Globalisation is a force that affects us, whether we like it or not. It is a force that cannot be stopped. It has been a steady forward-moving process ever since the end of the second World War, driven not by political decision-making but by technological development, interconnectedness, culturally, over the internet and through the easiness of travel. And it is for the better. In 1990, global trade accounted for 19 percent of world GDP or 3500 billion US dollars. Today, it accounts for over 30 percent of global GDP and its value is climbing to almost 20 000 billion US dollars annually. It has not just created welfare for us in developed countries in the west. It is about to eradicate poverty. In 1990, 38 percent of the world population lived in extreme poverty. That number is now around 10 percent. It has halved twice. There is no way to deem that as anything else than a magnificent result.
The usual rebuttal from the left when making this argument will be to argue that the gains of globalisation are not equally distributed. But even that is not true. The general measure of income inequality is the Gini coefficient where 0 represents perfect equality and 1 represents perfect inequality. The global Gini coefficient dropped from 0,80 in 1988 to 0,65 in 2013. Overall, global inequality is falling as globalisation advances.
The Commission today presented a reflection paper on harnessing globalisation. While more can of course be done to reap the benefits of globalisation, this is not the time to further restrict trade or cross-border investments. Since the 2008 financial crisis, world leaders in the G20 have said that they would not resort into protectionism. But, the uncomfortable truth is that protectionism has been on the rise in recent years. Since 2008, over 3800 trade-restrictive measures have been introduced worldwide while only a third as many trade-liberalising measures have been introduced. Between 1990 and 2008, the average tariff between WTO members dropped from 19 percent to 10 percent but since then, almost nothing has happened.
The average annual growth of global trade since 2008 is less than a third of the average annual growth rate between 1990 and 2008. This is of course to a large part an effect of the global economic slowdown after the 2008 financial crisis, and protectionism has played a major part. While, the harnessing globalisation paper rejects protectionism, this rejection cannot be the same type of lip service that too many world leaders have paid for almost a decade.
We must acknowledge that the paper contains many ideas that tries to hinder globalisation rather than harnessing it. Political leaders have been calling for more investments in Europe for a long time to catch-up growth. Restricting and controlling investments, as the paper suggests, will not spur growth but rather create impediments to it.
Trade and globalisation leads to structural economic change and so does many other current mega-trends such as digitalisation and further automatisation. Some jobs will be lost and others, more productive will be created. In order to truly harness globalisation, we need policies in many areas to increase and restore competitiveness and help people adjust to the economy of today. This includes improving education systems, research, infrastructure but also a regulatory environment that is up to date and tax systems that create fewer distortions. The large chunk of these policies rest among member states in Europe and coordination of member states policies will be needed rather than new EU legislation.
No one will argue that globalisation is friction-free. But the overall results is increased welfare and less poverty. If one is to truly harness globalisation, the overall picture must be based on these facts. Restricting trade and investments will only dampen growth worldwide, and it will be most hardly felt by the world’s poorest that will get fewer chances to lift themselves out of poverty.