Whither Globalization?

John Byrne - Wed, 12/14/2016 - 02:43
Globalization has dominated the world’s economy in recent decades, and brought benefits to nearly everyone, but those who lost out are now standing up. An interview with Professor James T. Little, academic director of the Washington-Fudan EMBA program
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Every country in every corner of the globe has gained from the enormous impact of globalization since the 1980s, but not everyone in every country has been a winner, and the stresses created by the frustrations of the losers is now impacting on the entire structure.

Professor James T. Little, academic director of the Washington-Fudan EMBA program at Shanghai’s Fudan University reviewed the issue from both a China and a North American perspective in this interview.

Q: There is currently push-back in many parts of the world to the globalization process of the past two or three decades. How do you see this?

A: What economists have always known from the beginning when we began to study trade is that trade overall is good, but that there are winners and losers. We've had this wave of globalization, as we have had other waves of globalization in the past, and the gainers have gained more than the losers lose. There are ways to compensate the losers and more broadly share the gains from trade and we failed to do that. A manufacturing worker in a foundry in Ohio has just been a loser, and they feel very much like they've lost.

This recent globalization, say the last 25 years, has also happened very, very fast and that leads to changes in a lot of different ways, changes in patterns of employment, and to changes in people's economic status. But it also changes their environment and it changes their life. When I look at Britain with Brexit, that was driven by fears of immigration and, in part, the consequences for jobs, but also in part in consequence of the world being a very different from the one we thought we lived in, of what people thought the world was like in the past. It might not have been that way. It is not simply the economics of it all. But the pushback to globalization is driven in part by the people who have lost from globalization saying, ‘Okay, the only way to solve this is to stop globalization altogether.’

What strikes me is that the supporters of globalization, of whom I am one, never point out as a counterargument what happens when we de-globalize. And we have had a bunch of episodes of that in the past. China had one when the late Ming Dynasty closed off China from the outside world. China was among the prosperous countries of the world up to then, and while Europe went towards free trade, China shut it off altogether. The causes are complex, but of course the economics had an important role in this relative economic decline of China. More recently, we had a lot of world trade before World War I, but it collapsed to almost zero by 1930. It was not the proximate cause of the Great Depression but it certainly contributed, and if you look at what it did to Western Europe and the horror that resulted from all that, certainly de-globalization played a role in that. So we have historical counterexamples where we rolled back  globalization, and it bothers me greatly.

The current wave of globalization has been the biggest anti-poverty program in history, as many other people have said. In China, a majority of the population would have been defined as seriously poor according to the international standard, but now it’s almost down to zero. It's an amazing outcome. India is on the same track. So we took 40% of the world population and we're making them immensely better off.

America on average is better off too. It is not that growth is negative or that the economy is shrinking, it is that some people are doing very, very well, in particular people with education and skills and adaptability, while other people have become sort of mired. it is not so much that things have gone down, but that they just haven't progressed. I think the answer is we have to start thinking seriously about how we share gains from globalization. That's the root issue here.

Q: How does impact on China?

A: It seems to me that China is going through that to a degree now too. As the economy has grown and as people have become more aware of things, there is also a little bit of resistance here to one aspect of globalization, which is foreign companies. You hear about foreign companies taking over certain markets. People point to the car market with the foreign brands. But these are Chinese cars being made in China with what would now be a majority of Chinese parts employing Chinese people. But there is the symbolism of it. I think that both business and governments have to realize that it's serious and that we have to do something to ensure that the benefits of this are spread move widely.

The fact that I can buy Chinese labor cheaper than I can buy American labor means that there is a loss to the American labor, and a benefit to the Chinese labor – and a benefit to me too, because I'm getting stuff cheaper. You can say that's the way of the world, and if you can't compete then you can't compete. But what we need to do is take into account the fact that in some sense people who are consistently the losers are going to stop us from trading with one another unless we share some of the benefit.

You have to have a deal both sides are benefiting from, and the beauty of the notion of the WTO was that when you did a comprehensive deal, everybody had to sign off on it. Unanimity. The structure of the WTO made it difficult to get to deals, but it also meant that every one of the deals had to give something to each country because they had to be willing to approve it.

If you look at the surveys from the foreign chambers of commerce in China, it used to be the major concern was always talent. Talent is still a big concern, but number one now is market access. It's becoming more and more difficult for foreign companies to operate in China. From China's perspective, a danger of that is that now that Chinese companies want to go and operate abroad, foreign governments are going to be inclined to make it very difficult for them as well, and the answer is reciprocity. I really do understand and sympathize with many of the things the opponents of globalization are saying. But what worries me is that there's a big prize, and we've got to keep our eyes on the prize, and instead we're looking at the ground.

Q: How to solve the negative issues associated with globalization in the US, for instance?

A: I would be described as an educationalist, and one of my big solutions would be education. The problem is, I am not going to take a 55-year-old guy who has lost his job in the foundry and teach them how to code. That is not going to happen. Where it all happens is even down at the primary school level. Education gives you flexibility, the opportunity to move from task to task much more easily. You are adaptable than if your skill is focused on doling a single thing. One of the first things we have to do in many countries is to really pay attention to whether our education system is meeting its stated goal of providing a quality education to everybody.

Q: Turning to business leaders, what is the difference between good ones and bad ones?

A: Two things – good judgment and those characteristics that allow someone to lead and have people follow them. Good business leaders have consistently good judgment, which is almost an intuitive sense of what is the right thing to do, in terms of practical business things, and moral things. The ability to let your ego get out of the way. The job of a CEO is basically to try and ensure that the company is successful after he is gone, to look to the future. ‘I'm not going to be here anymore but I want this company to be better in all ways than it is now.’ Judgment is to some extent setting aside the short term, and some personal aspects including my own ego involvement. So let's call it vision and leadership. And some people have it and some don't.

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