If Brexit and the Trump presidency have raised one question, it is whether the globalisation era is truly over.
The return to ‘embedded liberalism,’ which calls for the predominance of national interests over international trade, is at the forefront of many political parties’ portfolios (though whether this comes out of ideological conviction or electoral frenzy is beyond the scope of this piece). This is not new: ever since the failure of the OECD’s Mutual Agreement on Investment in 1998, the call for ‘hyper-globalisation’ is in dismay. The crash of the Asian tigers in the late 1990s sent a signal that the liberalisation of capital markets for short-term loans came at great costs, especially when national institutions are ill-prepared to cope. The 2008 crisis solidified the capitalist follies of financial markets and the need for greater government intervention to correct market failures. The outcome of the latest Italian election further reinforces this simple idea: nation first, world second.
This is almost paradoxical: literature abounds on the relatively positive economic impacts of trade through immigration, foreign direct investment, and wages. World GDP was 5,450 times larger in 2016 than it was in 1961, with cross-border flows acting as one of the main drivers of this growth.
The issue lies in the framing of trade discussions, which fail to introduce fairness. Although trade may be good in aggregate, it certainly does not benefit all people equally. Subpopulations are more prone to economic losses than others. Compensation mechanisms sometimes exist, but more often than not remain underfunded and ill-equipped.
The unbalanced distributional effects of trade are closely correlated to the growing perception that the World Trade Organisation (WTO), which oversees multilateral trade agreements, is an illegitimate and undemocratic international institution. The inclusion of fairness within WTO-run negotiations becomes necessary to avoid waning political and economic legitimacy.
This leads to two important questions. What does fairness mean? And how can fairness be practically implemented?
The scholar Amrita Narlikar draws a distinction between fairness through procedures, and fairness through distributive justice. The former, she argues, has been at the heart of WTO negotiations, whereby negotiation procedures had been applied in such a way that the final outcome would always be deemed fair by negotiating parties.
Fair procedures are no longer enough for developing countries to stand as equals in front of developed counterparts. Rather, fairness must now be interpreted in terms of equity, or distributive justice; that is, the recognition that sustainable futures come through differentiated responsibilities. It calls for the acknowledgment of trade’s skewed distributional effects as well as the developed-world bias that has determined cross-country exchanges to this day.
The distributive approach to trade will not see the light of day unless the WTO moves out of a consensus-based decision-making process that unambiguously favours the developed world. Such a system has hard-core bargaining, which emphasises relative market power, at its core. Thus, developing countries, conditional on having the necessary resources to bargain adequately, can be bullied into accepting a sub-optimal deal.
A majority-based voting system is badly needed. This would give equal weight to all countries irrespective of relative market size. Bargaining would give way to coalitions, examples of which already abound in the WTO (the G-90 gathers African, Caribbean and Pacific countries, WTO’s ‘least-developed’ countries, to name a few). The integration of developing countries would become unavoidable, so as to emphasise their decision power and force a change in multilateral trade negotiations in favour of redistributive justice.
Globalisation must not end. On the whole, borders are better open than closed. In aggregate, wages increase, and prices fall as a result of open-trade policies. Nonetheless, trade through complete liberalisation is not fair insofar as its effects are not equitably distributed across countries. This must change through a reform of voting mechanisms in the WTO. The latter will see its credentials legitimised again, while the democratic groundings of cross-border exchanges will be reinforced. And hyper-globalisation will give way to ‘sound’ globalisation, for the better of all.
Theo Bourgery is an MPA graduate (class of 2018) and former political aide at the French National Assembly. He now works in financial regulation, specialising in financial innovation and FinTech regulatory policy.