The death of globalisation?

Thank you for listening to this edition of Analysis, in which Professor Ian Golden explores globalization and asks how far the world is fragmenting, politically and economically, and what the consequences of that could be. We hope you enjoy the programme. The future does not belong to globalists. The future belongs to patriots. That is why we are coming out of the EU on October 31st, Commonwealth May. Goldbriefs! Let's get Brexit done! Our manufacturing future, our economic future, our solutions to the climate crisis, they're all going to be made in America. That was Donald Trump, Boris Johnson and Joe Biden. We may be witnessing the deathmills of globalisation. And overall of this hangs a sword of Damocles, the danger of a new fragmentation of the world, of de-globalisation and de-coupling. That's Germany's Chancellor, Olive Schultz, voicing his concerns that the world is breaking up, politically and economically. And all this, at a time when we are struggling to recover from the Covid pandemic, face the consequences of Russia's invasion of Ukraine and address other urgent challenges. I'm Ian Golden, Professor of Globalisation and Development at the University of Oxford. And in this programme, we'll explore where the globalisation is ending and if so, whether this should be a cause for concern or celebration. But what do we mean by globalisation? Globalisation is about the movement of things, finance, ideas, people and communication across national borders. The more of these flows there are, the more the world is globalising. The globalisation tidal wave we have experienced started around 1990 with the end of the Cold War and opening of China, integration of Europe, global agreements to reduce trade barriers and the development of the worldwide web. Don't shop in transformed China with a simple idea. Don't open China's door to foreign investors. They set up factories by the thousands. It's a new medium. It allows people to exist in an information space which doesn't know geographical boundaries. So my hope is that it'll be very positive bringing people together around the planet. This is the east, over there is the west. I'm standing along with several clouds and other people tonight on the Berlin Wall. My concern is that while globalisation is far from perfect, it needs to be improved, not destroyed. De-globalisation would increase political tensions between countries, making it more difficult to slow climate change and stop the next pandemic. Breaking up the world economy would also slow growth and increase poverty. My name isn't Gazi Okonju Wala. I'm the director general of the World Trade Organisation. I do share concerns about the era we're entering into. People forget that globalisation lifted more than a billion people out of poverty. Not only in China but other parts of the world. It made goods cheaper for poor people in rich countries. The point is that global trade reduces costs, spreads knowledge, three economies of scale, through technologies, which benefits emerging markets and developing countries. So when you fragment the world, and you fragment trade, you lose some of these benefits and that's why it's worrying. Trade doesn't just bring a bigger range of cheaper goods. It also creates jobs in export industry and in tourism. For example, when China recently isolated itself to try to stop COVID-19, its economy stalled as did businesses internationally that rely on Chinese markets and tourism. The World Trade Organisation has assessed the impact of what might happen if the world splits into separate trading blocks. The consequences are significant. We found that it would cost the world a 5% loss in global GDP in the long term. That's like saying that we lose the entire economy of Japan. That's huge. It's much more than the entire British economy. The costs of de-globalisation are so large because trade is essential for all economies. No country can produce everything itself, from vaccines to light bulbs and the wide range of food we eat. There would be no rice or bananas on our supermarket shelves. Trade is also reciprocal. So if we make it more difficult to buy products from other countries, we can be sure they'll find ways to stop buying ours, won't invest, be less likely to be tourists or come to study. Most worryingly, they will be less willing to work together to address the failures of globalisation by improving trade rules, reducing tax evasion and helping solve our shared problems. We'd end up with a more dangerous world, with job losses and lower incomes. But if trade is so good, why are countries now putting up barriers against it? Menuscha Fick is president and vice-chancellor of the London School of Economics. We are seeing national security concerns affect the trade in certain goods, particularly things like microchips or batteries, certainly military goods. And so I think what we're seeing now is a kind of a globalisation that is segmented where there are some markets, say the market in Silicon chips, which is being governed more by politics than by economics. Politics is driving countries to blame others for their problems. While their policy choices to protect their industries may make sense to them, there's a knock-on effect on other countries and consumers around the world. Here's Angozio Conje, Iwala again. I am concerned about subsidies. If you are subsidising particular industries or sectors and you're excluding others outside of your own jurisdiction or country from benefiting, then those types of subsidies can very quickly lead to a race to the bottom because other countries may be incentivised to subsidise their own industries. And where does this lead us? It becomes a question of the rich, have the might, and the poor are left behind. In this race, it's only those with the deepest pockets that will win. The number of new cars made in the UK has fallen to its lowest level since 1956, figures for last year were 10%. Recent figures show the UK car industry struggling to compete against subsidies from the US. UK car manufacturers are concerned that the UK is falling behind the US and the EU. The United States is offering billions in subsidies to car makers who create electric vehicle supply chains in the US. And an angry EU is considering retaliating by other explicitly relaxing state aid rules or doing so under the guise of extending COVID recovery or green technology boosting programmes. So if the richest countries engage in a spending race, the rest of the world finds that they can no longer compete. Although the UK is a relatively rich country, there is no way it can match the US, the European Union, or China in subsidising its industries. The editor of the economist, Zanemant and Bedo's, says this policy of countries putting themselves first, focusing on what's best for them, I win, you lose, national gain rather than mutual benefit, involves more than just subsidies to help domestic industries. It also includes export controls. The US has slapped on a huge number of export controls on products that can no longer be exported to China, for example. There's also much more active use of investment screening. The countries are much more worried about foreign investors, particularly from China, buying up shares or buying up domestic companies. So we're seeing what used to be the kind of tools of global integration, if you will, becoming weaponised and becoming tools of this zero-someworld. The US says it is doing this because China has embarked on unfair competition. Let's hear what the head of the World Trade Organisation thinks. The beauty we have heard this complaint that China is unfairly subsidising there is no level playing field. We've actually launched a study on subsidies to try and get some facts on the ground. President Biden's new law, the inflation reduction act, as it's called, aims to boost green technology. It includes many bi-America restrictions, so firms can only get the subsidies and tax credits if they are located in the US. And that means now that a whole bunch of European car firms, for example, are thinking of shifting their production to America to benefit from these subsidies. So if you're a European policymaker, you think, "Oh, my goodness, am I going to have to, you know, introduce similar kinds of subsidies with similar kinds of restrictions to ensure that the production stays in Europe?" Last month, the British firm Arrival, which makes electric delivery vans, announced plans to move its production from the UK to the US to take advantage of Biden's green energy subsidies. And BMW is moving production of its electric minis from Oxford to China, where the government is actively supporting the mass production of the required batteries. British Carmen is historically have exported over 80% of the cars they make with over half of these going to Europe. The ending of seamless access to Europe and race to the bottom in subsidies now pose an existential risk for this proud British industry. In the US there's a rising tide of protectionism. Somewhat ironic given that the US was the driving forceful globalization. Here's Ronald Reagan in 1988 and Bill Clinton in 2000. Here in America we should take a moment to recognize that one of the key factors behind our nation's great prosperity is the open trade policy that allows the American people to freely exchange goods and services with free people around the world. For me it means it's very important to get China into the world trade organization to ensure that China's markets are open to us even as we have our markets open to China. And to advance peace and stability in Asia and increase the possibility of positive change in China. So why has the US turned its back on globalization? Rana Farouha is the New York-based financial times commentator and author. This idea that capital goods people could sort of travel seamlessly across borders and land wherever it was most productive. That was kind of the assumption up until probably the financial crisis and then I think since then and certainly since COVID and the war in Ukraine there's been a shift. Globalization created a tremendous amount of wealth at a global level. That was great in many ways because it lifted a lot of people out of poverty but within almost all OECD countries you saw dramatically increasing inequality that was sharpest in the Anglo-American world. So that rising in-country inequality created the politics of nationalism that I believe was responsible in large part for the rise of Donald Trump in the US. I think it's at least partially responsible for Brexit. Some of the nationalism that you see on the continent, some of the problems that you see in many other countries around the world. That sense of wait a minute. We have a global market system that has become so untethered from the interests of the voting populations in democratic states that there is now a backlash to that system. Growing inequality together with the job losses and economic stagnation which followed the financial crisis of 2008 and 2009 led an increasing number of people to feel that the system was rigged against them and that far from globalization bringing jobs it benefited a small elite and brought new risks. This failure to distribute the benefits more evenly lies behind the rise of nationalism and protectionism. In the US politicians of all political persuasions have turned their back on globalisation. But at what cost? The US UK and Europe cannot afford to exclude the Asian market. The 21st century is going to be the Asian century, the centre of gravity of the world's economy is going to be in Asia. The world's largest middle class populations are going to be in Asia. Kishu Mabobani is based in Singapore and their former ambassador to the UN. The growth engine of the world will be the new CIA and CIA in sense for China, India and ASEAN. The Association of Southeast Asian Nations. Now their combined population is 3.4 billion people. What's particularly striking is how quickly the middle class has grown in that region. In the year 2000 their middle class population was only 150 million but by 2020 they've grown to 1.5 billion and by 2030 you will grow to close at 3 billion. Now this is going to be the world's largest markets. If you've not got a Buddhist man in it you're shooting yourself in the foot. If the US and Europe decide to trade less with China, well China and Asia also start to deglobalise by putting up more trade barriers. This is going to become the world's largest economic ecosystem because it's the largest free trade area in the world but we will also trade with countries far away just to give you a complete example. Brazil which is much closer to the United States than it is to China. 20 years ago it took Brazil one year to export 1 billion dollars to China. Now it takes Brazil 72 hours to export 1 billion dollars to China. So it's not just East Asian trading among themselves. The growth of China on the whole has been immensely beneficial for US firms and consumers. So why turn its back on such a lucrative market? Is the aim of the Biden administration to keep China down? There's absolutely no doubt that the United States has decided to pursue a policy of stopping China's growth. And frankly it's in some way it's perfectly understandable because no number one power has ever gracefully seen that is number one position to the rising power. As Annie Minton Beadows believes the United States should focus on keeping ahead. I don't think the logic of keeping China back for its own sake makes sense. Much more important is to enable America to do better. So for example a much more sensible immigration policy in America which would make it much easier to attract the kind of high school people who are needed to keep America at the frontier of technological innovation. It's an irony that it's harder to go to America if you're a talented scientist right now than it ever was. Because of visa restrictions? Yeah the US immigration system makes it much much harder to attract foreign talent. And that's to me a much more dangerous risk for America's position at the very forefront of technological innovation. There aren't thousands of people clamoring to move to China. There are a lot of people who would love to move to America. Globalization has given us cheap goods from every corner of the world. But there are risks. China's growth is slowing so countries need other markets. And given the level of tension between China and Taiwan for example, it makes sense to have more than just one supplier and to ensure that for national security you're not reliant on firms from just one country. Here's Rana Farouha and Ingosi Okonja Iwala. The idea of 92% of all high-end semiconductor chips being in Taiwan. That was what globalization gave us. I mean it was cheapest to make them there. It was very easy as long as everything else was working. But now suddenly you have 92% of what is essentially the the digital oil for the world's economy made in one very highly contentious island in South China. And that's a problem. The same goes for pharmaceuticals. You have continents like Africa that import 99% of their vaccines and 90% of other medicines. That is not right. We need to build resilience. We should look at how to de-concentrate this manufacturing and try to spread it to other parts of the world. Is there a danger though that if you start subsidising some things it becomes like mission creep the thin end of the subsidy wedge. Zanymant and Betos. We need to worry about relying on a country like China for critical inputs whether those are the rarest that you need in the batteries for renewable energy or whether it's solar panels. So in both those areas I think there is a reason for having broader supply chains for not relying on one country. But what I worry about is that once this logic of industrial policy and the zero sum logic gets ingrained it goes much much further and you feel that every part of the economy is strategic and every factory and every firm and every industry has to be supported and that every country has to have every element of the supply chain. And that's the the risk that I think we see now with so many countries getting enamored of industrial policy and wanting to make everything at home. It is clear that the current rules governing subsidies need to be re-looked at by the world trade organisation. How do we reform what there is? How do we ensure that we have a more level playing field? There may be those agreements that were signed at the WTO in the early days in 1995 may not be up to the job. But to change it you need some facts. Some of these agreements were entered into before China became a member of the WTO in 2001. So I think it is also fit that we say okay the world has changed substantially. Can we take a look at these agreements and make them fit for purpose? Reforms in the international system are urgently needed. Without them countries will keep building higher walls to insulate themselves from outside threats. But no walls can be high enough to keep out the big challenges facing humanity including pandemics, climate change and conflicts. Rather they increase poverty, slow growth and reduce the skills and investments we need. Most importantly they undermine political cooperation. Our focus should be on ensuring globalization works for all. Starting at home, Manus Shafik from the LSE. One of the problems that is behind the kind of anti-globalization backlash is that why it is usually true that open trade and globalization has increased total output. We've done a a pretty poor job of compensating those who've lost out. And we've done a pretty poor job of making sure that we've made the kind of investments in people's skills and infrastructure that enable everyone to take advantage of the potential benefits of globalization. Rising inequality and the failure to address it is at the root of the problem, the source of resentment. But isn't inequality also the result of globalization? It is, although in fact, what the rising inequality can be predominantly traced to isn't the growth in trade, but really the changes in technology that have made some industries less efficient and the lack of investment in new technologies that mean that those jobs can be sustained in those sectors. So globalization takes most of the blame, but actually most of the reason behind the rising inequality is that over time, the kind of jobs that are associated with higher skills are as a result of changes in technology. For example, many repetitive jobs are being automated, both in manufacturing and in services, like call centers and accounting. Another reason for rising inequality is that governments have less money to spend from taxes. They've been falling over themselves to attract companies to invest, pushing down taxes to encourage them. Is this race to the bottom in taxes? Another underbelly of globalization? There has definitely been tax competition in the world and countries feeling pressured that they need to lower particular corporate taxes in order to attract investment. It is a pity that there wasn't an agreement around setting a minimum global corporate tax, which would at least put a floor on that competition between countries. I think that is a real issue and, of course, most extremely so with global tax havens, which attract a lot of capital by offering very, very advantageous tax regimes. Do countries in fact need to cut taxes in order to attract investment? I would argue that that's a very minor part of decision making for investors looking as to which country to invest in. They're much more interested in, is this country stable? Does it's macroeconomic policy sound? Does it have good infrastructure? Does it have skilled people? And I think focusing on those things is a lot more important than trying to compete with other countries by constantly lowering your taxes. Governments need tax revenue to modernize their economies and to invest in education, skills, and infrastructure so they can compete in a globalized world. Not from globalization leading to a world which is flat or the death of distance as was claimed, place has become more important. The new firms and opportunities are not in the same places as before. So ensuring that people can get to where the jobs are, with affordable housing, transport systems, and available schoolplaces, is vital to address the inequalities generated by trade and technological change. The countries have not done enough to keep pace with change. Globalization is an easy target of blame for a country's ills. Kishu Mabubani is convinced this is what is driving the politics. Unfortunately, the average income of the bottom 50% in the United States has not gone up for 30 years. So clearly there's a very simple reason why there's massive disillusionment among American workers about the idea of globalization because they haven't seen any of the benefits. But that's not because of globalization, it's because of the failure of the political class to help the United States economy adjust and adapt to new competition. Here's the head of the World Trade Organization. We are a difficult place in the world now with the vulnerabilities that we've seen in supply chains during the pandemic and this one Ukraine. But we could see an opportunity in these vulnerabilities to build resilience by using diversifying supply chains and de-concentrating manufacturing to developing countries that have not had a chance to be included in this global world creation and job creation that took place under the first wave of globalization. Similarly poor people in rich countries rescaling them so they could also benefit. So that's what we're calling re-globalization at the WTO a more inclusive globalization. So globalization with a more human face? Exactly. Globalization has brought enormous progress but it also has had very bad and very ugly consequences. Global connectivity has brought us vaccines and ideas about gender equality and a growing knowledge of climate impacts. But it also brought the financial crisis, the pandemic, an accelerated climate change. To address these risks as Ingozyo Kondzhe-Iwala argues we must strengthen cooperation. We must discern when we have strategic competition from when we need strategic cooperation. We will not be able to solve problems of a global nature alone. I believe it was the failure to manage global finance and the crisis of 2008-9 that undermined trust in central governments and led to rising inequality. Where do we go? We can't fix the problems we face without globalization of politics as we need to coordinate more with others. The challenge we face now is to manage it more effectively. Our governments have a vital role in this, not at least in addressing inequalities at home and working more closely with others internationally. But it is not too late to reverse the tide. We should show this fragmentation yet. Trade between China and the US, between China and EU, between EU and US is still quite robust. So that's why we are saying, "Okay, we are talking geopolitical tensions, these are obvious. Let's not let them manifest in actual terms." We need to move beyond the anti-globalization rhetoric to address its shortcomings, while also accepting the benefits arising from a more integrated world. Our futures are entangled, and turning our backs on globalization won't bring jobs or improve our security, zanyment and bellows. If you're in a world where the logic is, you know, my country versus the rest, that is not a world that's very conducive to solving global problems like climate change, which require countries to work together. It also makes the risk of the world being divided into sort of geospolitical blocks, much more of a risk, and that in turn, I think, makes conflict more likely. And so it's a dangerous political, economic and ultimately potentially, you know, threatens global peace. Analysis was presented by Ian Golden and produced by me, Sally Abrahams. The sound engineer was Rod Farker, and the editor is Claire Fordham. 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