IAN McAULEY. Reclaiming the ideas of economics: Globalisation

“Globalisation” is too broad a term to have any useful meaning.

“Globalisation” carries many different meanings for different people.

To those who have lost their jobs in the manufacturing regions of northern England or in the “rust belt” of the USA, it is a force that lays to waste once-proud communities and devalues useful work, while enriching desk-bound public servants, consultants and bankers in urban regions.

To entrepreneurs with new products and processes, it is the opening of once-closed access to new markets and sources of ideas and technologies.

To the protestors who took to the streets of Berlin in 1988, or the streets of Seattle in 1999, it is the spread of the most exploitative form of modern capitalism, a capitalism dominated by multinational corporations free from the bounds of national regulations and responsibilities to local communities.

To those who understand the history of the twentieth century – the wars of 1937 to 1945, and the horrors of the Holocaust, globalisation is the set of arrangements hammered out at Bretton Woods in 1944 to establish a rules-based economic order and institutions of international cooperation, including the WTO (initially the GATT), the IMF, and the World Bank. Policies of beggar-thy-neighbour tariff protection and competitive devaluations had contributed to the misery of the Great Depression, paving the way for the rise of populist movements such as National Socialism in Germany. There is a fear that Trump’s protectionism and Johnson’s attempt to cut Britain off from the European Community – itself an institution developed in response to Europe’s war of 1939 to 1945 – signal a return to those conditions.

To workers in Australian coal regions the idea that they should lose their jobs in a country that is contributing only one per cent of the world’s CO2 emissions because of an agreement developed in Paris on the basis of advice by scientists in cushy university jobs is an outrageous proposition. A government taking a tough stance on climate change in response to international pressure will do to their communities what the EU has done to the communities of northern England. Even if there is other employment available, jobs in age care and tourism cannot compare with the well-paid and highly-respected jobs in the mining industry.

To most Australians “globalisation” may simply be an abstract concept, but anyone who remembers the days when overseas travel was only for the rich, when tariffs made cars and clothing prohibitively expensive, and when a phone call to another country cost a day’s wages, the opening of our markets to the world has been a tremendous benefit (even if they may not realise that this outbreak of market liberalisation was carried out by a Labor government). For at least 75 years Australians have been seeing their country open up to the rest of the world through immigration, tourism, falling trade barriers and advances in information technology. In some other countries, however, immigration has not been so well handled.

To Prime Minister Scott Morrison, globalisation is an assault on his mandate – even if that mandate is based on a razor-thin electoral win. As he said in his 2019 Lowy Lecture, he sees Australia as subject to “a negative globalism that coercively seeks to impose a mandate from an often ill defined borderless global community. And worse still, an unaccountable internationalist bureaucracy”.  In his view Australia’s policies on climate change will be determined by his government answerable to the people of Australia (or more correctly a handful of climate-change deniers who hold crucial votes in his party room), not a 16 year-old Swedish activist or a bunch of bureaucrats in Paris.

Put out more flags. (International flag display, Canberra)

The very term “globalisation” carries too many meanings to provide any guidance to public policy, unless it is defined within a specific context. Otherwise it carries the burden of guilt by association (association with job losses and regional destruction), or the benefit of virtue by association (low-cost goods, innovation).

Rather than thinking of “globalisation” as a single movement, it is more useful to think of the idea of  subsidiarity. Subsidiarity means that in general decision-making should be as local as is practical, but more centralised authorities should be responsible for those tasks that for one reason or another can not or should not be undertaken locally. Within federations it’s a principle guiding the division between local and state governments and between state and federal governments (we screwed it up on rail gauges). Internationally it is a guide to the establishment of global conventions and contracts – an important distinction because while conventions  are comparatively straightforward, contracts  involve difficult tradeoffs.

When we post a letter to a different country (some still do), or fly over ten or so different nations in a trip from Australia to Europe, we benefit from treaties on postal services and navigation rights. These are conventions developed by experts, and they are reasonably uncontentious, because everyone has an incentive to adhere to them.

International contracts are a bit trickier, because they are negotiated in situations where there is not the same incentive for compliance. No one country would get any benefit from using a non-standard shipping container – even North Korea uses standard containers. But in international trade, to take the well-established situation, there could be a benefit to a country that was able to devalue its currency or impose high tariffs, while other countries floated their currencies and kept trade free of tariffs. Those familiar with game theory will recognise this as the classic “prisoners dilemma”, where cooperation is in everyone’s interest, but there is an incentive for parties to defect unilaterally while others cooperate – an incentive to “free ride” to use economists’ terminology. Without the authority of some binding contract or strong moral pressure such situations rapidly see a race to the bottom, to everyone’s cost.

So it is with compliance with agreements to reduce CO2 emissions. Australia is a mid-sized power; it is one of the world’s largest per-capita contributors to emissions; it has a lot to lose from global warming; it is prosperous enough to pay for the structural changes necessary to reduce its own emissions and to reduce emissions resulting from other countries’ use of its exported coal (“Scope 2” emissions). If a country like Australia doesn’t pull its weight, why should others bother? Australia’s recalcitrance – or more correctly Morrison’s recalcitrance because he doesn’t have a mandate for his moral turpitude on climate change – sends a signal to the rest of the world far out of proportion to our own share of the world’s population, GDP or emissions.

Yet it is understandable that “globalisation” has a bad name among many people. “Globalisation” has too often been used to ram through so-called “reforms” that lack any justification in terms of international cooperation. These include “reforms” such as privatisation, and allowing transnational corporations to override national laws on consumer standards, workers’ rights and environmental protection under “Investor-state dispute settlement” provisions in bilateral trade agreements – even though these arrangements go way beyond what is reasonably necessary to facilitate trade.

Even where there is a pressing need for difficult adaptation in relation to our global responsibilities, as is the case with climate change, governments or aspiring opposition parties must treat with respect those likely to be affected, by helping to develop ways in which they can maintain their dignity and economic conditions. If there is a perception that the benefits will accrue only to urban elites, of course they will react at the polling booth. Ministers in the Hawke-Keating Government understood this when they introduced wide-ranging reforms, but that understanding seems to have been absent in the Labor Party that contested the 2019 election, and among right-wing Labor members who believe the party should abandon its commitment to strong action on climate change.

A lack of consideration for the distribution of the benefits of globalisation has undoubtedly contributed to the rise of far-right populist nationalists such as – Bolsonaro, Erdoğan, Johnson, Orbán and Trump.

The association of globalisation with an unfair distribution of its costs and benefits needs to be broken. As former UN Secretary-General Kofi Annan said, “If we cannot make globalization work for all, in the end it will work for none”.

 

This is the seventh of a series of articles in Pearls and Irritations  on reclaiming the ideas of economics. Others so far have been:

General introduction (September 19)

Aspiration (September 26)

Jobs and Growth (October 3)

Economy and Environment  (October 10)

Regulation and deregulation (October 17)

Taxes (October 24)

 

Ian McAuley  is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy development.

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Ian McAuley is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy Development.

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