Deglobalization Revisited

1. Deglobalization Revisited Denmark March 14-15, 2014

2. I think when we think about the alternative at present, we have to locate our thinking in the context of the crisis of globalization, and of the model of integration into the global economy that orthodox economists proposed as the route for developing countries.

3. Long-term stagnation in the United States

5. What is Globalization? • If I were asked to define it, I would say that globalization refers to the accelerated integration of production and markets. • Globalization has several key dimensions, the most important of which are the following: - It is a process marked by the reduction or elimination of tariffs and quotas in international trade and the lifting of barriers to capital flows and direct investment. - Its main agents are transnational corporations whose search for profit pushes them to bring down trade barriers, offshore manufacturing processes, and outsource services.

6. The center of gravity of the economy ceases to be the domestic market but the international market. • The end result is the disarticulation of the national economy and the rearticulation of its different parts at the global level--for instance, the production and training of personnel is no longer determined by the needs of the domestic economy but by global demand so that from the perspective of the national economy there is a massive oversupply of personnel in certain professions.

7. It is accompanied by the increasing inability of the state to influence the workings of the economy, and efforts by the state to intervene are viewed by economists as bringing about serious distortions and produces more costs than benefits. • The state yields more and more power to systems of global economic governance, the prime example of which is the WTO. Such institutions as the WTO, World Bank, and the IMF serve as the political canopy for infrastructural economic processes of trade, investment, and distribution of resources.

8. Two periods of globalization: • Globalization I 1815 – 1914 “Age of Free Trade” under British hegemony Globalization II 1980 - 2008 Neoliberal era under US hegemony • Between 1914 and 1980, the state became an important actor to stabilize national and international relations disrupted by the Great Depression triggered by untrammeled market forces. Reversal of globalization. Keynesian state marked by government intervention in domestic and international economy and class compromise between labor and capital.

9. In the 1990’s and the first decade of this century, Globalization II was seen as irreversible by the establishment. The outbreak of the global financial crisis changed that perception. • "The integration of the world economy is in retreat on almost every front," wrote the Economist, a trenchant advocate of globalization, in 2009. While the magazine said that corporations continued to believe in the efficiency of global supply chains, "like any chain, these are only as strong as their weakest link. A danger point will come if firms decide that this way of organizing production has had its day."

10. In a more recent assessment, the Economist says that “globalization has clearly paused.” “After two decades in which people, capital and goods were moving ever more freely across borders, walls have been going up, albeit ones with gates. Governments increasingly pick and choose whom they trade with, what sort of capital they welcome and how much freedom they allow for doing business abroad.

11. "Virtually all countries still embrace the principles of international trade and investment. They want to enjoy the benefits of globalisation, but as much as possible they now also want to insulate themselves from its downsides, be they volatile capital flows or surging imports."

12. "Globalisation has clearly paused. A simple measure of trade intensity, world exports as a share of world GDP, rose steadily from 1986 to 2008 but has been flat since. Global capital flows, which in 2007 topped $11 trillion, amounted to barely a third of that figure last year. Cross-border direct investment is also well down on its 2007 peak."

13. We can identify a number of schools of thought on how countries can forge a new strategy in the context of the global crisis. The most influential are the Neoliberals, the Keynesians, the Emerging Economies School, and the End of Growth School.

14. The Neoliberals’ Take • The Neoliberal School. I think there is mainly silence in these quarters. A significant section of this school sees deleveraging or getting out of the debt as the key task of the US economy and other advanced economies in the indefinite future. With their opposition to either monetary or fiscal stimulus programs, this school sees unemployment and low growth as the price to pay for the “excesses” of “artificial growth” created by state intervention.

15. The economy will adjust but possibly at a lower level of equilibrium than the pre-crisis economy. The neoliberals still believe that freer markets and trade liberalization are in the best interests of developing countries. However, unlike in the pre-crisis period, developing countries can no longer rely on the developed countries to absorb most of their exports and thus serve as the stimulus of export-led development.

16. In fact, in so far as some neoliberals think about developing countries, it is mainly for them to serve as markets to absorb imports from the US and thus contribute to the revival of the US economy. Policy-wise, this translates into completing the negotiations in the Doha Round of the WTO and the Trans-Pacific Partnership that would unite nine countries in APEC into a free trade area—that would, also, incidentally unite them geoeconomically against China.

17. The Keynesians: Stimulate, Stimulate • The Keynesians. In contrast to the neoliberals, the Keynesians think deleveraging must take a backseat to reigniting the economy and absorbing the unemployed. For them, the problem with Obama’s stimulus program was that while it ensured that the situation would not get worse, it was too small to spark sustained growth.

18. Aside from a more aggressive fiscal stimulus, the Keynesians think that the state must engage in industrial policy, picking certain industries to pour money into and develop, like green energies. These industries will be the source of future growth and employment.

19. In terms of the international economy, the Keynesians feel there ought to be strong international regulation of capital flows, as well as a trade regime that allows countries, especially developing countries, to protect their industries and allows them to use trade measures to build up their industries, like local content policies. For the Keynesians, development strategies for developing countries must rely more on the internal market than the international market

20. The New Engines of Global Growth? • The “Emerging Economies School.” This school sees the process of deleveraging as eliminating the developed countries as sources of global growth. However, their place will be taken by China, India, and the other so-called emerging economies. Perhaps the most confident statement in this regard is provided by Nobel Prize laureate Michael Spence in his 2011 book The New Convergence.

21. Let me quote at length: “The major developing economies have displayed remarkable resilience in the crisis and its aftermath. Growth is returning and is already approaching pre-crisis levels in Asia (East and South) and in Latin America, the latter helped in no small measure by the tailwind provided by Asian growth….[T]his growth is sustainable even in the event of slow medium-term growth in the developed countries. The reason is that the size of the emerging market economies taken together is large and growing…

22. “Trade within this group is substantial and growing, and perhaps most important, incomes are rising, so that the composition of demand is better matched to the productive capabilities of these economies…The persistence of growth in the emerging markets is a major positive for the global economy in terms of overall growth and because of the positive impact it will have on the smaller, poorer developing countries. In addition, it will lubricate the structural adjustments in the advanced economies.”

23. Contrary to Spence’s expectations, however, the BRICS (Brazil, Russia, India, China, South Africa) were not able to sustain their high growth rates and slipped into crisis beginning in 2011. In 2009, China's vast stimulus plan helped shore up commodity prices, which helped its BRICS partners—for Russia on oil and gas, for Brazil or iron ore and agricultural goods; and for India and South Africa on minerals. Since 2011, China’s growth has slowed drastically, and that of India, Brazil, Russia, and South Africa dropped even more sharply. By 2014, it was clear that the BRICS would no longer be the engines for global growth.

24. BRICS Slow Down

25. The End of Growth? • The fourth perspective is offered by the “End of Growth School.” The most cogent presentation of this perspective is offered by Richard Heinberg in his recent book The End of Growth. This school says that the economic crisis is not a stand-alone crisis. What we have is a fatal intersection of financial collapse, economic stagnation, global warming, the steady depletion of fossil fuel reserves, continuing population pressure, and agriculture reaching its limits.

26. It represents a far more profound crisis than a temporary setback on the road to growth. It portends not simply the end of a boom but paradigm of global growth driven fundamentally by fossil-fuel expansion. As one example of the synergistic play of constraints, proponents point to the impact of peak oil, or the drop in the discoveries of new oil fields.

27. Proponents of this perspective say that while the central cause of the current economic crisis was the gyrations of an unregulated financial sector, the dynamics of peak oil contributed to it. The relative scarcity of new finds caused the price of oil to rise rapidly during the boom of the mid-1990’s.

28. However, when oil became too expensive, as it did in 2007, when it passed the $140 dollar mark, it became a barrier to further economic expansion and contributed to the collapse of 2008. With oil prices falling owing to the recession, the stage is set for another round of economic expansion, which will be throttled later by rising oil prices.

29. Interacting constraints will mean a reversal of growth in the now developed countries, while making impossible the achievement of high growth rates in the now emerging economies, which Michael Spence sees as the new engines of growth.

30. Richard Heinberg suggests that nations which have large populations of subsistence farmers may have advantages in a post-growth world. They are less integrated into the global economy, and many maintain agricultural sectors that have not been totally damaged by structural adjustment and liberalization.

31. These are the very traits that have prompted the influential neoliberal economist Paul Collier to regard them in his book The Bottom Billion as hopeless peasant producers who should give way to commercial farms on the Brazilian model employing the latest genetic technology.

32. But they are in fact advantaged by their being far behind in the institutionalization of the high-growth-dependent western consumption model. If they can combine successful redistribution initiatives, technologies that innovatively blend traditional and organic methods, and economic strategies emphasizing improvement in the quality of life, they may well pioneer the forging of a post-growth, post-globalization development strategy.

33. Globalization in Crisis? • My own thinking stems from my sense that since the mid-1990’s the contradictions of globalization have become sharper, globalization has failed to deliver on its promise of bringing about both growth and prosperity, and, as a result, it has triggered more and more resistance among nations and communities. The global financial crisis is, from this point of view, the climax of a crisis that has been building up for nearly 30 years.

34. In 2009, the Economist wrote, “The economic meltdown has popularised a new term: deglobalisation. Some critics of capitalism seem happy about it—like Walden Bello, a Philippine economist, who can perhaps claim to have coined the word with his book, “Deglobalisation, Ideas for a New World Economy.” This was not meant as a compliment.

35. Indeed, my colleagues and I at Focus on the Global South first forwarded deglobalization as a comprehensive paradigm to replace neoliberal globalization almost a decade ago, when the stresses, strains, and contradictions brought about by the latter had become painfully evident though not yet cataclysmic. Elaborated as an alternative mainly for developing countries, the deglobalization paradigm is not without relevance to the central capitalist economies.

36. Indeed, my colleagues and I at Focus on the Global South first forwarded deglobalization as a comprehensive paradigm to replace neoliberal globalization almost a decade ago, when the stresses, strains, and contradictions brought about by the latter had become painfully evident though not yet cataclysmic. Elaborated as an alternative mainly for developing countries, the deglobalization paradigm is not without relevance to the central capitalist economies.

37. There are points of convergence with the Keynesian, Developmentalist, End of Growth, and other alternative perspectives. In fact, Focus and I do not claim originality for the different elements or propositions of Deglobalization since there has already been rich thinking on alternative paradigms over the last 25 years, some of it contributions by many of the people in this conference. Probably, the only distinctive feature of our approach is our effort to bring into a coherent whole some key elements of different alternative paradigms.

38. 11 Pillars of Deglobalization There are 11 key prongs of the deglobalization paradigm: • Production for the domestic market must again become the center of gravity of the economy rather than production for export markets. • The principle of subsidiarity should be enshrined in economic life by encouraging production of goods at the level of the community and at the national level if this can be done at reasonable cost in order to preserve community.

39. Trade policy — that is, quotas and tariffs — should be used to protect the local economy from destruction by corporate-subsidized commodities with artificially low prices. • Industrial policy — including subsidies, tariffs, and trade — should be used to revitalize and strengthen the manufacturing sector.

40. Long-postponed measures of equitable income redistribution and land redistribution (including urban land reform) can create a vibrant internal market that would serve as the anchor of the economy and produce local financial resources for investment. • Deemphasizing growth, emphasizing upgrading the quality of life, focusing on the reproductive economy, and maximizing equity will reduce environmental disequilibrium. • The development and diffusion of environmentally congenial technology in both agriculture and industry should be encouraged.

41. Strategic economic decisions cannot be left to the market or to technocrats. Instead, the scope of democratic decision-making in the economy should be expanded so that all vital questions — such as which industries to develop or phase out, what proportion of the government budget to devote to agriculture, etc. — become subject to democratic discussion and choice. • The binary market-state approach is obsolete. Civil society must constantly monitor, check, and supervise the private sector and the state, a process that should be institutionalized.

42. The property complex should be transformed into a "mixed economy" that includes the commons, community cooperatives, private enterprises, and state enterprises, and excludes transnational corporations. • Centralized global institutions like the IMF and the World Bank should be replaced with regional institutions built not on free trade and capital mobility but on principles of cooperation that, to use the words of the late Hugo Chavez in describing the Bolivarian Alternative for the Americas (ALBA), "transcend the logic of capitalism."

43. Similarities and Contrasts • Two points must be made at this point: • First, the deglobalization paradigm has key points of intersection with the Food Sovereignty Paradigm proposed by Via Campesina and other peasant groups, as well as with the “End of Growth School.” • Second, deglobalization is not a return to the old developmental economics of sttructural economics.

44. As regards similarities with other approaches, the food sovereignty paradigm, the goal of agricultural policy should be food self sufficiency, wherein the country’s farmers produce most of the food consumed domestically—a condition not covered by the concept of “food security,” which US corporate representatives have defined as the capacity of fill a country’s food needs through either domestic production or imports.

45. The radical implications of this premise are noted by Jennifer Clapp: “By removing farmers from the global trading system altogether, the food sovereignty movement focuses on local needs and local food markets, thus freeing smallholders from the unfair and unbalanced trade rules that are upheld by the WTO Agreement on Agriculture.”

47. Deglobalization intersects with the “End of Growth” School on the refocusing of increasing amounts economic activity from the production of goods to the reproductive economy, the production and maintenance of quality relations, quality relations, and quality care. This could mean a decline in Gross Domestic Product as traditionally conceived.

48. As regards key points of difference between deglobalization and the old structural economics: • It puts equality or equity at the center of the paradigm. • It deemphasizes growth as a measure of social well being. • It brings in civil society as an important check as well as partner of the state and the private sector. - It favors democratic decisionmaking over technocratic development from above.

49. From the Cult of Efficiency to Effective Economics • The aim of the deglobalization paradigm is to move beyond the economics of narrow efficiency, in which the key criterion is the reduction of unit cost, never mind the social and ecological destabilization this process brings about. It is to espouse effective economics—one that strengthens social solidarity by subordinating the operations of the market to the values of equity, justice, and community, and by enlarging the sphere of democratic decision making.

50. To use the language of the great Hungarian thinker Karl Polanyi in his book The Great Transformation, deglobalization is about "re-embedding" the economy in society, instead of having society driven by the economy. Now for those of us who grew up in capitalist societies, this may be a profound exciting insight. But for those from indigenous, native communities this is the way their societies have been organized, and this is what capitalism has been trying to break down. This is not to say we must return to pre-capitalist modes of social integration but to say we must move forward to to post-capitalist modes of social integration.