Globalisation is the increased interconnection of markets for goods, services, capital, labour and ideas. These connections create have many indirect influences, such as factor returns, policy space and cultural change. Not all of these influences are always beneficial.
Our institutions managing globalisation have evolved since Bretton Woods. The direction has been to toward greater economic integration; although not matched by greater political representation to the same extent. Trade volumes have increased and, despite some critics, there is enough evidence to state that this has directly increased the national income of the countries involved. Yet we now see an increase in isolationism tendencies and nationalist movements leading some to be concerned about the future of globalisation. This is not the first wave of globalisation, and there have been pushbacks in the past. How different is the current landscape and what new challenges do we face?
Our workshop brought insights from economics, anthropology, sociology, law, history, policy making, and politics. Contributors raised issues from defining the legitimacy of global institutions and social contracts to exposing global imbalances, countries using their power to distort markets, exploring coordination issues and considering the future of global economic institutions. The impact of China on globalisation was the overarching theme throughout. China’s extraordinary development means we face very different questions today. China’s rise changes both the current and emerging institutions of globalisation. It exposes differences in governance, law, intellectual climate, and culture. We need to understand what terms emerging and existing superpowers will cooperate and compete in the future.
There is a difference of opinion on the impact of globalisation between emerging and developed economies. Emerging economies are often the beneficiaries via increased wages. Developed countries may see a negative distributional impact on their poorer citizens. This, along with aspects of tribalism, could explain the notable backlash against globalisation seen in the UK and USA. Yet in Asia, globalisation is being driven forward through initiatives such as One Belt One Road, which is supported by The Asian Infrastructure Investment Bank.
What will these new “Asian institutions of globalisation” mean for the current ones? Will they further polarise the East and West? Will Asia be leading globalisation in the future?
Integration between the Western and Eastern institutions of globalisation might be challenging. A rules-based system where countries agree to abide by the same rules might go against deep-rooted ideas of hierarchy in China. The different policy demands of a single, enormous nation and its contrast with the Anglo-American legal and governing institutions might well challenge a rule-based system. And despite the rise of China, the US dollar remains the world’s dominant currency with the international monetary system at the behest of the US Congress being willing to supply dollars overseas in emergency situations.
Can we design a new social contract to overcome these frictions and improve the legitimacy of the institutions of globalisation? Is it possible for the rule of law to exist in an undemocratic society? While China is advanced in emerging technologies such as AI, their economic and philosophical skill-sets, along with their education in the areas of law and governance, are underdeveloped compared to the West. For globalisation to work well in the long-run, should China invest more heavily in developing these skills? To what extent do outsiders integrate with Asian culture? Would this integration challenge the extent to which they could lead globalisation?
At the aggregate level, measured through trade volumes and GDP, globalisation has increased. The World Bank recently suggested global inequality has declined. Yet there are still noticeable distributional impacts of globalisation. No consensus exists on whether the gains of globalisation have gone to the middle or top ends of the global income distributions. What data might we need to overcome these measurement issues and gain a consensus? Can experiential accounts give a better reflection of inequality and alienation?
Not everyone at the top of the global income distribution wins. Many people today in developed countries live in in-work poverty. Globalisation and improvements in capital productivity from other parts of the world affects the labour share towards the bottom of the income distribution in advanced economies.
Is it a rational response for workers to use the democratic process to retaliate? Has this fuelled the rise of populism? Will populism become less popular if globalisation is reduced? Do political parties need to give a greater voice to those affected by globalisation and change the social contract? And what would this contract look like: how far can we extend past economic determinism? Does compensation come down to a lump-sum fiscal transfer or do other concepts like capability have more resonance? Is there a need for a new economics of belonging? What does considering these issues mean for modern macroeconomics, the study of aggregate economic fluctuations?
Global supply chains and the supply of services overseas increasingly requires foreign investment. To what extent is it legitimate to protect sensitive sectors and how far should the preferences of nation states and citizens have primacy over the rights of foreign investors? Who should decide on these processes and do they have political legitimacy? How far can the legal system be expected to apply to all countries?
From this fruitful discussion, we are shortly going to release a call for research to address some of these questions.
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04 June 2018