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Abu Dhabi, UAETuesday 11 December 2018

'Globalization and its Discontents Revisited': Joseph E Stiglitz on the state of the world

The Nobel Prize-winner's revisit to his original book is a beefy update of the landmark best-seller

Joseph Stiglitz, economics professor at Columbia University, gestures as he speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, January 25, 2018. Jason Alden / Bloomberg
Joseph Stiglitz, economics professor at Columbia University, gestures as he speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, January 25, 2018. Jason Alden / Bloomberg

Globalisation in 2020 is different from globalisation in 2000,” argues Nobel prize-winning economist Joseph E Stiglitz in Globalization and its Discontents Revisited, a beefy update of the landmark best-seller nearly two decades later.

Stiglitz’s original analysis of globalisation’s first decades, a book that sold more than a million copies worldwide, was anything but sanguine. He argued that unregulated, borderless markets and transnational “free” trade had produced big winners, namely the very multinational corporations that had set the rules for globalisation, while leaving behind many losers, foremost those in the developing world.

Globalism per se, he argued, was not inherently nefarious, but when global profits aren’t taxed, financial regulation neglected, and the unemployed neither cared for nor retrained, gross disparities in wealth will result – as well as unhealthy economic systems with stark imbalances among countries.

Stigiltz picks up again in the age of Trump and insurgent populism, when reality has outstripped his grimmest predictions. Since the early oughts we have experienced economic meltdowns in Russia, Argentina, East Asia, and Europe, as well as the global financial crisis that began in 2008 – the severest test of neo-liberalism yet. Globalism’s discontents have risen up in the form of international terrorism, warring parties in the Middle East, and most recently voters who line up behind authoritarian nationalists.

Globalism’s fallout, argues Stiglitz in the new book, which is an updated version of the original featuring several new chapters and a lengthy afterword, has harmed the poorest of the poor more than he foretold, while proving a periodic boon for emerging markets, such as those in China, India, Russia, and Brazil, which have managed to turn globalisation into largesse for its ownership class.

One-way benefits

Globalisation today, however, negatively impacts on the middle- and working-classes throughout the world, in advanced and underdeveloped countries alike. The lines of conflict run between the left-behind workers around the world, on the one hand, and corporate interests, on the other. Indeed, the benefits of globalisation went only one way – into the bank accounts of the corporate establishment.

Stiglitz believes that a fairly managed globalisation could actually serve the interests of a broad swath of the world’s population. But rather than constructively address its flaws, populists such as Trump, as well as the likes of Marine Le Pen in France, Vladimir Putin in Russia and Victor Orban in Hungary, have promised its victims deglobalisation – namely a re-erection of national borders protected by trade tariffs and perks for the hardest-hit domestic industries.

There’s no better case study than Trump’s protectionist policies toward China, which Stiglitz argues is a response to globalisation – but entirely the wrong one. “Trade wars have something in common with real wars,” writes Stiglitz, “almost always, everybody – all countries engaged in the war – lose.”

Trump assumes that trade is a zero-sum game, argues Stiglitz, in which one nation’s gain is another’s loss. The logic of Trump and his supporters – which until very recently wasn’t that of most Republican politicos, who praised open markets and liberalised trade – is that since the US runs a trade deficit with China, it is being treated “unfairly”.

Indeed, China runs a significant trade surplus with the US, which globalism’s open markets and unhindered capital flows have helped enable. But, notes Stiglitz, international trade is not a bilateral affair. The US trades with manifold countries, and with many of them the US runs surpluses. No one country can run huge surpluses all of the time – or the international financial system would collapse entirely.

The logic of protectionists is relatively simple: by slapping surcharges on imports, such as Chinese-produced goods, domestic US-made goods will become more attractive at home, thus reviving sectors that had been hurt by cheaper competition from abroad.

But a trade war will only make matters worse, warns Stiglitz, especially for the “new discontents”. For one, tariffs will cause the price of the protected commodities to rise in the US, hurting consumers. The average consumer profited from the lower-priced Chinese televisions and clothing, and will redirect his or her buying power toward the next cheapest option, which probably won’t be US commodities.

Protectionism drives up prices

Moreover, China will respond by tacking tariffs on US imports, which naturally disadvantages those exporting sectors. And, out of pique, China could stop patronising some of the US sectors from which it buys heavily, such as aircraft and foodstuffs.

China can also strike back by throwing a wrench into the working of the many US companies doing business in China. They are “hostages” whose assets could be frozen or managements simply harassed by unco-operative authorities and excessive red tape.

Moreover, says Stiglitz, the Rust Belt jobs in manufacturing most probably won’t return to the US – ever. These sectors are not just uncompetitive with China, they are underbid by many countries around the world. Yes, the US has lost jobs in manufacturing, but it has picked up jobs in services and tech, which compensate. Advances in technology have made many of the old blue-collar manufacturing jobs redundant – and the advent of robots and other automated equipment means replacing even more of them.

The “New Protectionism” will drive up prices, Stiglitz concludes: “The increased inflation may induce the Fed to increase interest rates, which will have two further effects: it will slow down the economy and it will strengthen the dollar further.” The stronger dollar would make all US goods more expensive abroad, inhibiting US trade further and widening the deficit. The upshot will be the opposite of the protectionists’ aims.

Neither unbridled trade liberalisation nor protection is the answer, argues Stiglitz. An intelligently managed global economy could spread the benefits more equally and smooth the bumps in a process that disrupts the status quo. Globalisation can’t be stopped, or the clock turned back in time. We’re interconnected now in a way that the planet’s populations never were before.

It’s possible to manage and regulate globalisation so that it works for more rather than fewer people. “We could construct a better globalisation,” he concludes, “a better, fairer set of rules and organisations, which would promote growth, development, and stability with equity.” America-first policies are a dead end, he says, for the world at large and for America too.

Paul Hockenos is a Berlin-based writer and author of Berlin Calling: A Story of Anarchy, Music, the Wall and the Birth of the New Berlin

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