A Better Globalization Might Rise from Hyper-Globalization’s Ashes
With the end of post-1990s hyper-globalization, scenarios for the world economy run the gamut. In the best case, achieving a better balance between the prerogatives of the nation-state and the requirements of an open economy might enable inclusive prosperity at home and peace and security abroad.
CAMBRIDGE – The post-1990s era of hyper-globalization is now commonly acknowledged to have come to an end. The COVID-19 pandemic and Russia’s war against Ukraine have relegated global markets to a secondary and at best supporting role behind national objectives – in particular, public health and national security. But all the talk about deglobalization should not blind us to the possibility that the current crisis may in fact produce a better globalization.
In truth, hyper-globalization had been in retreat since the global financial crisis of 2007-08. The share of trade in world GDP began to decline after 2007, as China’s export-to-GDP ratio plummeted by a remarkable 16 percentage points. Global value chains stopped spreading. International capital flows never recovered to their pre-2007 heights. And populist politicians openly hostile to globalization became much more influential in the advanced economies.
Hyper-globalization crumbled under its many contradictions. First, there was a tension between the gains from specialization and the gains from productive diversification. The principle of comparative advantage held that countries should specialize in what they were currently good at producing. But a long line of developmental thinking suggested that governments should instead push national economies to produce what richer countries did. The result was the conflict between the interventionist policies of the most successful economies, notably China, and the “liberal” principles enshrined in the world trading system.