Opinion: Globalization has failed for emerging markets. And now deglobalization will be put to the test
The first meeting of the World Economic Forum in more than two years was markedly different from the many previous Davos conferences I have attended since 1995.
It’s not just that the bright snow and clear skies of January have been replaced by bare ski slopes and a dark drizzle of May. Rather, it is that a forum traditionally committed to defending globalization was primarily concerned with the failures of globalization: broken supply chains, inflation in food and energy prices, and an intellectual property regime ( PI) that has left billions of people without COVID-19 vaccines. that a few pharmaceutical companies could make billions in in addition profits.
Among the answers proposed to these problems are the “reshore” or “friend-shoreand to adopt “industrial policies to increase the production capacities of countries”.
Gone are the days when everyone seemed to work for a world without borders; suddenly everyone recognizes that at least some national borders are essential to economic development and security.
For former advocates of unfettered globalization, this flip-flop has resulted in cognitive dissonance, as the new set of policy proposals imply that the long-standing rules of the international trading system will be circumvented or broken. Unable to reconcile friend-shoring with the principle of free and non-discriminatory exchanges, most of the economic and political leaders of Davos resorted to platitudes.
There was little soul-searching about how and why things got so bad, or about the flawed and hyper-optimistic reasoning that prevailed at the height of globalization.
Of course, the problem is not just globalization.
Our entire market economy has shown a lack of resilience. We’ve essentially built cars with no spare tires, slashing a few dollars off today’s price while paying little attention to future requirements. Just-in-time inventory systems were wonderful innovations as long as the economy faced only minor disruptions; but they’ve been a disaster in the face of COVID-19 shutdowns, creating cascades of supply shortages (like when a shortage of microchips led to a shortage of new cars).
As I warned in my 2006 book, “Making globalization work“, markets do a terrible job of “pricing” risk (for the same reason that they don’t price carbon dioxide emissions). Take the example of Germany, which has chosen to make its economy dependent on gas supplies from Russia, a patently unreliable trading partner. Today, he faces consequences that are both foreseeable and predicted.
As Adam Smith recognized in the 18th century, capitalism is not a self-sufficient system because there is a natural tendency towards monopoly. However, since US President Ronald Reagan and British Prime Minister Margaret Thatcher ushered in an era of “deregulation”, increasing market concentration has become the norm, and not just in high-profile industries like e-commerce and mobile phones. social media.
The catastrophic shortage of infant formula in the United States this spring was itself the result of monopolization. After Abbott ABT,
was forced to suspend production for security reasons, the Americans soon realized that only one company represented almost half of American supply.
The political ramifications of the failures of globalization were also on full display at Davos this year. When Russia invaded Ukraine, the Kremlin was immediately and almost universally condemned. But three months later, emerging markets and developing countries (PMDC) took more ambiguous positions. Many point to America’s hypocrisy in demanding accountability for Russia’s aggression, even though it invaded Iraq under false pretenses in 2003.
The EMDCs also point to the more recent history of vaccine nationalism from Europe and the United States, which has been nurtured by the World Trade Organization Provisions relating to intellectual property imposed on them 30 years ago. And it is the developing countries that now bear the brunt of the rise in food and energy prices. Combined with historical injustices, these recent developments have discredited the Western defense of democracy and the international rule of law.
To be sure, many countries that refuse to support America’s defense of democracy are not democratic anyway. But other countries are, and America’s position to lead this fight has been undermined by its own failures – from systemic racism and the Trump administration’s flirtation with authoritarians to the Republican Party’s persistent attempts to suppress the vote and distract from the January 6, 2021 insurrection. at the United States Capitol.
The best way forward for the United States would be to show greater solidarity with developing countries by helping them manage soaring food and energy prices. This could be done by reallocating the special drawing rights of rich countries (the reserve asset of the International Monetary Fund) and supporting a strong COVID-19 IP waiver at the WTO.
Moreover, high food and energy prices are likely to cause debt crises in many poor countries, further exacerbating the tragic inequalities of the pandemic. If the United States and Europe are to show true global leadership, they will stop siding with the big banks and creditors who have pushed countries into more debt than they can afford.
After four decades of championing globalization, it is clear that the Davos mob has mishandled things. It promised prosperity to both developed and developing countries. But as the corporate giants of the Global North got richer, processes that might have made everyone better off instead made enemies everywhere. The “trickle down economy”, the claim that getting richer people would automatically benefit everyone, was a scam – an idea that had no theory or evidence behind it.
This year’s Davos meeting was a missed opportunity. It could have been an opportunity for serious reflection on the decisions and policies that have brought the world to where it is today. Now that globalization has reached its peak, we can only hope to manage its decline better than we managed to manage its rise.
Joseph E. Stiglitz, Nobel laureate in economics, is a professor at Columbia University and a member of the Independent Commission for the Reform of International Corporate Taxation.
This article was published with the permission of Project union.