Andrew Sheng, Distinguished Fellow of Asia Global Institute, discusses the importance of keeping globalization on a forward track.
Depending on who you talk to, globalization happened either in 1492, when Christopher Columbus discovered America in search of the Orient, or sometime in the middle of 19th century, when America decided to look outwards for trade after its civil war.
By 2000, when the movement of trade, technology, finance and investments across the globe seemed unstoppable, Thomas Friedman celebrated a borderless world as the driver of global success in his bestseller, The World Is Flat. Globalization had lifted billions from poverty and the logic of free trade and capital flows was accepted from Beijing to Zanzibar. But in 2007, when the North Atlantic financial crisis revealed the flaws of excessive financialization, doubts about globalization began to creep in.
Writing in the Financial Times this week, former Economist editor Bill Emmott agonized over the irony that "the West invented what we now call globalization and it is America, epicenter of the West, that is demonizing its own invention".
Globalization, in the form of the spread of trade, money, people and information, is inevitable, essentially because of expanding demographics and technology. Human beings migrate all over the world, and it was technology - the invention of railways, ships, aircraft and now information communications - that accelerated the spread of global ideas and genes.
Technology also enabled the dramatic cutting of transaction costs, making markets and prices global.
As Nobel laureate Joseph Stiglitz, author of Globalization and Its Discontents, aptly put it, globalization is either positive or negative, depending on how it is managed.
Like any national system, the system works well with someone providing public goods.
The internet is such a public good. It gave even the most remote people and places access to global knowledge, thus making the world more inclusive. But if and when the masses cannot benefit from such access, and wealth and income becomes more exclusive, technology and globalization can widen inequalities, giving rise to anger, frustration and the rise of populist sentiments.
In essence, globalization is about open systems. Those who realize that the world is better off through open systems welcome globalization. Those who want to be protected and to keep the "purity" of genes and faith argue for more closed systems.
The reality is that globalization cannot be stopped, for both positive and negative reasons. But it can be managed better. The issues that arouse anti-globalists can and should be managed. These are the interrelated issues of climate change, disruptive technology, human migration (to cities as well as abroad) and toxic politics.
Being a businessman, Donald Trump's basic instinct is to manage these issues bilaterally, which is why intuitively he does not like multilateral groups like the World Trade Organization, the International Monetary Fund and the United Nations. But these multilateral institutions provide exactly the global public goods that make globalization positive rather than damaging. What is fair to a behemoth that accounts for 22 per cent of world gross domestic product may not be fair to a small bilateral trading partner one-tenth its size. The world's multilateral rules, which took years to negotiate, are there because they bind everyone, large or small, to global mutual benefit and shared stability.
There are several guiding principles behind that gesture.
First, there is Chinese recognition that global problems like climate change, disruptive technology and human migration involve costs that can only be solved from new resources generated through growth in trade and investments.
Second, China sees globalization not as a zero-sum game, but one where there can be benefits for all, provided the downsides are managed on a mutually shared basis, according to mutually agreed multilateral rules.
Third, accounting for only 15 per cent of world GDP, China on its own cannot push globalization. It must work with the current advanced economies like Europe (25 per cent of world GDP) and Japan (6 per cent), India, Brazil, Russia and South Africa (7 per cent), the Association of Southeast Asian Nations (3 per cent) and the other emerging markets. In short, globalization is already too deeply entrenched for any single country to lead or manage. This is a shared venture, making the task very complex, because there many competing interests involved.
Fourth, to be realistic and pragmatic, China's contribution to globalization must work on the principle of comparative advantage. Being a latecomer to globalization, China has considerable first-hand experience in building infrastructure, supply chains and urban conglomeration under third-world conditions. Its comparative advantage is based on the adaptation of modern technology, such as internet platforms, to lower trading and transaction costs. India, Kenya and other emerging markets are also moving in the same direction.
In short, to promote the good side of globalization, we must apply 21st-century tools and experience to manage 21st-century problems.
It was the failure of globalization to be inclusive that gave voice and power to its discontents.
Going forward, the complexity is that Trump is pushing the leading economy to swing from a major contributor of global public goods to a "taxer" on globalization. That is the true meaning of the border tax and the chiding of allies and partners alike that they need to contribute to any bilateral efforts in defense or in the building of walls.
But America works on the basis of freely importing resources and talent way in excess of domestic production. That manifests itself in its larger and larger current account and fiscal deficits and its growing global debt.
This is why everyone prays that saner heads will prevail in America's commitment to globalization. "America first" cannot operate on the basis of everyone else loses. Just as business is too important to be left to businessmen, globalization is too important to be left to its discontents.
This article first appeared in the South China Morning Post on March 17, 2017 as Loved or loathed, globalization is here to stay
The views expressed in the reports featured are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.
Interview I China braced for lose-lose scenario as US election fuels unease I Zhiwu Chen
Article I Transatlantic Trade: Will the Conflict Heat Up? I Herbiert Dieter
Op-ed I Minding the Digital Economy’s Narrowing Gaps I Michael Spence
Article I Working in partnership is key to fighting corruption I Mari Elka Pangestu