Globalization—how did they get it so wrong?

by
David F. Ruccio
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from David Ruccio

There is perhaps no more cherished an idea within mainstream economics than that everyone benefits from free trade and, more generally, globalization. They represent the solution to the problem of scarcity for the world as a whole, much as free markets are celebrated as the best way of allocating scarce resources within nations. And any exceptions to free markets, whether national or international, need to be criticized and opposed at every turn.

That celebration of capitalist globalization, as Nikil Saval explains, has been the common sense that mainstream economists, both liberal and conservative, have adhered to and disseminated, in their research, teaching, and policy advice, for many decades.

Today, of course, that common sense has been challenged—during the Second Great Depression, in the Brexit vote, during the course of the electoral campaigns of Bernie Sanders and Donald Trump—and economic elites, establishment politicians, and mainstream economists have been quick to issue dire warnings about the perils of disrupting the forces of globalization.

I have my own criticisms of Saval’s discussion of the rise and fall of the idea of globalization, especially his complete overlooking of the long tradition of globalization critics, especially on the Left, who have emphasized the dirty, violent, unequalizing underside of colonialism, neocolonialism, and imperialism.*

However, as a survey of the role of globalization within mainstream economics, Saval’s essay is well worth a careful read.

In particular, Saval points out that, in the heyday of the globalization consensus, Dani Rodrick was one of the few mainstream economists who had the temerity to question its merits in public. 

And who was one of the leading defenders of the idea that globalization had to be celebrated and it critics treated with derision? None other than Paul Krugman.

Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give “ammunition to the barbarians”.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik’s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the “trashing” of the WTO, calling it “a sad irony that the cause that has finally awakened the long-dormant American left is that of – yes! – denying opportunity to third-world workers”.

The irony is that Krugman won the Nobel Prize in Economics in recognition of his research and publications that called into question the neoclassical idea that countries engaged in and benefited from international trade based on given—exogenous—resource endowments and technologies. Instead, Krugman argued, those endowments and technologies were created historically and could be changed by government policies, including histories and policies that run counter to free trade and globalization.

Krugman was thus the one who gave theoretical “ammunition to the barbarians.” But that was the key: he considered the critics of globalization—the alter-globalization activists, heterodox economists, and many others—”barbarians.” For Krugman, they were and should remain outside the gates because, in his view, they were not trained in or respectful of the protocols of mainstream economics. The “barbarians” could not be trusted to understand or adhere to the ways mainstream economists like Krugman analyzed the exceptions to the common sense of globalization. They might get out of control and develop other arguments and economic institutions.

But then the winds began to shift.

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.

A few months before the financial crisis hit, Krugman was already confessing to a “guilty conscience”. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers’ wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

And yet, as Saval points out, mainstream economists’ recognition of the unequalizing effects of capitalist globalization has come too late: “much of the damage done by globalisation—economic and political—is irreversible.”

The damage is, of course, only irreversible within the existing economic institutions. Imagining and enacting a radically different way of organizing the economy would undo that damage and benefit those who have been forced to have the freedom to submit to the forces of capitalist globalization.

But Rodrik and Krugman—and mainstream economists generally—don’t seem to be interested in participating in thatproject, which would give the “barbarians” a say in creating a different kind of globalization, beyond capitalism.

*Back in 2000—and in a series of articles, book chapters, and blog posts since then—I have attempted to rethink the relationship between capitalist globalization and imperialism. Marxist economist Prabhat Patnaik has also made the case for the continuing relevance of imperialism as an analytical construct for understanding and challenging effectively the logic and dynamics of contemporary capitalism.