Third Way evangelists presented globalisation as inevitable and advantageous to all. In reality, it is neither, and the liberal order is paying the price

THE GREAT GLOBALISATION LIE

DANI RODRIK

Not so long ago, the argument over globalisation was seen as done and dusted—by parties of the left as much as of the right.

Tony Blair’s 2005 Labour conference speech gives a flavour of the time. “I hear people say we have to stop and debate globalisation”, Blair told his party. “You might as well debate whether autumn should follow summer.” There would be disruptions and some might be left behind, but no matter: people needed to get on with it. Our “changing world” was, Blair continued, “replete with opportunities, but they only go to those swift to adapt” and “slow to complain.”

No competent politician today would be likely to urge their voters not to grumble in this way. The Davos set, the Blairs and the Clintons are all scratching their heads, asking themselves how on Earth a process they insisted was inexorable has spun into reverse. Trade has stopped growing in relation to output, crossborder financial flows have still not bounced back from the global crisis of a decade ago, and after long years of stasis in world trade talks, an American nationalist has ridden a populist wave to the White House, where he disavows all efforts at multilateralism. Those that were cheerleaders of hyper-globalisation at the turn of the century stand no chance of understanding where it has gone wrong without realising how little they understood the process they were championing.

Back in 2005, in that same Blair conference speech, there was scope for doubt, and “no mystery about what works: an open, liberal economy, prepared constantly to change to remain competitive.” What of social solidarity? Would globalisation sweep it away? Blair insisted it could survive, but only if it were repurposed. Communities could not be allowed to “resist the force of globalisation”; the role of progressive politics was merely to enable them “to prepare for it.” Globalisation was the foregone conclusion; the only question was whether society could adjust to the global competition.

Blair and company were so certain not just because the world was going their way, but also because they had one very strong argument on their side: comparative advantage. It was not a new argument; in fact, it was 200 years old. But it was very much in fashion, and it did have real logical force: trade enabled specialisation, and a country that specialised in what it’s good at would be better off as a whole.

The cheerleaders, however, more or less forgot that caveat about “as a whole.” Moreover, they slipped casually from talking about trade in goods, to liberalisation in finance, where the argument was always different and more doubtful. Without pausing, they lurched from lowering “at the border” barriers, such as import tariffs or quotas, to more politically intrusive initiatives to harmonise regulations behind the border—investment rules, product standards, patents and copyrights—where it’s much less clear why cross-country integration should be expected to leave all nations better off.

No wonder the greatest beneficiaries of globalisation were nations like China that eschewed the official rules and danced to the beat of their own drum. It and other Asian countries engaged the world economy but did so on their own terms: they employed trade and industrial policies prohibited by the World Trade Organisation, managed their currencies, and kept tight controls on international capital flows. They experienced remarkable economic growth and lifted hundreds of millions from poverty as a result.

But in the established industrial economies, the record was much more mixed. The main beneficiaries of the post-1990 rules of globalisation were the corporations and professional elites. No doubt, the hyper-globalisers believed their case. But they overstated it to the point of complete distortion, and were blindsided by the inevitable backlash from their fellow citizens—citizens who have latterly proved less “slow to complain.”