On globalisation

My comment on the article by Philip Stephens in FT on US politicians and globalisation:

Globalisation without economic growth is not possible. There is a reason why it happened in an era of booming global economy (1985-2008). But, growth cannot be revived with either a magic wand or monetary policy. One is wishful thinking and the other is a dangerous delusion.

The latter is generating considerable unintended consequences that would hurt future growth prospects too. The stagnation of the 1970s and the trough reached in early Eighties produced the conditions for the global boom for the next quarter century. There is no gain without pain. Policies pursued since 2008 have sought to avoid pain in the economy and for banks’ leadership. That is why growth estimates are consistently being revised down and monetary policy continues to keep digging, while still deeply entrenched in the pit.

Second, in advanced economies, there was no transmission of the benefits of globalisation to workers. Capital took a lion’s share. Profit share of GDP had risen far more than that of labour share of GDP in the US and in the UK and so has executive compensation. Hence, it is perfectly reasonable for workers in developed economies to offer resistance to further globalisation.

There is no point in blaming the US politicians for this. They are trying to ride the workers’ wave. The blame has to be laid on the advocates of globalisation who did not take care to ensure that it benefited all constituencies, through policies and/or moral suasion. Globalisation thus remained an elite project. The elites have failed globalisation and not US politicians. Railing against Trump or Sanders won’t cut it. That is ducking the issue.

Ms. Clinton, among the current crop of contestants, was part of that elite.  That is why it is an incontrovertible fact that she represents continuity in a US society that is ready for, yearning for and demanding change.

The author is right to note that developing economies will be the losers. That is going to be an unfortunate fallout of the reversal of the globalisation trend.

(Matt Philips has a simple and sensible peace on globalisation here)

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