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Globalization to protectionism: The changing political economy of globalization

The global interdependence encompasses the areas of finance, trade, communications, technology, the movement of people and the exchange of ideas, with far reaching implications for national development strategies and objectives. Globalization has influenced global growth and sustainable development. Driven by the mobility of goods, services, capital, labor and technology, it has unleashed a wide array of opportunities, as well as new challenges for realizing sustainable development. Globalization has brought a large array of new opportunities and benefits. Trade has fuelled growth in many countries. A number of developing countries have made major inroads in reducing poverty and hunger by taking advantage of trade opportunities. Several developing countries have made significant progress in poverty reduction and many have established a stronger economic interdependence with each other. This has helped to sustain world economic growth over the past years, particularly with respect to the proportion of global growth attributable to middle-income countries.

Yet, globalization also has attendant challenges and risks, manifested by imbalances in the distribution of its benefits and costs. Despite the positive developments, it remains a challenge to ensure that all countries and all people benefit from globalization. Global forces, such as trade and cross-border flows of capital and labor, have created opportunities for some but negative consequences for others.

The changing political economy of globalization

A. Systemic and emerging challenges

Globalization refers to the growing integration of trade and financial markets, the spread of technological advancements, the receding geographical constraints on social, cultural and migratory movements and the increased dissemination of ideas and technologies. Economic globalization is a specific aspect of this phenomenon that relates to the integration of production, distribution and the consumption of goods and services in the world economy. Its expansion has coincided with and been reinforced and driven by changes in societies across the world and by political processes at the national, regional and global levels.

Over the past decades, globalization populations dynamics and increased economic interdependence have accompanied —and facilitated —rapid economic growth in many countries and regions, and have contributed to the growth of the world gross domestic product (GDP) from around $50 trillion in 2000 to $75 trillion in 2016.1

International trade has been a particularly powerful driver of economic growth. In the past few years, however, trade growth has stalled. While trade grew at twice the rate of GDP between 1985 and 2007, it has barely outpaced growth in GDP since 2012.2

To ensure that globalization can be leveraged to support broad-based and inclusive economic growth and support sustainable development, it is essential to analyse the challenges and opportunities of the current system and emerging trends to devise policy solutions to address them.

Three large and sustained global shifts that have wide impact and the power to shape the future —“mega-trends” —are significantly impacting globalization. These mega-trends include: a shift in production and labor markets, which requires new jobs and skill sets; rapid advances in technology; and climate change.

Shift in production and labor markets

Global shifts in production have spurred deep changes in labor markets in both developing and developed countries. Trade openness has improved the mobility of capital relative to labor, eroding the bargaining power of labor. In developed countries, evidence suggests a negative impact of trade openness on wages from 1985 to 2005, with the negative link being more pronounced among low-skilled workers.3 In the countries of the Organization for Economic Cooperation and Development (OECD), for instance, manufacturing jobs have declined from 24 per cent of employment in 1970 to 11.9 per cent in 2013.4 These changes were driven by both the outsourcing of manufacturing to lower-wage countries and advances in labor-replacing robotics and mechanization.

While high-tech sectors are expected to benefit from these shifts, current estimates of global job losses as a result of robotics and digitalization range from 2 million to as high as 2 billion by 2030.5 Studies show that up to 1.1 billion jobs have already been automatable using current technologies.6 While the service sector, now accounting for over 70 per cent of total employment and value added in OECD economies, has been able to absorb some of the job losses, this service sector employment has often been less skill-intensive and in lower wage sectors.

These trends in labor markets are associated with higher rates of income inequality. Nearly all countries have been faced with rising inequality, as shown through increased Gini coefficients, although there have been notable declines in some developing countries. The drivers of inequality have been concentrated, in particular, at the global level, owing, generally, to changes in production affecting labor markets and to financial globalization. Inequality between countries remains elevated, although it has decreased, particularly as a result of the rapid economic growth of China and India.

Rising inequality has undermined institutional frameworks at the national, regional and global levels. The root causes of inequality, including the shifts in production and technological change, need to be addressed, building on norms and institutional frameworks that are people-centered and forward-looking to benefit countries and societies in the long term.

Rapid advances in technology

Closely related to the shifts in production and labor markets is the rapid advance of technological change, which has been particularly relevant in the context of the changing nature of work. Moreover, the digital divide persists in terms of access to ICT between and within countries. As a result, further innovations may risk leaving countries and populations that have no or limited access to new technologies behind.

In this new age of rapidly advancing technology, knowledge and information exchange using ICTs and networks have become increasingly important. For example, the cloud-computing market, based on shared networks on the Internet, grew more than 13-fold between 2008 and 2014.7 Advances in technology may also have had implications for a wide range of industries, with effects on production, distribution and consumption patterns. For example, online shopping globally grew from $236 billion in sales in 2007 to more than $521 billion in 2012, thereby disrupting traditional retail stores and distribution.

The advance of social networks and global communications platforms has also spurred deep changes in societies across the globe, including contributing to changes in how people gather and disseminate social and political information. These networks and platforms are also playing an important role in shaping citizen’s opinions and challenging traditional governance structures.

If not supported by policy frameworks, the large global shift of rapid advances in technology will leave those countries and people that are structurally disadvantaged behind, and will thus reinforce inequalities at the national and global levels.

Climate change

Another megatrend is climate change. There is an increasing body of evidence that points to globalization as a contributing factor to climate change and environmental degradation. Trends associated with globalization, including certain forms of economic activity, lifestyle changes and urbanization, are key factors that drive an increased demand for energy and natural resources and related environmental impacts.

Transportation has been a key factor, accounting for 23 per cent of energy-related carbon dioxide emissions, with emissions from global freight transport set to increase fourfold by 2050.8 Global climate change is also exacerbating disaster risks and raising hazard levels as a result, inter alia, of changing temperatures, precipitation patterns and sea levels, which, in some cases, may occur simultaneously, and may present further dangers in situations of conflict or other emergency situations.

B. Current concerns with the impacts of globalization

In some countries, support for globalization and multilateralism has recently been undermined by popular discontent. A main driver of discontent has been a rise in inequality. Studies have highlighted several links between globalization and inequality, including the rising divergence between income from high-skilled and low-skilled employment, the rising concentration of wealth and the globalization of finance. Another related driver has been the loss of employment in a number of economic sectors.

While such discontent is not new, its political implications have grown as many people have questioned their countries’ commitment to globalization and its institutions. The negative impacts associated with globalization have fuelled policies that seek to roll back the institutional and normative system, including a retreat from global and regional agreements on issues relating to integration, trade and climate change. One common thread relates to the fairness of rules and asymmetry of opportunities and outcomes. Negative assessments are often concentrated, however, on the challenges associated with issues relating to globalization, rather than to globalization itself. Public opinion polls have shown that close to 80 per cent of respondents in a survey conducted in several developed countries have positive views of economic globalization, which is defined as growing business and trade ties between countries.9

The same polls, however, also underline fear of the potential negative effects of economic globalization, with 36 per cent of respondents believing that it will lead to decreasing wages and 35 per cent believing that it will lead to job losses. There are generally positive attitudes towards economic integration, yet concern with specific aspects of globalization, such as its effects on wages, employment security and social issues, including immigration, remains.

The results of the above survey of developing countries also showed that 58 per cent of the population believes that globalization will lead to job creation and 49 per cent believes that it will lead to increased wages.9 Views in developing countries may be influenced by discontent with a perceived slow pace of economic and social improvements compared with expectations, and with increasing inequalities. These findings from both developed and developing countries highlight that economic globalization as a system of interaction between States and markets is generally supported, but that policy action is necessary to address the associated challenges.

Globalization to protectionism

The lessons from the previous waves of globalization also highlight that individual policies cannot effectively address the challenges presented by the interconnected nature of the global economy. Protectionist economic policies introduced in some countries critically accelerated the demise of that wave of globalization, stifling economic development across the globe, including in the very countries where the policies originated. Global economic challenges are complex in nature and require global solutions that reflect the interconnectedness of States and non-State actors in the global economy. Cooperation is necessary to enhance the effectiveness of multilateralism to better manage globalization and minimize and manage its costs and risks.

Important points to form a strategy to implement globalization

Globalization can be a powerful driver of economic growth, but in order to achieve sustainable development globalization must work for all. As the opportunities, challenges and risks of globalization are highly interrelated; a broad framework is needed to address them. Globalization trends have led to calls for more effective multilateral cooperation to ensure that its consequences do not threaten peoples’ livelihoods, or the sustainability of the planet.

Lessons learned from previous waves of globalization underline the importance of adapting and strengthening global norms and institutions to match the rate of change and the degree of interconnectedness of global markets. To ensure that no one is left behind as a result of the large and sustained shifts in production patterns and labor markets, global institutions need to be geared to address the challenges associated with these changes.1

References

1. Report of the UN Secretary-General (2017): “Fulfilling the promise of globalization: advancing sustainable development in an interconnected world”, Globalization and interdependence: role of the United Nations in promoting development in the context of globalization and interdependence, Seventy-second session, A/72/301, Item 22 (a) of the provisional agenda.

2. Peter J. Buckley (2002): “Is the International business research agenda running out of steam?”, Journal of international business studies, 33, 2 (second quarter 2002): 365-373

3. UN General Assembly (2015):, The final text of the outcome document adopted at the Third Internatinal Conference on Financing for Development (Addis Ababa Action Agenda, Ethiopia, 13–16 July 2015) and endorsed by the General Assembly in its resolution 69/313 of 27 July 2015.

4. UN System Staff College (2015): The 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs) in 2015

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