We may be living through the end of liberal globalization, which would be bad news. Let’s agree on the terms. Liberal globalization was driven by decisions that were certainly political, but with economic aims. It was about increasing trade in goods and services and financial investment to make the economy more efficient.
In the final analysis, this policy, carried out in particular under the multilateral aegis of the World Trade Organization, was based on the theory of comparative advantages of the British economist David Ricardo (1772-1823), according to which countries have an interest in specialize in the areas in which they are best and in return import what they need.
There are plenty of lessons to be learned from this period of economic history, which began in the 1950s and ended with the Covid pandemic. Thus, this globalization has benefited poor countries more than rich countries (world inequalities have been reduced); in the richest, it has benefited consumers through the fall in industrial prices but it has put workers’ wages under pressure; coupled with technical progress, it has generated an intense rural exodus which has contributed to the feeling of abandonment of the countryside… This free trade policy has generated a lot of progress with, as a counterpart, some deleterious effects in developed countries. This world was imperfect, but it had the merit of considering economic prosperity and social well-being as legitimate goals, despite the difficulties in achieving them.
From an economy of peace to an economy of chaos
The world into which the pandemic and then the war brought us is different. We have moved from an economy of peace to an economy of chaos, subject to massive and unpredictable events. The variables have become the adjustment mechanisms for non-economic shocks. Thus, the aid distributed by the States to deal with the effects of the pandemic caused an explosion in public debt, which was largely monetized by the central banks, which created the conditions for inflation. China’s zero Covid policy has hampered its production, which usually generates around a quarter of global industrial added value.
The chaotic exit from this health policy under the influence of the street plunges Chinese industry, and therefore global value chains, into another kind of uncertainty. Russia’s aggression in Ukraine is forcing Western countries to develop costly rearmament strategies. Western sanctions have also deprived them of 10 to 15% of their supplies of raw materials. It is because of the Russian aggression that the United States decided to relax their blockade on Venezuelan oil, a welcome breath of fresh air for this country destroyed by revolutionary leftist ideology. A possible blockade of Taiwan by China would deprive the world of two-thirds of its needs in semiconductors… One could multiply the examples of major evolutions which do not come from the capitalist economic cycle itself, but from geopolitical disturbances.
This change calls for three remarks. First, the forecasting exercise becomes more than speculative. In 2008, it was difficult to anticipate the most serious banking crisis since 1929. Today, it is even more complicated to have an idea of how Chinese public opinion can influence Beijing’s policy towards -Vis from Taiwan. Second, it’s time for generalists. Tell it to your children! Friedrich Hayek, Nobel Prize in 1974, had stressed that an economist who was only an economist was a scourge. What was true in the first part of the 20th century has become so again. Economic analytical work must be based on an understanding of capitalism, science, technology and geopolitics. Raymond Aron, Jean-François Revel: come back!
Third, liberal democracies have an economic stabilization role that goes beyond budgetary and monetary actions. France’s reinvestment in nuclear energy, Europe’s commitment to the production of semiconductors and even the reindustrialization strategy of the United States are all means of countering the effects of these geopolitical shocks. We won’t be returning to the days of liberal globalization anytime soon, but we must help stabilize our economies until this cycle of geopolitical violence subsides.