Unprecedented or myth of globalisation?

Krugman recently in his NYT blog had commented on the unprecedented globalization that has taken place since the 1970s. The percentage of world trade to world manufactures and increased continuously during the last two-three decades.

"You see the interwar trade decline; the growth in world trade after World War II didn’t return to 1913 levels of globalization until around 1970. But since then, trade has grown incredibly. Interestingly, the big tariff cuts in GATT rounds had already happened; what we’re looking at here is trade liberalization in developing countries plus containerization, and the emergence of massive vertical specialization (iWhatevers being made in many stages in different countries)."

Thus, is the world getting more interconnected? As per traditional international trade theory is mercantilism or free trade fuelling this unprecedented globalization? Some still argue that there is a myth of globalization and there is a trend towards creating more jobs domestically than manufacturing outside. Nevertheless, whether goods are being manufactured outside or locally, more trade is definitely happening. What about services trade? Is that becoming increasingly globalized or is it still largely confined to domestic borders. In many countries services is the major component of the country's GDP - Is it also a major proportion of the country's trade?

Regionalization vs. Globalization

An interesting Working Paper titled "Regionalization vs. Globalization" comes to the conclusion that the importance of the regionalisation of business cycles in a globalized world should not be underestimated.

"We have analyzed the evolution of global and regional business cycles over the past five decades. Our results indicate that regional business cycles have increasingly become more pronounced especially in regions where intra-regional trade and financial linkages have registered rapid growth since the mid-1980s. In particular, the regional factor has explained a larger fraction of business cycle variation in the North American, European, Oceanian, and Asian regions over the past twenty-five years. Surprisingly, the importance of global factor has declined over time. The total contribution of common factors (global and regional) has not registered a significant change implying that there has been no change in the degree of international business cycle synchronicity during the past quarter century. 

These results present a different interpretation of the impact of globalization on the synchronization of business cycles. Most commentators argue that globalization of trade and financial linkages have led to the globalization of business cycles as well. Contrary to these popular arguments, regional factors, rather than global ones, have become the driving forces of business cycles during the recent era of globalization. This has led to the emergence of regional business cycles.

A wide range of developments at the regional level can explain the emergence of regional cycles. For example, the dramatic increase in intra-regional trade and financial flows fueled by regional integration initiatives can promote a higher degree of business cycle synchronization across countries in a region. Regional business cycles can also emerge because of the prominent role of region-specific shocks driven by the implementation of similar policies in a region. Moreover, cross-border spillovers of disturbances originating in a large country in a region can translate into more synchronized national business cycles in that region."

I am not an expert in trade policy but I found this paper interesting since it highlighted the complex nature of globalization as well as the multiple factors impacting it. 

 

Globalization and inequality - Middle path?

One of the questions about the impact of globalization is its impact on inequality? Does it aggravate it or lessen it? How should a State deal with pursuing a globalized agenda as well as addressing the inequities it breeds? Is there a path to find that equilibrium or are they incompatible goals?

Dani Rodrik in a not so recent interview asserted that globalization does lead to increasing inequality but also alluded to a possibility of open economies reducing inequality. 

"There is no question that globalization has aggravated inequality within countries.  But we need to think of globalization in this context as part of a cluster of developments: new technologies, greater emphasis on markets, decline in unionization, and fiscal paralysis of many states. All these have had the consequence of raising the returns to skills and talents and reducing the bargaining power of blue collar workers and those who are unable to move across national borders with the same ease as capital. 

But there are exceptions too.  One of the most encouraging trends in the last couple of decades is the decline in inequality in Brazil, Chile, and many other Latin American countries, which have traditionally been among the most unequal in the world. This shows that broad social programs as well as more narrowly targeted anti-poverty programs can still be pursued and are effective in open economies."

A welfare state pursuing globalization is a distinct possibility? If one does not seek extremities, there is perhaps a way which seeks an open economy based on a strong interventionist state to address poverty alleviation and inequality. How this balance is sought and implemented is where the problem lies. the devil is normally int he details and the path to finding that balance often leads to excesses. One would have to understand and contextualize the roles of the State and market to find this balance.

Irresistible piece on globalization and global leaders

An irresistible piece about globalization, global leaders by Schumpeter in The Economist that I just need to reproduce:

"People whose jobs require constant whizzing through airports often overestimate the extent of globalisation. Most other folk live in the same country all their lives. Most trade occurs within national borders. Nearly all politics is local. Company bosses who fail to notice this may underestimate political risks or ignore cultural differences, and such errors may prove disastrous. The best global leaders need to immerse themselves in local cultures."

 Time to re-think on globalization, localization and the way forward?...

Pankaj Ghemawat on the extent of globalization

Since we are into rankings and globalization,here is another globalization ranking index - the DHL Global Connectedness Index 2012. I had earlier blogged about the E&Y globalization index.

Pankaj Ghemawat, who believes that the world is not as globalized as claimed to be (not really as flat as some would claim) commented on the globalization rankings here. His analysis of the world not being as globalized as claimed is found here:

 "...Among the several dozen audiences to which I have administered this test over the years, that third quote, which suggests that the we live in one, integrated world — what I call World 2.0 — is the one that garners the most support, usually a majority. Spouting such attitudes — the flattening of the world, the death of distance, and the disappearance of differences across countries — seems to be considered a hallmark of global thinking.
But I prefer to think of it as globaloney. 

Why? Because economic data simply don't support the view that we live in a flat, connected world, even if we are technologically connected with everyone, everywhere, all of the time. Data show that most types of economic activity that could be carried out across national borders are actually still concentrated domestically. For example, take foreign investment. Of all the capital being invested around the world, how much would you think is foreign direct investment by companies outside of their home countries? 25%, maybe? More, if you've heard the globaloney about "investment knowing no boundaries"? The fact is, the ratio was less than 9% in 2009 and, while it may be pushed higher by merger waves, has never reached 20%."

Coming back to the globalization index.The index "tracks the depth and breadth of trade, capital, information, and people flows across 140 countries that account for 99% of the world's GDP and 95% of its population. Based on data covering the period from 2005 to 2011, it charts how globalization has evolved since the onset of the financial crisis at the global, regional, and national levels."

The study concludes with a series of recommendations on how to increase the depth of "global connectedness" by studying the case studies of Netherlands (the most globally connected economy), Vietnam and Mexico. I found two of these conclusions interesting:

"6. Focus on value, not on volume. That was how Pascal Lamy, director-general of the WTO, summarized the implications of the ADDING Value scorecard, pointing out how trade professionals still often think mainly about increasing trade volumes rather than the value generated via trade.65 Vietnam and Mexico can both tap into large gains from increasing the share of domestic value-added in their exports at the same time as they continue growing their trade volumes. 

7. Recognize the importance of imports. Don’t mistake an export-only development strategy for a true global connectedness strategy. Recall the emphasis Vietnam’s exporters placed on challenges associated with the cost of imports. Imports of capital goods – machinery, equipment, and infrastructure-related products – boost productivity by facilitating the adoption of new technologies. New evidence suggests that imports might be associated with even more domestic innovation than exports. Importing is also usually the first step in the internationalization of small and medium-sized businesses that later go on to export."

Countries normally follow an export-led growth model shunning imports and seeing them as competition to domestic industry. However, imports that are inputs to various products can be a vital factor to boost a country's global connectedness. 

The report ends with a country-wise analysis of the factors that constitute global connectedness with a rooted map. A great source of information about issues of globalization and how connected we actually are.

Is economic nationalism and protectionism the same?

I have often written about the issues of protectionism, globalization and the role of the State in this blog here and here.Often, the role of the state and market are seen as mutually exclusive. Increasing globalization and integration of markets is seen as a natural corollary to the reducing influence and role of the State and government. However, is this analysis true? China is often taken as an example that defies this logic of increasing connectedness to the globalized market while retaining strong state presence. Is there a middle path where the role of the State and market and co-exit which is not antithetical to world trade rules? Is there a legitimate role for the state to play apart from being a facilitator and regulator? Is state intervention always protectionism? Can protectionism also exist in highly liberalized markets with other forms of State support?

Yale GlobalOnline has a refreshing piece by Anthony P. D’Costa on economic nationalism, role of the state and globalization. He essentially avers that the state can play a role of a promoter instead of being "protectionist" in a globalized world.He brands this as 'economic nationalism" wherein the State does not necessarily retreat but plays a more constructive role in promoting the welfare of its citizens.

"The concept of economic nationalism is used for selective engagement with the world economy. Rather than the orthodox notion of economic nationalism, defensive in nature and nation-centered, I offer a more dynamic understanding – economic nationalism in motion. This version, first proposed in theReview of International Political Economy, 2009, suggests that the practice is influenced by pragmatic considerations rather than ideology – akin to Deng Xiaoping’s proverbial cat that catches mice irrespective of its color – especially under fluid circumstances of economic growth, emerging competitive industries and, most importantly, as national capitalists mature. Earlier economic nationalism meant protection; today it’s promotion, though the basic motive for both is ensuring national economic interests. This ability to navigate changing circumstances and priorities pragmatically contributes to the dynamic movement of the practice of economic nationalism. 

Behind economic nationalism in motion is a particular kind of state-business nexus where the two operate in a public-private partnership. The key difference with this form is that the state explicitly promotes national capital at home and abroad for national economic gain, although prestige can also play a role, when a public-relations agenda drives hosting a major sports events or acquiring state- of-the-art technologies for pet projects without thorough cost-benefit analysis. 

Fostering national economic development and competitiveness, promoting national companies and brands, is part of the economic-nationalism-in-motion portfolio. Market-driven globalization is not incompatible with state intervention. States must identify the conditions under which such economic nationalism can be undertaken and the instruments at their disposal to negotiate the forces of economic globalization."

Thus, in this model all state intervention and promotion is not necessarily viewed as protectionism. Active state involvement to safeguard national interest, branding, promotion of national corporations (State Capitalists) are all part of this mission. Is this compatible with WTO rules? Is there anything in the GATT/WTO that prohibits this? Is this the middle path that emerging economies should undertake to negotiate globalization without abandoning it? However, there is a thin line between State involvement and control - and one must tread that line very carefully.

Traditional hierarchies and globalization - More thoughts

I have written a few posts on globalization and traditional caste hierarchies in the context of India here and more recently referring to Anand Teltumde's piece. How is globalization, freer markets and modern capitalism seen by hitherto disadvantaged groups within the country, especially the intelligentsia? There are two opposing views - one that reposes faith in globalization and capitalism as a way for lower castes to get out of their traditional roles and embrace modernity while the other argues that globalization would further marginalize the lower castes and only a few would benefit. While the former looks at free markets as an emancipatory tool, the latter views it as exploitative.

Chandrabhan Prasad and Milind Kamble definitely hold the former view and it is expressed in their latest piece in the Times of India wherein they call for a "Manifesto to end caste" by pushing for more industrialization and capitalism. 

"Capital is the surest means to fight caste. In dalits' hands, capital becomes an anti-caste weapon; little wonder that the traditional caste code prohibits dalits from accumulating wealth.Dalit capitalism is the answer to that regime of discrimination. The manifesto demands promotion of dalit capitalism through a variety of means - procurement, credit options and partnerships"

This debate is an interesting aspect in the discourse on globalization and markets. Globalization is supported by marginalized groups to get rid of traditional hierarchies. It once again goes to show that there is no black and white in the debate on globalization - shades of grey and very complex too

Of rankings and a globalization index

"Globalization - Looking beyond the obvious" is the new report on the issues in globalization released by Ernst and Young recently. It highlights, inter alia, that for future investments in a globalizing world, companies must look beyond the BRICs to other "hotspots" like Turkey, Mexico and South Africa.

"For many multinational companies Brazil,Russia, India and China were the big bets of the past decade. And there’s no question that these powerhouses will continue to be major players in the world economy. Not only will the BRICs’ gross domestic product (GDP) grow faster than that of the other countries included in the Index (see Figure 3), but the BRICs will also integrate further with the global economy. Yet the challenges of operating in the BRICs are increasing, as their slowing real growth, rising inflation and labor costs, political instability, infrastructure shortfalls, and bureaucratic obstacles chip away at business confidence."

Referring to the other growing, emerging economies, the report states:

"Against this backdrop it is critical for businesses to look for alternatives - and the search may well involve making unconventional choices. Increasingly, non- BRIC rapid-growth markets are emerging as hot spots for global business. These markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and this is set to continue through 2016, as our Index data shows. Many of these markets also show consistently high economic growth close to that of the leading BRICs. For example, Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Other promising locations include Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa that are shaping up to be among the most dynamic parts of the world for investment." 

The report also announces the Globalization Index for 2012 which is essentially a ranking of countries in terms of them being "globalized" in terms of their trade volumes and openness to businesses. The main variables of this index are the "share of main trading partners in total trade, as a percentage of GDP (trade in goods and services); trade in information and communications technology (ICT) goods, as a percentage of GDP (technology); foreign direct investment (FDI) stocks, as a percentage of GDP (capital and finance); and total international fixed telephone traffic (culture). The last two of these variables are substitutions for FDI flows as a percentage of GDP (capital and finance) and international outgoing fixed telephone traffic (culture)."

 
Hong Kong tops the list once again about which I had blogged about last year here! China surprisingly is 44th on the list.

Caste, globalization and hierarchies

I had earlier blogged about the debate on the contentious issue of globalization and capitalism reducing traditional hierarchies of caste and race. Do traditional barriers get impacted by the forces of globalization? 

A recent piece by Anand Teltumbde in the Economic and Political Weekly questions the hypothesis that caste inequalities are reduced by globalization and capitalism. He asserts that the benefits of globalization have not spread widely amongst the marginalized castes as claimed by others.

"Capitalist modernity coexists with the caste system but with globalisation, caste consciousness has deepened. The simplest example of such hybridisation can be seen in matrimo- nial advertisements by highly educated Indian Americans working in frontier industries seeking brides from their own sub-castes."

With the rise of dalit entrepreneurs and DICCI,  the issue of the impact of globalization on traditional caste structures definitely requires more analysis and study. Will entrepreneurship, access to capital and participation in the free market enable hitherto marginalized castes question hierarchies? Will ti enable them to overthrow traditional discrimination? Or will caste, discrimination revisit them in another form? Or will it not impact a large section of the marginalized at all? As always, the answer perhaps lies somewhere in the middle - globalization has not proved to be totally emancipatory but has also empowered and liberated some from the clutches of caste and marginalization.

Decline of the nation in a globalized world?

An interesting piece on the boundaries globalization is breaking down for the global players and technological players is "The decline of nations" by Francisco Dao. He states that global players, especially multinational corporations, are not affected by national boundaries and state of the economies as much as local actors are since they can move from one jurisdiction to the other. The same is with the technology world that gets its services from across the globe.

"As global players disassociate themselves from individual countries, it results in a bifurcated global economy made up of a global class that is able to leverage international labor and markets, and national classes who are more reliant on the well being of their respective nation. Countries are left to compete for relevance in an economic world that has no respect for national borders. In this scenario, nations have two choices both of which lead to their eventual ruin. 

The first option is to hold the line on taxes and regulations and watch their global players depart (or obfuscate profits) for countries offering a more favorable environment. The second option is to offer incentives to keep global players within their tax base. However, this ultimately produces a race to the bottom, as nations bend over backwards to the demands of global players who have no reason to be loyal to any individual country. Either way, nations are faced with eventual decline."

Dani Rodrik, on the other hand, reiterates the dominance of the nation state even in an increasingly globalized world about which I had blogged about here. He states the myth of the fall of the nation state needs to be resisted.

 Are there extremities in this debate?While globalization is gradually impacting various sectors, the action and focal point is still very much local and national. Countries respond to globalization in myriad ways in varying situations from outright protectionism to open arms free trade. Even today large populations are outside the circle of benefitting from globalization. Nevertheless, the world has been impacted by globalization and reduction of barriers. While no one can predict the way the global economy will take, this constant tension between national imperatives with global pressures is a constant definitive.

An interesting debate in the context of domestic policy space and growing international trade.

1999, Seattle and WTO - Blast from the Past

Blast from the Past. 

I found this interesting link titled "WTO 1999 in Seattle" in Yes Magazine which records the opposition to the WTO Ministerial Meeting in Seattle in 1999. For those who have forgotten about the bitter opposition to the multilateral trade institution the reports here are a stark reminder of the opposition just over a decade ago. While we do not see such protests now at the WTO Ministerials or elsewhere, the issues raised in these protests are a common theme of anti-globalization activists and other critics.

A guest editorial by David C Korten titled "WTO is anti-democratic, anti-people and anti environment" at that time underlines the theme of the protests.

"We need rules for the global economy that protect and enhance the well-being of people, communities, and nature. For example, such rules would support the efforts of national and local governments to raise labor, health, and environmental standards. They would also support governmental efforts to curb international financial speculation and corporate tax evasion, limit the concentration of corporate power, and protect local enterprises from predatory forms of global competition. In every instance, the WTO actively hinders governmental efforts to act on these and other basic obligations to their citizens. It is anti-democratic, anti-people, and anti-environment. That is why tens of thousands of protesters are coming to Seattle to say NO to the WTO."

The recurring theme is the restriction of domestic policy space by world trade rules. While many of the critiques are ideological and not necessarily based on facts, we have come a long way from Seattle and the WTO as an institution does not evoke such strong reactions now. Developing countries are participating more actively in the multilateral system both in the negotiating arena as well as the dispute settlement process.China has been one of the greatest beneficiaries of the multilateral system since it entered the WTO in 2001. India has actively participated in the dispute settlement process to protect its national interest. However, the concerns of the challenge to democratic space by international trade regulations persist and are manifested n varying forms especially when a decision is delivered against a national measure or interests of developing countries are impacted by the rules. Can we find the balance between globalization, trade rules and democratic, domestic will? While some of that balance can be achieved by creative interpretation of the existing Agreements itself, a more sustained engagement with the multilateral system to harmonize development goals with trade rules must be attempted.

While we are not seeing "Seattle-like" protests in present Ministerials (maybe because it was in Doha?), the issues raised and concerns expressed nevertheless need to be constantly addressed.

Labour mobility and globalization - Some links

Globalization and multilateral trade agreements have always been about liberalizing the flow of goods and services across borders with fewer barriers. Labour mobility has not featured in any of these discourses. It is a sensitive topic considering the political ramifications of immigration in the context of local culture and national identity.

A few recent studies do advocate labour mobility as the next step globalization should embrace contending that it would prove to be an overall advantage for growth, reduction of poverty and inequality and productivity.

The studies/reports:

1.International Migration, Politics and Culture:the case for Greater Labour Mobility

2.Border Follies in The Economist

3. The Economic Impacts of Immigration: A Survey

Hat tip to globalenvision for having them all in one place. Will labour mobility across countries be the next biggest issue on the international negotiation agenda or is it just too politically sensitive?

Metro cities and International trade

(Courtesy:forum.skyscraperpage.com)

A very interesting piece by Brookings Institution on the inextricable relationship between growth of international trade and metro cities is found here. Titled "Metropolitan Trade:Cities Return to Their Roots in the Global Economy" it argues that metro cities have been, over the centuries, the hub of economic activity and international trade. They have been the engines of international trade because of their emphasis on innovation, specialization and being potential markets. The point that cities and not nation states spur international trade makes an important point about the centrality of urban growth to trade.

"Trade defines a metro economy’s global economic character. Not all cities are “global cities” in the way that researchers have defined the term, but all cities are touched by the process of globalization by virtue of their distinctive specializations and positions in complex global supply chains. Not only New York, London, and Tokyo, but also São Paulo, Buenos Aires, and Seoul lead in the production of advanced services. Madrid, Hong Kong, and Dubai are centers of media and information. Nagoya, Hannover, and Milwaukee are globally significant manufacturing hubs. And U.S. metro areas such as Wichita, Greenville, and Portland rank among the nation’s most trade-oriented economies by virtue of their world-class local industry clusters."

What implication does this analysis have for countries that are largely rural in nature with the majority of the population being reliant on agricultural activity? Does international trade have a minimal impact on rural communities? Are only large metro cities the major benefactors? Can the fruits of trade be spread so that communities across the country are benefitted? While metro cities are the engines of international trade is there a way to broad base the benefits and multiplier effects of trade so that larger communities are positively impacted? How does one participate in the global economy in a local setting? Unless this issue is tackled, the criticism that international trade and globalization increases inequities may be difficult to address. 

The reality of inequity and some strategies are discussed here by Uri Dadush and Kemal   Dervis in their "The Inequality Challenge". 

"Inequality in the world defies simple characterization. Over the past 30 years, hundreds of mil- lions of the world’s poorest people have seen their lot improve as the forces of technology, global- ization, and better macroeconomic policies have transformed the globe. A large middle class has emerged in some of the world’s largest and rela- tively poor countries. At the same time, in most countries, the relatively affluent have seen their incomes soar, and in some instances their share of national income has increased so rapidly that the bulk of the population has seen little gain.

Sustaining the transformational force of technology and globalization, and the impetus they are providing to the growth of the global economy, while mitigating their polarizing effect within countries, is likely to prove one of the twenty-first century’s great challenges. It is unlikely, and indeed undesirable, that either globalization or technological advances will be stopped. Still, a failure of public policy to promote greater balance in the distribution of the gains accruing to society as a whole could result in fissures so deep that our ability to derive the benefits of the new age could be severely impaired." 

Can international trade be made more equitable catering to the large rural population we have? How should trade policy address this question? While developing metro cities to be the hubs of economic activity to facilitate trade is of primary concern, how do we make the benefits of trade more inclusive and impactful?

EU, BRICS and impact of Globalization

I came across two contrasting pieces on the impact on globalization on national economies.

"Globalization and the Crumbling BRICS: From Promises to Threats" brought out the dangers of over-reliance on globalization, and highlighted the importance of the growth of local economies in the context of BRICS. It also emphasized the interconnectedness of large economies like the EU and the U.S. with big emerging economies in Asia.

"Globalization now means that as long as Europe is in semi-collapse due to its inability to resolve its banking and sovereign-debt problems, and the US economy is stagnant and hostage to partisan struggles over state spending and taxation, emerging markets will not be able to pursue their past growth strategy. 

The real risk now is that facing high expectations and slow growth, the BRICS will turn from motors of the economy to threats of unrest and disruption.  China is facing an uncertain transition to new leadership amidst growing waves of strikes, environmental protests, and demands for greater openness and democracy driven by rapidly-expanding social media.  India is facing corruption scandals and a political transition as regional parties are supplanting the national consensus created in the past by the Congress party.  Russia has seen unprecedented protests against President Putin since his return to power in disputed elections, while its prospects for oil and gas exports are threatened by the rapid expansion of fossil fuel production through fracking in the U.S. and rising production in Qatar, Iraq, and Turkmenistan.  Brazil is perhaps best positioned to pursue domestic growth, as its ethanol-fueled economy and still-abundant land offer opportunities for its own population to improve their status.  But South Africa faces severe risks from a still greatly underemployed young population that has yet to benefit economically from the end of apartheid and confronts increasingly corrupt and ineffective national ruling party (the ANC). 

Europe and the U.S. had thus better focus hard on getting their own economic houses in order.  Far from expecting the BRICS economies to lead them to greener pastures, they may need all their resources and attention to deal with looming unrest and disruption in the BRICS as the latter struggle with an end to easy export-led growth and try to find new pathways to economic growth."

"Globalisation brings opportunities, not problems, for EU industries" stresses on the importance of export led growth for the EU. It calls for a more open Europe harnessing the advantages of the globalized world. Referring to a report on competitiveness by the European Union, it says:

"The report suggests that the EU pursues policies that increase openness to trade and better-target the promotion of R&D in process and market innovations. This will help local companies become part of global value chains, allowing them to reap the benefits of products produced abroad. Gaining access to these global value chains is paramount given that more than two-thirds of EU imports consist of intermediary products – that is, products traded among producers and suppliers. 

Off-shoring, which is when companies relocate a business process from one country to another, will also require that regulations evolve to adapt to the 21st century. The report therefore promotes policies that will increase the EU’s share of exports of finished goods from trading partners, particularly emerging industrial powers like China, Brazil and India. 

Closer to home, the report suggests ‘neighbourhood policies’ targeted at fostering trade in Europe’s backyards. Cross-border investment and trade with neighbouring countries are, in the words of the report, ‘low-hanging fruits’ that have not yet been utilised to their full potential. The report says that Russia, Ukraine, Switzerland, Norway and Egypt are some of the EU’s top non-EU trading partners.

There is perhaps no single way to achieve economic growth in a globalized world. The importance is perhaps to keep one's options open  and move forward in national interest. 

Globalization retreats?

(http://wiki.triastelematica.org/index.php/Protectionism)

Trends of a rise in protectionist measures by countries is considered a serious threat to an increasingly globalized world. While the world is getting connected and "flattened" by global supply chains and mobility, inward looking policies also have made their mark challenging the presumption that globalization is a given. Of course, Pankaj Ghemawat still believes that a large part of economic activity is still "national" or "local" rather than truly global. Parag Khanna,on the other hand believes that the world is moving towards more globalization.

I came across an interesting piece on globalization here. Titled "The Retreat of Globalization" Kevin M. Warsh and Scott Davis posit that the trend of globalization characterized by cross national investments and increased trade is on the decline.

"Trade is the glue that connects the global economy. Trade has grown much faster than economic growth for most of the last few decades, thanks largely to the globalization wave. Only twice since 1982 has global trade growth trailed economic growth. 

But trade has weakened over recent quarters. According to the International Monetary Fund, trade growth volume is projected to slump to 3.2% this year, down from 5.8% last year and 12.6% in 2010. The World Trade Organization recently cut its forecasts for global trade by more than a full percentage point for this year and next. Absent fundamental policy changes, these data mean that the IMF's global GDP forecasts for this year (3.3%) and next (3.6%) are challenging to meet. 

Yet even this cyclical weakness is not the gravest concern. What if the cyclical has become structural, and economic potential is falling? What if the world is getting more fragmented and the gains from globalization are being forgone and forgotten? What happens if policy makers remain preoccupied with short-term urgencies to the exclusion of long-term priorities?"

Protectionism is not the preserve of only a few countries. It is exercised by both the developed and developing worlds in times of economic crisis to protect domestic interests. Whether it actually protects domestic interests in the long run is an entirely debatable issue. Further, whose interests are actually protected is also open to scrutiny. Nevertheless, the increasing trend of "buy local" in France or aggressive "import licensing requirements" in Argentina is only symptomatic of a reaction of countries to address issues of economic crisis in a global world. As long as trade exists, there would be measures of protectionism. To what extent they spread and to what degree they violate trade agreements is the crucial factor.

Is free trade a myth?

Do free trade and globalization have a positive impact on growth, wages and employment? Or do they adversely impact jobs, growth and local employment? I came across a blogpost in NYT's Economix that addressed this issue.

 The blogpost summarizes the views on the negative impact of globalization and free trade on wages and unemployment.

"For decades, economists resisted the conclusion that trade – for all of its many benefits — has also played a significant role in job loss and the stagnation of middle-class incomes in the United States. As recently as 2008, for instance, Robert Lawrence of Harvard, one of the country’s most respected trade experts, concluded that trade explained only a small share of growing income inequality and labor market displacement in the United States.

... 

One reason that economists may be uncomfortable talking about trade’s impact on jobs and wages may be concern that it could set off protectionist responses. And economists are right that expanded trade has certainly been good for the United States. It has brought us better and cheaper consumer goods, opened new export markets, lifted up many poor countries and strengthened American alliances around the world."

Citing studies that confirmed that growth in the U.S. was not taking place in sectors that were involved in trade, regions that faced competition from Chinese competition had higher unemployment and companies that were headquartered in the U.S. provided more jobs abroad than in the U.S. the post concludes that with growing markets in other countries trade should provide a boost to increasing opportunities and wages back in the U.S. A more critical analysis of free trade is found here which argues that the realities of trade in the renewable energy sector, especially solar, should necessitate protection in terms of increased State intervention.

Can we afford to ignore the principles of reduced barriers to trade in today's multilateral trade world? Though it may have a benefit, does it not have a huge cost too? What should the attitudes of countries be in the context of growing domestic pressures to increase trade barriers? While globalizing and reducing barriers may not be politically feasible, is it also economically unfeasible? 

Globalization, reduction of poverty and the role of the State

This blog, apart from dwelling on the legal aspects of the multilateral trading regime, also ponders over larger questions of globalization, equitable growth and development. Does international trade lead to equitable growth? Is everyone equally participating in the globalized economy and taking the benefit of open markets, competition and lower prices? Is the market restricted to a few while the rest are negatively impacted by the consequences of growing disparities? These questions, I guess will remain, and there are opinions on both sides of the divide.

YaleGlobal Online recently had an interesting piece by Laurence Chandy and Geoffrey Gertz titled With Little Notice, Globalization reduced Poverty which essentially argued that over the years globalization has led to a reduction of global poverty and large segments of population, especially in China, have risen out of deprivation. 

Articulating their thoughts on the reasons for this decline they state:

"These factors are manifestations of a set of broader trends – the rise of globalization, the spread of capitalism and the improving quality of economic governance – which together have enabled the developing world to begin converging on advanced economy incomes after centuries of divergence. The poor countries that display the greatest success today are those that are engaging with the global economy, allowing market prices to balance supply and demand and to allocate scarce resources, and pursuing sensible and strategic economic policies to spur investment, trade and job creation. It’s this potent combination that sets the current period apart from a history of insipid growth and intractable poverty."

Looking at a very optimistic future where millions would rise out of poverty into being "middle class" they point out that globalization has had a positive impact on improving lives. 

 "Taking a long view of history, the dramatic fall in poverty witnessed over the preceding six years represents a precursor to a new era. We’re on the cusp of an age of mass development, which will see the world transformed from being mostly poor to mostly middle class. The implications of such a change will be far-reaching, touching everything from global business opportunities to environmental and resource pressures to our institutions of global governance. Yet fundamentally it’s a story about billions of people around the world finally having the chance to build better lives for themselves and their children. We should consider ourselves fortunate to be alive at such a remarkable moment."

Where does the truth lie? Critics of globalization vehemently argue that globalization has led to marginalization, increase n poverty and destitution. Large populations are unable to participate in the national economy leave alone the global economy. Are both positions rhetorical? Countries exist in an interconnected world where multilateral trade rules continuously impact domestic policy. This domestic policy may be designed to address issues of poverty, development and equity as the countries see it. How does one negotiate this delicate situation? Can the role of States be completely ignored? WHat form the role of the State will take is a complicated issue. However, the abandoning of the State in a globalized world to usher in equitable development may not be the answer. While countries perhaps need to engage more with the global economy to partake of its benefits, a strong set of policies to enable millions to participate in the interconnectedness is crucial. What these sets of policies are and how they should be implemented is another debate altogether.The need for them however should not be disputed.