Who Will Pick Up the Banner of Globalism?
WASHINGTON, DC – December 10, 2018
Economic growth has been the defining feature of a historic global success story spanning the past 75 years. Even with its limitations, globalization has lifted more than 1 billion people out of poverty and delivered unprecedented improvements in virtually all areas of human development.
However, in recent years, the banner of globalism has fallen from the hands of the United States. China tried to catch it. But it does so very carefully and still does not know where and how it will carry it. In 2018, trade, more than any other policy area, was “disrupted.”
Still, it is worth asking how much has actually been disrupted. President Trump did pull the United States out of the 12-country Trans-Pacific Partnership (TPP), but the remaining 11 signatories have implemented the bulk of the agreement on their own, while leaving the door open for the US to rejoin in the future. And more countries have shown an interest in joining, suggesting that the TPP could eventually extend well beyond what was originally envisioned. Moreover, the updated North American Free Trade Agreement (Nafta) – now to be called the United States-Mexico-Canada Agreement – is largely based on the TPP template, which already included Canada and Mexico, with some noteworthy additions.
Meanwhile, the European Union is implementing FTAs with Canada, Singapore, Vietnam and Japan, and pursuing deals with Australia, Mexico, New Zealand, Asean, Mercosur (the Southern Common Market) and others. The Pacific Alliance continues to expand trade and other partnerships in Latin America. The Regional Comprehensive Economic Partnership is proceeding apace in the Asia-Pacific region. And the African Union has made more progress towards implementing the Continental Free Trade Agreement.
In short, the Trump administration has certainly made a lot of noise by deploying trade remedies in unpredictable and unexpected ways, engaging in tit-for-tat tariffs, reintroducing import quotas and seriously constraining the World Trade Organization’s dispute-settlement body, but the global trend towards deeper integration and higher standards in trade has continued. By surrendering its global leadership role, the US has lost the trust of its closest allies and partners, and handed a gift to its adversaries. In this scenario, the EU or China might supplant the US as the global rule-maker, or there will be no rule-maker, and the international order will be governed by drift. In the latter case, other countries might well imitate the US by pursuing unilateral action and upholding their international obligations only when it suits them.
Nowadays nationalism, populism, nativism and protectionism are on the rise. Economic insecurities, as well as a growing sense of lost sovereignty, have contributed to an unprecedented degree of political polarisation, and not just in the US. From European countries beset by growth in support for fringe parties to emerging economies mired in corruption, governments everywhere seem to be more inwardly focused and less capable than ever of showing bold leadership – and precisely when it is most needed to address the disruptive effects of rapid technological and economic change.
So far, the attempts of China and the EU to become the locomotive of globalism do not look very convincing. The EU is mired in its internal problems, and China is still afraid to go beyond the regional superpower. In addition, the strengthening of its position is greatly hampered by the trade war with the United States. With a leadership vacuum at the international level and paralysis at the national level, it has become all the more necessary for private-sector actors to step up, not out of the goodness of their hearts, but in defence of their own interests.
As BlackRock chairman and CEO Larry Fink and others have pointed out, it is no longer enough for companies to be focused solely on short-term returns to shareholders. They also need to be thinking about the long term and about the economic and political environments in which they operate. Beyond corporate social responsibility and philanthropy, both of which are important, that means developing commercially sustainable business models that also “serve a social purpose.”
Doing well by doing good can’t be just a tagline. It must be a guiding business philosophy, backed by the recognition that the private sector needs a healthy political and economic environment to thrive and must take action to secure it. In recent decades, public trust in government, the press, corporations and other leading institutions has declined sharply. If business leaders continue to ignore the health of their operating environment – or assume that fixing it is someone else’s problem – they are risking even more deglobalization, uncertainty, and instability in the years ahead.
To prevent backsliding, the focus must shift from aggregate growth to inclusive growth. The gains from growth must accrue not just to those at the top, but to those at all income levels, and not just to global corporations, but to small and medium-sized businesses as well.
Global efforts the only way to make the fourth industrial revolution work
Nationalism, populism, nativism and protectionism exploit people’s sense of being left behind and excluded from the system. That is why we need to focus on ensuring universal inclusion in the economic networks that allow individuals and families to achieve financial security and pursue opportunities for betterment. This imperative applies as much to a Kenyan farmer or an Egyptian garment worker as it does to an American now eking out a living in the gig economy.