Will Populism Kill Globalization?

• Author: Smith, Roy C.

Every so often the world economic system must accommodate game-changing "shocks" that threaten it. Normally, these shocks come about every other decade, but we have had three since 2000: (1) two major, highly destabilizing financial crises (2000-2002) and (2007-9); (2) an outbreak of Islamic terrorist bombings beginning in 2001 and a huge wave of unwanted migration into Europe due to brutal civil wars in the Middle East and North Africa; and (3) the many effects on the labor markets of the United States and European Union from the outsourcing of manufacturing activities to China and elsewhere in Asia. One result has been the growing perception in the United States and Europe that the working- and middle-class populations have been "hollowed out" by economic shifts that have increased income inequality and forced large portions of the population in the developed world into economic anxiety and uncertainty.

Populists say that globalization has really benefitted only large corporations and their stockholders at the expense of everyone else. Yes, Walmart can lower the prices of the goods it sells, and financial markets benefit from lower interest rates from China's trade surplus, but the benefits to the average consumer are very small compared to the cost of workers losing well-paying factory jobs to make room for the imports.

The aggregate effects of these changes have brought about a rise in populism and antiglobalization, a disregard for the so-called governing elite, and an appetite for authoritarian solutions. These factors have generated unexpected changes in governments in the United States, the United Kingdom, Germany, Italy, Spain, Austria, Slovakia, and Ukraine. Populist sentiments from both left and right have become clear. Indeed, the question seems to be: Will these sentiments be sufficient to overturn popular support for globalized free-market economic policies and set the system back to what it had been before World War II, when neither market economics nor globalization were a high priority?

Cumulatively, these recent political manifestations are the signs of serious resistance to the idea that economic performance can be optimized by participation in the global, open-market capitalist system that was cobbled together after World War II. Beginning in the 1980s, for the first time, such economic cooperation among developed countries expanded to include developing countries and then the former Communist countries after the collapse of the Soviet Union and major reforms in China. The notion of "globalization" was encouraged and sustained by a general belief that the "new" system for economic development worked far better for all the world than the old.

President Donald Trump, however, disagrees. He says that he is an economic "nationalist" and that the "globalists" have sacrificed U.S. interests in building an international trade and economic system that has mainly benefitted other countries. Globalists counter that the system he decries was in fact responsible for the extraordinary recovery and enormous prosperity in the post-World War II world, greatly reduced world poverty, and fostered democracies in replacement of authoritarian states. In 2017, BUI Emmott, a former editor of The Economist, observed that we have entered a "battle to save the world's most successful political idea" (2017, 1). The idea he refers to is "liberalism" or "liberal democracy" ("liberal" in the British context of liberty being reflected in free markets and open societies, not in the U.S. sense of left-of-center politics), which, he claims, is under assault. Several other well-known, establishment figures have described the rise of authoritarianism and the weakening of democracies and also believe a battle has begun; others have focused on the erosion of the well-being of the working and middle classes in the United States and Europe, where the conflict is vigorously being fueled by both the Left and the Right. The globalized economic system may work for the world, some say, but not for a significant number of American and European workers who are' losing good jobs to trade imbalances, inefficiencies, and corruption in the process.

Another Side to the Story

An alternative version of the story is that the economic division between the classes is serious but greatly overstated. The shocks have been very powerful and have taken almost two decades to be accommodated, but the system has held, as it has done before in similar crises, and is well...