Two years ago I argued in Prospect that globalisation was too deeply embedded to be reversed. Do I now need to reconsider?by Barry Eichengreen / May 30, 2018 / Leave a comment
About two years ago I was asked by Prospect to write a piece on whether globalisation was over. My conclusion then was that the answer was no. Globalisation had simply gone too far, I argued; it’s too deeply embedded; producers rely too heavily on trade and global supply chains to kill the golden goose.
To be sure, I acknowledged that the era of hyper-globalisation—where the volume of cross-border transactions grew significantly faster than the production of goods and services—was probably over. Improvements in communications technologies facilitating the unpacking of production and just-in-time production and inventory practices had reached the point of diminishing returns. The containerisation revolution could only occur once. China’s rise to pre-eminence was likewise a one-time event. A regulatory crackdown was likely to squeeze cross-border bank-intermediated capital flows, but bond- and equity-related borrowing and lending, which showed no signs of declining after the global financial crisis, would remain buoyant.
Overall, I insisted, there was no reason to think that globalisation was over. Its advantages were manifest. Its value to producers and consumers was clear. Globalisation created strains. But it was too deeply entrenched to be reversed.
The summer of 2016, when I wrote this piece, was, of course, prior to the election of Donald Trump, and also before the full implications of the Brexit vote were clear; certainly, nobody knew at the time whether or not London would reject a customs union agreement with the European Union, as Theresa May would subsequently signal. Given these developments, do I need to reconsider my conclusions?
I view these questions from a historical perspective. The first phase of globalisation, from 1880 through 1913, was a product of new technology such as the railway, the steel-hulled steamship, the screw propeller, the refrigerated steamship, combined with new policies—trade liberalisation following Britain’s abolition of the Corn Laws in 1846 and the 1860 Cobden-Chevalier Treaty between France and England. It was also the product of the opening up of new lands, mainly in the western hemisphere, to foreign investment, mainly from Europe, and to immigration from both that continent and Asia. And it was facilitated by a stable monetary framework, the gold standard, which reduced the uncertainties and costs of transacting across borders.