Transition to a new administration in Washington has the world wondering what it means for globalization. Hans-Paul Bürkner, Chairman of the Boston Consulting Group (BCG), and his colleague, and Arindam Bhattacharya, write, “We are living in a confusing, polarizing world of dizzying complexity and puzzling contradictions. For every one of us, these are unsettling times. But for leaders, who must plot the path forward for hundreds and thousands of people, these are exceptionally challenging times.”[1] That is true for both political and business leaders. Globalization has certainly contributed to the complexity and puzzling contradictions to which Bürkner and Bhattacharya refer. Joshua P. Meltzer (@JoshuaPMeltzer), a Senior Fellow focusing on the Global Economy and Development at the left-leaning Brookings Institute, and Neena Shenai, a Visiting scholar at the right-leaning American Enterprise Institute, explain, “Calls for the repatriation of supply chains and restrictions on investment in key industries are on the rise. China concerns also underlie calls by some to disregard global rules and leave or abolish the World Trade Organization (WTO). For others, the pandemic underscores the need for cooperation to address a host of unprecedented global challenges. It has brought into focus the vacuum left in the absence of U.S. leadership, and the critical need for the United States to play the role of reviving an international order, one that balances opportunities with assurance that gains are distributed fairly.”[2]
Globalization: The good, the bad, and the ugly
Globalization has been blamed for many of the ills that gave rise to populist, nationalist movements around the globe. Back in 2016, Joseph E. Stiglitz (@JosephEStiglitz), a Nobel laureate and a professor at Columbia Business School, explained, “Large segments of the population in advanced countries have not been doing well: in the United States, the bottom 90 percent has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago. The effects of the economic pain and dislocation that many Americans are experiencing are even showing up in health statistics. For example, the economists Anne Case and Angus Deaton, this year’s Nobel laureate, have shown that life expectancy among segments of white Americans is declining. Things are a little better in Europe — but only a little better.”[3] In other words, there are good reasons for some people to feel angry and overlooked.
At the same time, globalization has been credited with bringing millions of people out of poverty and into the global middle class. Douglas Holtz-Eakin (@djheakin), President of the American Action Forum, noted, “The entry of China and India into the world trading system was … an enormously successful global anti-poverty program.”[4] Although it is undeniable that globalization has raised millions out of poverty around the world, the fact remains benefits of globalization have been uneven — resulting in winners and losers. And, as should be expected, the losers are unhappy. Economics correspondent Delphine Strauss (@DelphineStrauss) points out, however, that, even though globalization’s peak has past, economic inequality has continued to grow. She explains, “Globalization has stalled over the past decade so it should not be blamed for the rise in inequality seen since the financial crisis, according to research by the OECD’s former chief economist, [Catherine Mann]. … With public opinion becoming increasingly hostile to globalization, even its proponents have started to pay more attention to its ill-effects. … But Ms. Mann’s research supports the argument that globalization makes countries richer in aggregate, and problems arise because governments fail to share the gains fairly or to compensate those who lose out.”[5] That’s why Bernice Lee, (@BerniceWLee) Executive Director of the Hoffmann Center for Sustainable Resource Economy, argues, “Globalization is in crisis and its future depends on a renegotiation of the social contract. “[6]
Another reason people from all over the political spectrum are skeptical of globalization is because of the dominant role China now plays in global trade. As Tom Derry, CEO of the Institute for Supply Management, “There’s almost no industry sector — and when I say that, I mean manufacturing and nonmanufacturing — that isn’t reliant on China in the United States. … If you don’t have a first-tier supplier who’s sourcing from China, then your supplier’s supplier is.”[7] China’s aggressive approach to trade and business has a lot of people worried. CNN reporters Phil Mattingly and Lauren Fox (@FoxReports) explain, “There is bipartisan support for addressing China’s role in the medical and defense supply chains. But the question of how to address it is still very much a work in progress. One of the primary reasons: China’s significant role in not just those supply chains, but the global economy.”[8] Clearly there are reasons to be concerned about trade relations between China and the United States; nevertheless, caution should be favored over haste. International trade and globalization have far-reaching benefits that cannot be ignored. As adjustments are made in global supply chains, consumers need to be prepared for unanticipated consequences of these changes, including higher prices.
The question remains: Will globalization bounce back? Some people might even ask: Should globalization bounce back? Those are questions I’ll explore in Part Two of this article. Lee concludes, “International institutions are often slow to change and the paralysis at the WTO has been exacerbated by US-China geopolitical strife. But in 2021 we will acknowledge that the benefits of global trade are still not felt where they are needed most. The viability of the multilateral trading system now depends on its ability to reduce pain on the economic margins of advanced economies, and tackle trade’s discontents head-on.”
Footnotes
[1] Hans-Paul Bürkner and Arindam Bhattacharya, “Squaring the Circle,” Boston Consulting Group, 22 October 2020.
[2] Joshua P. Meltzer and Neena Shenai, “Restoring US trust in globalization,” Brookings Institution, 2 September 2020.
[3] Joseph E. Stiglitz, “Globalization and Its New Discontents,” Columbia Business School, 5 August 2016.
[4] Douglas Holtz-Eakin, “Globalization shouldn’t be a dirty word,” The Washington Post, 17 October 2016.
[5] Delphine Strauss, “Globalisation not to blame for rise in inequality, research finds,” Financial Times, 25 August 2019.
[6] Bernice Lee, “Globalisation is in crisis. Here’s how we can make it work for all,” Wired, 10 February 2021.
[7] Lizzie O’Leary, “The Modern Supply Chain Is Snapping,” The Atlantic, 19 March 2020.
[8] Phil Mattingly and Lauren Fox, “Lawmakers eye options for removing key parts of supply chain from China,” CNN, 18 May 2020.
