Winds Of Change

All over the western world, capitalism is on trial and with it globalisation, as its most powerful purveyor. In ironic reversal, developing countries, which once saw themselves as victims of globalisation, have emerged as enthusiasts of free markets and closer integration of the world. Shifting sentiments are leading to a rise in protectionist and anti-immigrant sentiments that do not bode well for world’s economic growth and stability. One needs look no further than the French presidential campaign to see the bitterness generated by what a French government report calls “unfair globalisation”. If there is one point on which each of the candidates is in agreement, it is the negative impact of globalisation. The policies they espouse are sure to roil, to a greater or lesser degree, the world economy. (source: Nayan Chanda – Yale Global – 20/04/2012)

Of course, it is not just France, which has always been the main globalisation-sceptic among developed nations, but public opinion in the West which has now turned cool if not outright hostile to global economic integration. While launching this fortnightly column in 2008, I wrote: “With the collapse of the USSR, the ideological fault line lies along globalisation, broadly dividing Left and the Right.” Four years and a massive economic earthquake later, the ideological landscape has changed. Polls in US and Europe show a growing convergence of opinion among the liberals, Right and Left about the evils of globalisation and a general souring of opinion on capitalism. From being an issue of free-market principles, globalisation has become a zero-sum game, with nations cast as either winners or losers. A Chicago Council on Global Affairs poll in 2007 showed 60% of Americans considered globalisation, especially increasing connections of their economy with the world, mostly good, as opposed to 51% in France. In China, by contrast, 87% held a positive view of globalisation; in South Korea, 86% , and in India, 54%. Another survey in the same year found that 59% of Americans want US government to “actively promote” or allow continuing globalisation. But the financial crisis and rising joblessness have dented Americans’ faith in free market and free trade. A Pew survey of American opinion in late 2011 showed that favourable views of capitalism have dropped to 50%, while unfavourable views have increased. The 2008 financial debacle and subsequent Eurozone crisis have impacted French even more deeply. According to a 2007 poll, 54% believed that globalisation essentially benefited advanced countries like the US and France. But a poll taken in January this year found that optimism was waning. 50% of French believe newly developed and developing countries like China, Brazil and India benefit most from globalisation while only 16% believe it helps Europe and US.

With candidates of the extreme Right like Marine Le Pen and socialist candidate François Hollande rising in the poll, the Sarkozy government has joined the fray. Le Pen denounces globalisation as being responsible for the French economic decline and calls for higher tariff walls and withdrawal from euro, while Hollande lambasts “globalisation without rules and marketing without principles”. In a recent government report entitled “End unfair globalisation”, 3 of Sarkozy’s ministries blamed French de-industrialisation on the unfair trade practices of its partners, especially China. Immigrants have emerged as another favourite target of attack for the country’s ills, from unemployment to crime. A majority of French, and a greater percentage (57%) of liberals, are in favour of raising tariff on imports. The policies propagated by the candidates range from punitive corporate taxes to withdrawal from the European Union’s passport-free Schengen zone. Similarly, as presidential election battle shapes up in the US, there is a growing talk about stemming outsourcing and encouraging federally-assisted manufacturing. A bill before US Congress, for instance, proposes to penalise companies setting up call centres abroad. It is likely that realities of global trading rules within which countries operate will temper any eventual policy measures. Still, a rising nationalistic perspective on globalisation, one which views economic exchange as a zero-sum game and ignores the reality of a totally interconnected and interdependent life, will be a powerful headwind against global growth.


Acerca de ignaciocovelo
Consultor Internacional

One Response to Winds Of Change

  1. Just when you thought the world economy might be improving, along comes Spain. It’s Europe’s next economic domino, struggling to cope with big budget deficits, massive unemployment and an angry public. Will it fail — and, if so, with what consequences? As it happens, the $80 trillion world economy splits roughly 50-50 between advanced countries (the United States, Europe, Japan and a few others) and developing countries (China, India, most of Asia, Africa and Latin America). Since the financial crisis, the advanced economies have struggled. In 2012, they will grow a meager 1.4 percent, forecasts the International Monetary Fund. Much of Europe is in recession; the United States (up 2.1 percent) and Japan (2 percent) grow slightly. Although developing countries have done much better, their economies are now slowing, too. The reason: Rapid growth raised inflation. In China, inflation went from 3.3 percent in 2010 to 5.4 percent in 2011. India’s inflation peaked at 12 percent. So central banks in these and other countries (their Federal Reserves) boosted interest rates to dampen price increases. If Spain’s crisis deepens Europe’s recession, it could tip the entire world economy into a stubborn slump. The ramifications would be enormous, including: reduced odds of Barack Obama’s reelection, assuming a weaker U.S. recovery; less political cohesion and more social unrest in Europe (even now, the European Union’s unemployment rate is 10.2 percent); and growing pressures in many countries for economic nationalism and protectionism (…..) In truth, no one has a neat solution to end Europe’s financial nightmare. Maybe Spain and Italy will escape calamity. Or perhaps more last-minute loans will buy time until the rest of the world economy revives and pulls Europe from the abyss. Or perhaps not. The weaker Europe becomes, the more it may drag down the rest of the world through three channels: damaged confidence and investment, fewer imports, and less credit to businesses and households. Remember: Europe is about one-fifth of the world economy, roughly equal with the United States. The 27 members of the European Union are the world’s largest importer (excluding exports to each other), just ahead of the United States. And European banks operate globally. The foreboding is undisguised. “For the last six months, the world economy has been on . . . a roller coaster,” Olivier Blanchard, the IMF’s chief economist, said last week. “One has the feeling that, at any moment, things could well get very bad again.”


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