Rishi Sunak is in Washington DC this week to discuss the state of the global economy with his fellow finance ministers. But he is clearly keener on listening to some of them than others. Had the chancellor not been on a plane on his way across the Atlantic, he would have joined a walkout by the UK delegation – led by the Bank of England governor, Andrew Bailey – when Russia’s representative started speaking at a gathering of the G20. The protest by the Brits – along with the Americans and the Canadians – at a forum that includes the world’s leading developed and developing economies won’t make the slightest difference to the Kremlin. For all that, it is a symbolic gesture that matters. The International Monetary Fund issued a warning this week about the risk of the war accelerating the fragmentation of the world into rival economic blocs, and here is an example of it. China made it clear it didn’t think Russia should be excluded from G20 meetings, as did the country currently in the chair: Indonesia.
The IMF is worried about the risk of a return to the 1930s. It fears the current trend towards deglobalisation will result in trade barriers going up, countries adopting their own technological standards – and rival reserve currencies emerging to challenge the supremacy of the US dollar. Bad all round, in other words.
But hang on a minute. Greater international cooperation is a good thing, to be sure. There are global problems that need global solutions, as the IMF’s managing director, Kristalina Georgieva, rightly noted at a press conference yesterday.
Yet there isn’t much evidence that the current model of globalisation is much good at solving them. As the IMF itself notes in its latest world economic outlook, the debt-relief process is unfit for purpose. A properly functioning globalisation would have resulted in a fairer distribution of Covid-19 shots rather than vaccine apartheid. There would be more effective action to tackle the biggest collective problem of all: the climate crisis.
The mistake is to see globalisation as synonymous with multilateralism rather than the particular variant of international capitalism that has emerged in the three decades since the collapse of communism. Funnily enough, countries managed to find ways of trading with each other in the years before the Berlin Wall came down.
China, the big winner from the past 30 years, has seen a marked reduction in poverty but has achieved it by retaining strong control over its economic policy and movements of capital. Wary of the sort of shock treatment administered to Russia in the early 1990s, Beijing has liberalised its economy in its own way and at its own pace. India has liberalised cautiously.
The rhetoric of globalisation is all about smooth-running and efficient supply chains. An international division of labour and the lack of any controls on capital moves production to where labour costs are lower, and helps keep prices in the shops down.
But as we are now finding out, there is no guarantee that long and complex supply chains are an impregnable defence against inflation. On the contrary, when global production lines get gummed up – either due to a post-pandemic surge in demand or the shockwaves from war – cost of living pressures surface. The past couple of years have brought home to governments the benefits of self-sufficiency: be it in food, fuel, personal protective equipment or Covid-19 drugs.
Moreover, despite all the hype, globalisation has not led to faster growth and more rapid advances in living standards for most of those living in the UK and other developed nations. For the rich, of course, it has been a different story. They captured the gains from global growth and salted them away either in offshore tax havens or – in the case of Russian oligarchs – in the London property market.
In the late 1990s, I co-wrote a book with my colleague Dan Atkinson warning that sooner or later there would be a backlash against the insecurity that would result from turbo-charged, post-cold war capitalism. At the time, globalisation was all the rage – with politicians of the left as well as the right – and the book was not exactly a bestseller. Our critics told us to wake up and smell the coffee.
These days, the mood has changed somewhat. Labour and Conservative politicians competed with each other to condemn P&O and its decision to sack British seafarers and replace them with cheaper foreign staff. The courts have recognised that workers in the gig economy need greater protection from the “flexible” labour market. There has been a rethink of the wisdom of being dependent on foreign energy and of allowing China to take stakes in strategically important sectors. It is no longer seen as ludicrously quaint to trumpet the need for a bigger manufacturing base.
Let’s be clear: the drift towards deglobalisation does not mean a retreat into North Korean-style autarky. Nor does it mean the death of globalisation, because countries will always cooperate when it suits them. There is, though, a recognition that countries were better able to command their own economic destiny pre-globalisation and less prone to financial crises. Transporting goods halfway round the world is expensive when energy prices are high, and unsustainable to boot. The process of re-onshoring production was under way long before Vladimir Putin sent his troops into Ukraine.
But the prime reason for the rethink of globalisation is political. The age of insecurity has arrived and it has prompted a predictable backlash from voters unhappy about the rising cost of living, falling living standards and rising inequality.
The current model of globalisation has been shaped by deliberate policy choices and what comes next will also be shaped by deliberate policy choices. If that allows governments to take back control of their economies and to be better able to protect their citizens then there is only one thing to say: bring it on.
Larry Elliott is the Guardian’s economics editor
