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Tuesday 22 Aug 2017 | 19:59 | SYDNEY
Tuesday 22 Aug 2017 | 19:59 | SYDNEY

Rethinking globalisation



2 May 2008 12:51

Foreign investment has become a touchy issue for many countries, with rich countries increasingly keen to throw up barriers to foreign capital. And apparently Australia is not immune to the trend. According to this story by The Australian’s Jennifer Hewett, at least ten Chinese companies withdrew foreign investment applications to buy Australian resource companies following pressure from Canberra. John Garnaut noted in the SMH that this is having consequences for Australia’s reputation in Beijing as a destination for foreign investment.

Last year, I wrote a paper called Second thoughts on globalisation, which argued that, due in large part to the globalisation-powered rise of China and India, many in the developed world were experiencing growing doubts about the benefits of continued international economic integration. Some were scared by the success of globalisation in creating powerful new competitors in global markets, or spooked by the security implications of the resultant shifts in economic power. Others were ill at ease with increases in inequality and troubled by the implications of rapidly expanding trade ties with low income economies. Still others were concerned about the consequences for the environment and resource security of the industrialisation and urbanisation of the world’s most populous economies. 

As a result, I argued, policy settings in the rich world were likely to become less friendly to unfettered international economic integration. I later wrote an update which highlighted the growing kerfuffle in developed countries about investments from Sovereign Wealth Funds. And more recently, I have argued that we have reached an important turning point for the world economy, involving among other things a return to a bigger role for government in economic management.

Looking at the world’s media over the past week or so, it seems that this view is in danger of becoming the new consensus.

For example, this Op Ed by Larry Summers in the FT covers very similar ground, noting the ‘gnawing suspicion of many that the very object of international economic policy – the growing prosperity of the global economy – may not be in their interests’ and its consequence: the increasing difficulty in mobilising political support for globalisation in the developed world. Gideon Rachman covered similar ground for the same newspaper earlier this month, arguing that ‘the biggest risk is that politicians simply begin to lose the argument for globalisation’ and citing a recent opinion poll reporting that 58% of Americans thought that globalisation was bad for the US. Then there is this WSJ story, which does a nice job describing the shift in economic power and the resultant growing role of the state in the world economy. 

What about the consequences of the sub-prime crisis? In the original Second thoughts paper, I argued that the backlash against globalisation was largely a product of the latter’s successes, rather than its failures. I did however go on to note that ‘if the world had to cope with a significant globalisation failure —  a major financial accident seems the most likely candidate here – then anti-globalisation pressures would receive an even bigger boost.’ Well, we’ve now had the major financial accident, and as I outlined in my previous post, I think there is going to be yet more pressure for a rethink about how markets and regulation work in today’s global economy.

Photo by Flickr user ?????, used under a Creative Commons licence.

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