The Political Threat To Globalisation

Gideon Rachman writes:

If you had to define “globalisation” with an image, what would it be? A container ship from China stuffed with toys and T-shirts? A programmer tapping at a keyboard in Bangalore? A plane circling gloomily over Heathrow airport?

Most people’s pictures of globalisation are to do with economics, technology and business. But before markets, modems and manufacturers could do their work, political changes had to take place. The foundations of the globalised business world are political – and so are the biggest threats to the system.

The challenge to the globalisation consensus comes from below. Political elites in the US, Asia and Europe are struggling to convince citizens that globalisation is not just a game that benefits the rich. If the argument is lost in any of the major world economies, the political consensus that underpins globalisation could unravel.

That consensus is a recent creation. The political changes that made globalisation possible took place in a remarkably short period of time – from 1978 to 1991 to be precise. The first and most important development was China’s decision to turn from Maoism to the market, with the reforms initiated by Deng Xiaoping in 1978. A year later, Margaret Thatcher came to power in Britain. One of her first acts was the abolition of foreign exchange controls, easing London’s rise as a global financial centre and setting an example that was emulated internationally.

Then, in 1980, Ronald Reagan took power in the US on a platform of deregulation and tax cuts – giving a huge boost to market ideology around the world. In the mid-1980s, the European Union committed itself to creating a single market.

In 1989, the collapse of the Berlin wall allowed eastern Europe – and Russia itself – to join the globalisation game. The 1980s also saw the discrediting of protectionist populists in the largest countries of Latin America. Finally, in 1991, came another huge change: the decision by Indian leaders to move away from the regulation and protectionism that had hobbled the Indian economy since independence.

So, in less than 15 years, the political elites in the power centres of the world had come to broadly similar conclusions. They embraced global business and market economics.

The result is a world in which it now feels as natural to do business in Beijing, Moscow and Delhi as in London and New York. But this world has been with us for less than 20 years. Previous eras of globalisation were ended by political upheaval – the outbreak of war in 1914 and the rise of fascism in the 1930s. So could the same thing happen again?

The most obvious threat is a crisis in the most important political and economic relationship in the world – that between the US and China. The Bush administration, despite its bellicose reputation, has been assiduous in avoiding confrontation with China; and the Chinese similarly have no desire for a clash with America – at least, not now. Globalisation has created a web of mutual interests. The real risk in Chinese-American relations is of miscalculation: a clash – whether over trade or Tibet or Taiwan – that escalates into something that does real damage. Combine a looming recession in America, a presidential election and the Beijing Olympics and you have a formula for potential trouble.

Over the longer-term, terrorism and climate change also pose risks to the system. Globalisation depends on ease of travel. But, in different ways, both global warming and global terrorism threaten the ability to hop on a plane at a moment’s notice.

But the biggest risk is that politicians simply begin to lose the argument for globalisation. A recent opinion poll showed that 58 per cent of Americans think globalisation is bad for the US and just 28 per cent think it has helped America.

Ten years ago there was a narrow majority in favour of globalisation. Politicians are reacting to this shift. Democratic presidential candidates are taking an increasingly sceptical line on free trade. Republicans rail against illegal immigration.

In Europe, Nicolas Sarkozy, French president, has been arguing for protectionism on a European level. He wants to re-establish “community preference” – essentially higher tariffs against goods from outside the European Union. Mr Sarkozy does not have many EU allies yet. But the re-election of Silvio Berlusconi in Italy could change that.

Outsiders see the Indians and the Chinese as the greatest beneficiaries of globalisation. But the last Indian government lost a general election, largely because poor, rural voters felt left out by the boom. With another election in the offing, India’s politicians are not rushing to sign a new world trade deal. The political climate in a one-party state such as China is harder to gauge. But the authorities’ evident anxiety about rural unemployment, environmental protests and the wealth gap between the rich coasts and the poorer inland regions suggests that global capitalism can be a tough sell – even in China.

The sense that the poor have lost out as a result of globalisation has grown with the rise in world food prices. Hunger – that most traditional threat to ruling elites – is returning to many countries that have embraced globalisation.

Political leaders around the world are struggling to contain all these pressures and maintain the consensus that has made globalisation possible. But their task is getting harder. Globalisation was made possible by political change. But what politics made, politics can take away.

Quite so, Gideon. Quite so.