In recent years, the word ‘globalisation’ has become synonymous with a whole range of international ills. Financial globalisation has been particularly maligned. Once hailed as the solution to poverty and underdevelopment, it is now blamed for the unfettered flow of ‘hot’ capital around the world, the build-up of credit and asset bubbles and the creation of unsustainable global imbalances that have led to dangerous levels of volatility in the global economy. But are either of these views fair? Do we expect too much from globalisation, or do we credit it too little?
Let’s start with the positives. Over the last century, globalisation – the faster and cheaper flow of goods, services, capital, people and ideas around the world – has helped to lift millions out of poverty. It has enabled developing countries abundant in resources and manpower to generate remarkable rates of growth, while in the developed world it has brought down the cost of consumer goods, stimulated innovation in many sectors and created new markets for goods and services. Globalisation has provided unprecedented opportunities for people to live and work abroad, and helped to spread acceptance of universal values such as democracy, freedom and human rights.
Yet in spite of these achievements, globalisation has manifestly failed to deliver security and prosperity for all. Inequality may have fallen between countries over the last thirty years, but it has risen within them as an ever smaller elite have captured most of the gains associated with technological progress. Global competition has spurred huge productivity increases in many industries, but has also put serious pressure on jobs and wages. These problems were evident before the global financial crisis, but have been magnified and exacerbated by it. In 2003, a Eurobarometer survey found that 60 per cent of Brits were in favour of globalisation, compared to 27 per cent who were opposed. By 2010, just 30 per cent of UK respondents to a YouGov poll thought that globalisation was good for the British economy, against 34 per cent who thought it was bad (with the rest being indifferent or unsure).
Many see globalisation as an unstoppable force that cannot be managed or reversed, and worry about the dislocation and insecurity that comes with rapid integration of nation states into the global economy. These fears are both understandable and legitimate. However, if we look at the actual levels of interconnectedness between people and countries, it is clear that we have not yet reached Thomas Friedman’s ‘flat’ world in which the integration of markets, nation-states, and technologies is deep and inexorable. For example, just one per cent of letters sent by mail cross national borders, while less than two per cent of phone minutes involve international calls. Just two per cent of all university students are individuals studying abroad. Even trade integration is less intense than might be assumed, with the proportion of goods and services exported across national borders having reached a high point of 29 per cent of global GDP in 2008 before falling to 23 per cent the following year.
While global economic forces are playing an increasingly direct role in the lives of individuals, this does not take away the fundamental agency of nations, governments and their people. Globalisation is best viewed as a dynamic process rather than an end in and of itself, and one which can be shaped to deliver progressive aims of sustainable growth, rising prosperity and receding inequality for all. But these outcomes are by no means guaranteed. They require bold and sustained action by policymakers round the world, at a time when the temptation to retreat into protectionist policies is increasingly powerful. They also mean focusing not just on how to boost exports and growth, but on how to protect those who are most vulnerable to the shocks caused by global economic change.
To think through the decisions and the tradeoffs involved in these challenges, IPPR has been conducting a major project on the future of globalisation, led by Peter Mandelson. Today, we publish our final report, The Third Wave of Globalisation. Over the past year, my colleague Will Straw and I have travelled with Lord Mandelson to Brazil, China, India and Germany, learning about how these countries are responding to globalisation from policymakers, business leaders and academics. In the UK, we visited industrialists and business owners in Newcastle to talk about changing ways of doing business, and students in Hartlepool to hear how global economic change is affecting their lives aspirations. The message from these conversations was clear: globalisation has the potential to improve living standards around the world, but only if it is made to work much better than it has in recent years.
Our report sets out a number of recommendations for how this might be done, including international actions to prevent the renewed build-up of current account imbalances, the volatility of short-term capital flows and a race to the bottom on wages and corporation taxes, and domestic reforms to create more strategic industrial strategies, smarter skills policies, and welfare systems that protect people when they are most in need of assistance, such as when they lose their job. Together, we hope that these serve to reaffirm the value of a well-managed global system in which greater integration is welcomed rather than feared.