD working class has actually lost out. Burgoon argued that there has been a lack in social safety nets in the OECD: “that’s where the failure lies”.

Linda Yueh pointed out that globalization can have good and bad consequences. She hailed China as a great example of how globalization can fuel domestic economic development. Moreover, Zettelmeyer emphasized that globalization has worked well for large parts of the developing world where export-led growth has led to the rise of emerging economies. He suggested that these ‘winner’ countries are now the new political supporters of more global economic integration. Domenica Lombardi agreed but highlighted the paradox that these emerging countries are hardly represented in the global governance architecture. Established organizations like the IMF have failed to reform and adapt to new economic circumstances. The corresponding rise of new regional financial institutions such as regional development banks has undermined the global steering capacity of organizations such as the IMF or the World Bank. Yet, in order to govern and regulate globalization, strong organizations are essential.

Thus the panelists agreed that we are faced with a paradox: A stronger social safety net is certainly required to absorb the ‘losers’ of globalization but, at the same time, the decline in tax revenues and the rise of regional organizations means that the capacity of governments and global organizations to actually govern globalization has declined. Zettelmeyer suggested an economic answer to counter the anti-globalization forces, calling upon governments to create more opportunities for economic growth which would in turn generate the potential to redistribute these gains. Enderlein warned that the rise of right-wing populism was not the answer; in fact the middle class could ultimately lose out even more, as the ‘Trumpians’ take control of international financial organizations thereby endangering the future integration of markets and the gains of a global economy. All panelists concluded that the global economy should be kept under control but what exactly that can and should mean remains the subject for future discussions.

About the author: Nikolas Scherer is a Research Associate for the Dahrendorf EU-MENA Working Group.

The opinions expressed in this blog contribution are entirely those of the author and do not represent the positions of the Dahrendorf Forum or its hosts Hertie School and London School of Economics or its funder Stiftung Mercator.