The responsibility to shape a globalization that promotes just, prosperous and integrated societies now falls on the G20 leaders

By Martín Rapetti. Policy and research T20 Argentina.

A new ghost haunts the world: the rise of the anti-globalization sentiment. This sentiment has adopted many forms and inculpated many: international trade, global finance, immigrants, multilateral and supranational organizations and even new technologies. Its outbreak is not recent, but it has earned notoriety after a series of manifestations in developed countries. The 2008 financial crisis acted as a catalyst. Already back in 2011, visible signs of dissatisfaction could be noticed in movements like Occupy Wall Street in the US and the Spanish Indignados. These manifestations had no significant political consequences – but the ones that followed did. The 2015 election victory of the Greek left-wing party Siryza was built upon inflammatory rhetoric against European institutions and upon the veiled threat to dump the common currency.

The anti-globalization sentiment increased in 2016. Brexit was probably the most striking case: the narrow Leave win in the nationwide referendum was the victory of those who, disenchanted with the European Union, supported the UK’s exit from that organization. Some months earlier, the Freedom Party of Austria – strongly nationalist, Eurosceptic and hostile to immigration – triggered a political earthquake when it came close to winning the presidential election. The popularity of populist leaders anchored in nationalist, Eurosceptic, anti-immigrant movements is also noticeable in France’s Marine Le Pen and in Alice Weidel and Alexander Gauland who recently led the Alternative for Germany party (considered xenophobic by many) to an unexpected third place in the elections held just a few weeks ago.

Similar sentiments pervade the political arena on the opposite side of the Atlantic Ocean. Donald Trump won first the Republican primaries and then the national election thanks to a rhetoric that struck deep in the American lower-middle class. His ‘America First’ propaganda promised a US-Mexico border wall and protectionist measures to win back those jobs lost to Mexican immigrants and to cheap-labor imports from China. That was also the underlying motivation behind his decision to withdraw the United States from the Paris Agreement signed by 195 countries with the aim of reducing greenhouse gas emissions.

This anti-globalization sentiment increasingly noticeable in many political and social sectors of the United States and Europe reveals a fact that it is becoming more and more obvious: the globalization of finance and trade yields benefits, but it also carries costs, which are not evenly distributed among all members of society. Globalization creates winners and losers. And the frustration of those who see themselves as losers has been the foundation out of which nationalist parties and populist political figures have arisen.

Academia in the developed world has recently started to acknowledge the costs and benefits involved, as well as the notion of winners and losers of globalization. The 2007-2008 global financial crisis has provided solid evidence to those who warned about the flaws of the financial markets (incentives- and information-related problems) and the possible shortsightedness of the market players. Banks, financial institutions and investors often make decisions without adequately weighing the risks involved. Likewise, insurance companies and financial regulators do not often assess correctly, whether by commission or omission, the systemic risks entailed by the decisions made by those they must control and insure. Financial crises are therefore a likely result. As crises cause substantial economic losses as a result of the spillover effect financial intermediation exerts on the other productive sectors, the national governments have to bail out those who triggered them. It is society that bears the expense, and that, naturally, stirs up social unrest.

The belief that free trade enhances social well-being has always been deeply rooted in American and European academia. Only recently has awareness been raised about the possibly long-lasting negative effects of international trade on significant segments of a country. Research on the impact of imports of manufactures from China into developed countries shows that the affected productive sectors see a sharp drop in both production and employment rates. Displaced workers get jobs in less productive industries with lower wages or end up unemployed. As the industries affected are usually geographically concentrated, those areas show higher unemployment rates, job insecurity and income inequality. What baffles conventional economic theory is the slow and low rate of labor mobility towards more economically booming areas of a country. As a result of the geographical concentration and the prolonged duration of the negative economic consequences, the affected areas gradually start to show higher rates of drug abuse, crime and school dropout, and increased incidence of depression and diseases. The emblematic case in the United States is the so-called Rust Belt in the north-east of the country, which was once a thriving industrial region.

Globalization in Latin America

Latin America has faced two waves of crises connected to our own financial globalization processes. The first one occurred in the early eighties, and the other one, in the second half of the 1990s. The first wave of crises led to a truly lost decade for most countries of the region, whereas the second one was more selective and had a less devastating impact, except for the 2001-2002 crises in Argentina and Uruguay. The implementation of free trade policies in the region occurred between the late eighties and the early nineties. The negative effects were felt differently in each country, but the entire region saw sharp deindustrialization, a marked drop in the industrial employment rate and increased informal employment, poverty and inequality.

It was Argentina who fared worse than any country in its globalization attempt. The income per capita in 2004 was virtually the same as the average per-person income in 1974. Three lost decades. That average, however, disguises harsh inequalities in our society. By the middle of the first decade of this century, the unemployment rate had increased threefold in the previous 30 years, the level of poverty was nine times higher, and income distribution was significantly more unequal. The negative effects also concentrated in specific areas; the Greater Buenos Aires is our Rust Belt. It is no wonder the Argentine society shunned globalization and multilateral institutions at the beginning of the new century. The strong initial support of the society to veering towards protectionism in the early 2010’s comes as no surprise either.

Looking ahead

In December, Argentina will take over the presidency of the G20, a group of 20 developed and developing countries whose mission is to cooperate in economic and financial matters and to shape globalization. Considering the recent political and social events unfolding in the Northern hemisphere, alongside those that occurred before in the South, there seems to be a clear need for reform. Globalization offers the citizens of the world a great opportunity for exchanging not only goods, services and investments, but also ideas, knowledge, art and culture. Nevertheless, the way we interact with each other may also entail significant social costs which might potentially trigger some of the worst social manifestations: extreme forms of protectionism, nationalism, authoritarianism and even xenophobia. So now the responsibility falls on the G20 leaders – and on all of us who input ideas and proposals in the several affinity groups (B20, C20, L20, T20, Y20 and W20). It is the responsibility to shape a different form of globalization that maximizes the benefits of integration and, at the same time, assesses and mitigates its costs. A globalization that promotes just, prosperous and integrated societies.