Globalisation’s coming renaissance

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The reputation of globalisation has been well and truly burnt. A global financial crisis, disruptions in critical supply chains by a pandemic and millions of people left behind could hardly leave it unscathed. But in the ashes of the old, a new globalisation could be stirring.

Jean Pisani-Ferry, in a thoughtful piece with the pregnant title “The end of globalisation as we know it”, puts the situation very well: “The tension between the unprecedented need for global collective action and a growing aspiration to rebuild political communities behind national borders is a defining challenge for today’s policymakers.”

Pisani-Ferry surveys recent proposals, kindly including my own, for a more progressive globalisation — efforts at an “agenda for restoring economic belonging while keeping borders open”. Key to this agenda is differentiating economic openness from deregulation. Unfortunately, those have often been run together both by those who support globalisation as a way to get the deregulation they really want and by those who oppose globalisation as a means to greater national regulation.

The idea is to defend economic openness in the sense of non-discrimination: do not exclude products, services, capital or workers because they come from abroad or are provided by foreigners. But non-discrimination also means that cross-border transactions should be held to lower standards than purely domestic ones. So (to take two examples mentioned by Pisani-Ferry), the EU’s ban on chlorinated chicken, or a ban on timber produced with practices leading to deforestation, are not discriminatory if they apply equally to domestic production and imports.

This more nuanced view of openness is on display in a comprehensive new report on future economic challenges from France Stratégie, led by Olivier Blanchard and Jean Tirole. In a chapter on “the inclusive economy”, Dani Rodrik and Stefanie Stantcheva offer a thoughtful discussion on how to begin to disentangle economic openness and the healthy competition it brings from cross-border activity as a way to undermine legitimate domestic regulation. They write:

“When international trade operates just like any domestic form of market competition, it makes little sense to set it apart . . . when trade entails practices that violate laws or norms embodied in domestic institutional arrangements, and thereby undercuts domestic social bargains, it may be more legitimate to restrict the import flows that have the alleged effect.”

This conceptual distinction is pivotal because it allows for a trade policy that keeps markets open but limits competition based on undermining deeply held norms and rules. It legitimates, for example, that the supply chains of imports are held to certain human rights standards, or that climate considerations are enforced through carbon border taxation.

I would extend the framework further: not just trade, but capital flows or migration can be — and increasingly are — treated in the same way. For example, “macroprudential regulation” can rein in the ill effects of excessive lending without banning financial inflows — and rules can be applied to borrowers even when lenders are based abroad. Strong domestic labour market regulation, such as high and strictly enforced wage floors or workplace standards, or in the EU, tighter “posted worker” rules, can avoid the “precariat” that has sometimes emerged on the back of exploitative hiring of immigrant workers with little power to object. Again, this can be done without putting any limits on the free movement of the workers themselves.

Here are three challenges to address. First, as Pisani-Ferry describes, it is much harder to specify and enforce standards for services and production processes than what is tangibly embodied in a product: we can identify the lead content in a toy more easily than human rights abuses far upstream in the supply chain. But difficult is not impossible. Conventional trade rules, after all, already map each good’s geographical production history in detail to satisfy rules of origin. And Rodrik and Stantcheva have a good stab at imagining the sort of institutional set-up that can separate the sort of norms-eroding trade they worry about from legitimate economic competition.

Second, all this means that international economic liberalisation is increasingly a matter of identifying whether different countries can find agreement on the norms and rules that govern economic activity. The prime example here is, of course, the EU’s single market. Contrary to the antediluvian free trade dogmas behind Brexit, liberalising trade today is about common rulemaking. Hence the lobbying by big tech companies for countries to agree to common data governance rules.

Third, and most importantly, that means countries themselves must become better at honestly defining their preferences not just in terms of the content of goods and services, but in the process by which they are produced and delivered. For example, do Europeans just not like that US tech companies dominate data services? Or is it that laxer US data rules, and the hoarding of private data they permit, actually make the service itself inferior to what companies under European rules could provide — if natural monopolies in many digital services do not mean consumers are left with little effective choice? The answer should determine how we view limits on data flows between the two markets.

It could be that this new perspective on globalisation results in smaller flows of trade, finance, or people across borders. If so, it will not be because of less economic openness but because those cross-border transactions only happened in the first place in order to circumvent the rules governing domestic economic activity.

Some would say that, like protectionism, imposing standards and values on production processes gives up some gains from trade — since some goods and services will not be traded as a result — for the sake of those standards and values. The better view, I think, would be that goods and services whose production disrespect deeply held norms (which, at home, legally enforced) do not actually generate gains from trade at all. It is precisely to seek the maximum gains from trade that a more nuanced view of globalisation is emerging.

Other readables

  • Germany has a new budget and medium-term spending plan. I explain why the dilemmas they embody matter far beyond the country’s borders. And the FT has an interview with Germany’s finance minister and would-be chancellor, Olaf Scholz.

  • The Chinese Communist party celebrates its centenary today. The FT’s Big Read asks if China is on the right track. James Kynge, meanwhile, tells the story of a century of revolution through the unlikely medium of the architect of China’s 1980s bankruptcy law. By the way, don’t miss my video with James on whether China will become the centre of the global economy. And in the Nordics, the editors-in-chief of the region’s four leading newspapers have cleared their front pages for an open letter protesting against Beijing’s elimination of press freedom in Hong Kong.

  • With impeccable logic, Arvind Subramanian and Josh Felman point out that you cannot both worry about secular stagnation and argue that President Joe Biden’s massive fiscal stimulus is the wrong policy.

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