More needed to spread fruits of globalisation fairly: economists
Love it or hate it, globalisation is not going away, though leading economists meeting in the Malaysian capital this week expressed hope that its benefits can be distributed more equitably.
Muhammad bin Ibrahim, addressing a two-day joint conference organised by the International Monetary Fund (IMF) and Bank Negara Malaysia (BNM), described globalisation as an unstoppable force that is shaping the world’s economy.
“Arguing against globalisation is like arguing against the law of gravity,” he said, citing the now-famous quote by former UN Secretary General Kofi Annan.
Globalisation refers to the increasing interdependence of national economies as the result of freer cross-border movement of goods, services, technology and capital. Most economists hold that it is a net beneficial process, but anti-globalisation sentiment has grown on what critics say is a system that favours the elite.
Ibrahim said that while globalisation has brought about an unprecedented period of world peace, prosperity and progress, lifting half a billion people out of abject poverty in the last decade, its benefits have been unfairly and disproportionately distributed.
“The fruits of globalisation that were not equitably shared led to a sense of injustice within the global community and economy,” he said. “Now, domestic inequality has increased, while existing wedges in wealth distribution, employment opportunities and social mobility have been amplified by globalisation.”
Ibrahim noted that between 1988 and 2011 the incomes of the poorest 10 percent of the population increased by just $65, while the incomes of the richest 1 percent rose by $12,000 or nearly 200 times as much.
He said globalisation must be made equitable and governments must exert more effort to both maximise its benefits and evenly distribute them.
Recent setbacks in economic globalisation, including President Donald Trump’s vow to pull the US out of major multilateral trade deals and Britain’s plan to leave the European Union, have led to concerns of mounting trade protectionism and “deglobalisation”.
However, Kevin O’Rourke, a professor of economic history at Oxford University, said globalisation has ebbed and flowed for millennia, and any reversals in its progress were temporary and the result of “political reasons”.
“When we have episodes of deglobalisation it’s typically because there’s been some perturbation to the system,” he said, adding that this could either be shift in the political equilibrium inside countries that results in a tightening of borders or a change that affects the international system as a whole.
Ernesto Zedillo, director of the Yale Centre for the Study of Globalisation and who served as the president of Mexico from 1994 to 2000, said globalisation has shown remarkable resilience despite world governments failing to meet their obligations to liberalise trade and coordinate macroeconomic policies, or to ensure equitable sharing of benefits.
“Globalisation has shown incredible resilience because some of the things that some [economists] thought were necessary to make the phenomenon sustainable have not been met,” he said.
Zedillo said the gap between globalisation and governance, far from narrowing, has become much wider in the aftermath of the 2008 global financial crisis (GFC). Instead of liberalising cross-border trade, many governments have raised trade barriers and imposed protectionist policies.
BNM’s Ibrahim asserted that the response was largely misdirected. The central bank governor noted that in the wake of the GFC nearly 400 trade protectionist measures were announced or implemented by G20 members while the financial globalisation channels that fuelled the crisis went unchecked.
“Despite consequences primarily associated with financial globalisation, trade has received the brunt of the blame,” he said.
“It is surprising how policymakers, particularly in the advanced economies, have yet to arrive at a consensus in recognising the harmful effects of free capital mobility that is disconnected with the real economic activity.”
He added that despite policy reforms, not enough was being done at the global level to address the risks posed by large and volatile short-term cross-border capital flows.
Ibrahim said that while globalisation had its drawbacks, the solution was not to reverse course by closing borders or cutting trade ties, but rather to progress towards expanded and measured globalisation using a more equitable and sustainable model.
“Looking ahead, globalisation will likely work if we widen the horizon that touches positively on all segments of society,” he said. “Negative spill-overs are likely unavoidable. But it is incumbent upon us to formulate policies and give greater attention to those most adversely impacted by this process.”