Take a Deep Breath – Not Yet the End of the Global Order

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Gloom and despair have accompanied the Brexit vote, especially for those concerned about the wider Atlantic alliance.

Mr. Obama, after meeting with leaders of the European Union attending the Warsaw NATO Leaders’ Summit, tried to play down fears that Britain’s exit would weaken European resolve. He acknowledged that the “Brexit” vote had “led some to suggest that the entire edifice of European security and prosperity is crumbling. But he added, “Let me just say that as is often the case in moments of changes, that this hyperbole is misplaced.”

As Kathleen McNamara of Georgetown succinctly put it in her recent Foreign Affairs article, “the answer to the breathless question posed in the New York Times on Sunday—“Is the post-1945 order imposed on the world by the United States and its allies unraveling, too?”—is simple. No, it is not. And yet the emotions and cultural chasms brought to bear in the Brexit vote cannot, and should not, be ignored.

There is a fair bit of ‘gnashing of teeth’ over the Brexit vote and whether the implications reach far beyond the immediate question of the UK exit from the European Union. Examining the impact of the Brexit vote my colleague Shyam Saran former Foreign Secretary of India recently wrote in IndiaToday:

There is a sharpening tension not only in Europe, but also in the US, indeed throughout the world, between the relentless dismantling of national borders by the forces of globalisation, brought about by rapid technological advance and massive trade and financial flows across nominally sovereign jurisdictions and the failure to construct new institutions of global governance aligned to this new and still evolving pervasive reality. The Trump phenomenon in the US is a symptom of this tension as is the increased salience of right-wing and nationalist parties in countries which have long been seen as the upholders of an open and liberal order. There is a harking back to an imagined past of sovereign states in the Westphalian mode, where there is apparent control over national destinies, making it certain that the new political dispensations lurching to the right, would end up creating even more disruption and economic dislocation because technological processes will continue to advance and globalisation will march on.

The ‘real’ issue seems to be whether the vote signals the apogee of globalization.  The rise of nationalism/populism in Europe and with Donald Trump in the United States (to be fair of course there has been a longstanding opposition in Democratic circles to so-called free trade agreements and in this election cycle, and indeed Clinton the presumptive democratic nominee has come out in opposition to the Trans-Pacific Partnership)  marks a powerful domestic reaction from citizens against unfettered markets and the powerful movement of refugees and immigrants, shorn of opportunities from seeking better opportunities along with a better future in established states.

One of my close colleagues, Arthur Stein from UCLA has contextualized this global order problem – for that is what I think it is – in a rather smart trilemma – the ‘globalization paradox’. Now trilemmas are hardly new.  Perhaps the best known is the economic trilemma. The Economist has described this trilemma, referred to as  the ‘fundamental trilemma of international finance’, this way:

Perhaps the best known economic trilemma is that to which monetary regimes are subject. A country can have a fixed exchange rate, free movement of capital or independent monetary policy, but not all three.

So Stein quite some time ago came up with this globalization trilemma that was later popularized by Dani Rodrik in his 2011 book The Globalization Paradox: Democracy and the Future of the World Economy. Stein recently published a detailed article in International Theory (2016), 8:2, 297–340 doi:10.1017/S1752971916000063 to help us understand the stresses pressing on the global order today.  This is how Stein describes the globalization paradox:

Are democracy, sovereignty, and globalization compatible? Is it possible to have any combination or even all three simultaneously? In many ways, this is the most pressing political economy question of our times. … An accelerated pace of economic change increases the strains on political governance. … [The paper] explicates the case for a trilemma the argument that of globalization, democracy, and sovereignty, only two can coexist in their pure forms at the same time. It also delineates the critical assumptions underlying the trilemma.

Now Stein, in fact thinks the term ‘globalization paradox’ is itself misleading. In his view a paradox would imply a ‘dilemma’ whereas this paradox is in fact a trilemma. Anyway, notwithstanding the discussion over the appropriate name, the fundamental problem in global order today is that accelerating economic integration makes it very difficult to sustain democratic policymaking in light of the fact that there are winners and losers among citizens out of the tightening economic interdependence.  More pointedly, there are many more losers than winners in an economy of growing inequality and the triumph of the 1 percent. Politicians have tapped into this anxiety from the losers in the body politic – primarily older undereducated white males who have seen their working livelihoods disappear.

A good description of the both voter anger and the problem of unemployment can be seen in a recent description of Wilkes-Barre Pennsylvania by Adam Davidson in The New York Times Magazine in an article “Blaming Trade and Voting Trump in the Rust Belt”. As Davidson points out notwithstanding the heated political rhetoric, and in looking at the economic data, manufacturing jobs in the area had begun to disappear long before the conclusion of the NAFTA, often targeted as the free trade agreement that permitted manufacturing jobs to flee to Mexico in particular. But as Davidson describes an examination of the Pennsylvania county in fact the county today is moderately prosperous but the jobs that have developed there either require technical skills older white workers are not equipped to undertake, or require physical stamina that younger workers are most likely to possess.

Now Stein points out the only way to avoid the stresses that emerge from the trilemma is to compensate the losers from losing.  But policy efforts to manage the consequences of trade liberalization have been noticeably inadequate, indeed largely absent. And, I would say It is not just winners and losers from trade policy but the growing inequality of income in most advanced economic states. The source of this growing inequality is multiple in nature but the consequences in these states is a few gain disproportionately and there is a growing proportion of losers from globalization and the tightening economic integration. Here then is the nub of the democratic crisis that populist politicians like Trump have tapped into in their politics of anger and recrimination.

What is required. First, and foremost is the commitment from national authorities to pursue welfare enhancing policies. Larry Summers, the former US Treasury Secretary and currently Harvard professor has argued in the FT for what he calls ‘responsible nationalism’:

What is needed is a responsible nationalism — an approach where it is understood that countries are expected to pursue their citizens’ economic welfare as a primary objective but where their ability to harm the interests of citizens elsewhere is circumscribed. International agreements would be judged not by how much is harmonised or by how many barriers are torn down but whether citizens are empowered.

This ‘responsible nationalism’ is a riff , it seems to me, on a long-appreciated political science concept – ’embedded liberalism”.  This idea, popularized by John Ruggie in the early 1980s presumed a policy mix supporting a combination of trade liberalization with the freedom for states to enhance their provision of welfare and to regulate their economies to reduce unemployment. Of course the problem with this exercise of embedded liberalism was that it relied, in part on the Bretton Woods System of fixed exchange rates that went away in the 1970s.  So whether you call it responsible nationalism or embedded liberalism the policy requires a significant disentangling from globalization.  Politicians who understand that building walls, holding back immigrants  and demanding jobs be located nationally have been unable to erect policies that provide the welfare support, the economic safety net that is required by electorates while retaining economic prosperity.

The globalization paradox has not yet undermined the global order, but it might.

Image Credit – indianexpress.com

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