Economic historians
will view the year 2016 as marking the end of the second great era of
globalization that began in the late 1970s and picked up speed after the fall
of the Berlin Wall. The year 2017
will usher in continuing significant economic and political change, tumult and
adjustment. The three seminal
signal events of 2016 - the Brexit vote, the election victory of Donald Trump
and the Italian referendum –herald the new era. Global economics and politics will be marked by
restraint of trade, reduced mobility, populist politics, more extremism and
continuing slow economic growth as a result.
The first great
globalization from 1870 to 1914 was marked by the spread of liberal economic
and political institutions, industrialization and rapid technological change
especially in transportation and communication. The prosperity of the pre-1914
era was marked by the centrality of Europe both economically and politically
and combined free markets and trade to create a world economy with liberal
legal and constitutional institutions in its primary economies and the British
pound as the international currency. Moreover, it was an age of free movement
not only for commodities but also in terms of labor with mass migration from
the old world to the new.
However, the pace of
rapid change and economic integration created strains in a world of nationalism
and imperial governments and the result was World War I. The years from 1914 to 1945 marked the
start of several traumatic decades in international economic and political
history that included revolutions, the rise of communism and fascism, two world
wars and the Great Depression.
A
dominant feature of the period from 1914 to 1945 was reaction to a series of
major international economic and political shocks. We are embarking on a similar period – hopefully minus the
specter of global armed conflict.
Despite the 2009 Great Recession, the world economy has
grown dramatically over the last thirty years. The prosperity of the world economy that has been driven by
free markets, technological change and the global institutions led by post
World War II America and the US dollar as the international currency has given
way to an era of multi-polar economics and politics. The rise of China and
Russia led by its business oligarchs has been aided by the liberal economic
order, which has helped grow their economies and trade. Indeed, autocratic oligarchs do well in
a world of liberal economic and democratic rules that govern everyone's
behavior but their own. Russian and Chinese business oligarchs buying property
in Europe or North America to safeguard their wealth from their own capricious
government action is the most obvious example of such behavior.
The people of the United States have now put in place their
own set of oligarchs to counter a world that seems to be increasingly at odds
with their own interests. Along with Donald Trump’s own economic status, the
composition of his incoming cabinet leans toward ex-generals and billionaires –
not much different from say how countries are run in the Middle East, never
mind Russia or China. However, once everyone behaves like the oligarchs, growth
of the economic pie will suffer.
Less liberal regimes in the rest of the world whose economies have
benefited from the economic environment maintained by the framework of American
diplomacy and power will definitely get more than they bargained for as trade
barriers rise. American
policy will become even more inward looking and more explicitly
self-interested.
The economic and technological progress of the last three
decades owes much to the economic policies of the post 1970s – liberal policies
ultimately rooted in the European Age of Enlightenment and the political
movements of the early nineteenth century. These liberal economic ideas include rule of law, free
speech, representative democracy, majority rule but respect for minority
positions, property and human rights, and the exchange of goods, capital and
labor in free markets. The result
was more trade agreements, deregulation and some effort at more efficient government.
While the results of liberal economic policies can be
imperfect and the benefits of trade and globalization unevenly spread, it
remains that a retreat into populism and tariff barriers will make us poorer in
the long run. It will take time
and tumult to illustrate the poverty of the road that the world is embarking
on. It will also take new ideas
and policies on the part of free market and liberal economic advocates on how
to better distribute the benefits of economic growth and deal with the labor
market trauma of technological and economic change that has stoked populism.
