The long view on the global economy

My latest Project Syndicate piece argues that the world economy has handled the financial shock rather well so far, but that the real test for globalization is yet to come. 

History teaches that global economic order is difficult to establish and maintain in the absence of a dominant economic power. The interwar period, which suffered from a similar crisis of leadership, produced not only a collapse of globalization, but a devastating armed conflict on a global scale.

So the stakes in righting the world economy could not be higher. Mismanage the process, and the consequences could be unimaginable.
Unfortunately, many of the solutions on offer are either too timid or demand too much of a global leadership that is in short supply.

The conundrum of global reform is that the proposals that go far enough, such as establishing a global financial regulator, are wildly unrealistic, while those that are realistic, such as reform of the IMF, fall far short of what is needed.

What we need is a vision of globalization that is fully cognizant of its limits. We can start with a simple principle: We should strive not for maximum openness in trade and finance, but for levels of openness that leave ample room for the pursuit of domestic social and economic objectives in rich and poor countries alike. In effect, the best way to save globalization is to not push it too far.

The column offers some hints about what I have in mind, but those who are curious about the details will have to show up at LSE on Tuesday.

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I'm wary of any attempt to control the direction of globalization in the future. And, furthermore, I don't see the utility of doing so at this time. Globalization has followed its particular path in the last 50 years as a result of the geopolitical order resulting from the U.S. being the dominant superpower. That is the reason for cultural hegemony, unilateralism in foreign policy, and a financial crisis that gripped the entire world.

You can look toward history for more examples: "imperialist" (whatever that means) Britain in the late 19th and early 20th century was characterized by the global spread of British financial and legal institutions until it lost its footing to the U.S. after WWII.

So, what should we be talking about instead? Rather than explore how we can direct globalization towards more socially responsible goals, we should be asking ourselves how the shifting geopolitics, caused by a decline of the U.S. as the only superpower, will affect the spread of cultural, economic and political institutions across the globe (i.e., how it will affect /globalization/).

[Richard Hogesteger]

I think you are right. Though I would add that this problem got much worse in the middle of the 1990's when GATT was replaced by the WTO. Prior to that national economies were closed enough for governments to deal with market failure domestically. Incorporating trade in services into the WTO and setting up an independent dispute settlement mechanism made massive market failure almost inevitable.

[Beezer]

It's always about balance, isn't it.

Too much "globalization" and countries become less stable, it appears.

Too little and economic progress is stifled, it appears.

Trade between nations should have an approach where both countries win. This hinders unlimited trade, but allows for negotiations where each country can believe it gained.

A middle road. And where's the center? I like Warren Buffett's import certificate concept. By definition it establishes a balance. If one or another country wants to run a deficit with one nation or another, then it can.

But otherwise, the certificate program establishes an eqaulity of trade. Sort of analogous to being given a bottom line budget number.

You can't have everything you want, but there it is. You must make choices informed by the discipline of the budget.

Maybe this kind of simplicity simply dissolves in real politic.

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I was fascinated by the article and your presentation at the LSE. I particularly appreciated your response to the wave of professorial questions by focusing on the material interest vs. ideas debate. Overemphasis on power relationships stifles innovative thinking, particularly in an ideational interregnum.

I wish we could have had more time to go over the examples of 'traffic rules' for trade and finance, particularly the latter, within this idea of a renewed embedded liberalism. Can you make your presentation slides available and/or explain the examples in more detail?

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This kind of simplistic view doesn't fit the modern political climate anymore, it's not about too much or too little globalisation, actions over words people!

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I really enjoyed your talk last night. I'm not sure that 'Capitalism 3.0' is necessarily a productive/ethical system in dealing with certain international problems (i.e. climate change) albeit I need to read more of your work to find your views on that. However, there definitely needs to a be a shift away from the universal 'stabilize, privatize, liberalize' dogma that has haunted IPE.

Following from Marc Dotson I'd also be interested in viewing your presentation slides again as there seemed quite a few that you passed over due to time restraints.

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LSE has put the slides up: http://www.lse.ac.uk/collections/LSEPublicLecturesAndEvents/events/2009/20090311t1914z001.htm

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Interesting post. If the dollar tanks as many gurus predict, it will be a huge hit to both globalization and the US economy. If my memory of Economonics 101 is correct, the huge increase in supply of dollars can only lead to one thing, a much lower dollar.

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