Globalization is Dead – Long Live Globalization
As American-led globalization continues to decline, the key to preserving its successes and making it work for more people lies in balancing the federal budget.
(Getty images)
The outcome of the presidential election marks the end of globalization, at least as we have known it since the Second World War. We must now determine how to preserve the prosperity that globalization has brought while addressing the legitimate social concerns that it has provoked.
During this most recent period of globalization, it was generally taken for granted that increasingly free movement of goods and services would produce economic growth, which would lead to broad prosperity and peace, which in turn would generate political support for still greater economic integration. For six decades, this consensus held and generally proved to be true.
Globalization’s decline
This virtuous circle began to break down in the late ‘90s as the internet began to expose white-collar jobs to international competition. Our persistent trade deficit began to grow again, feeding unease that we were “losing” in the global marketplace. The information revolution reduced manufacturing employment even as manufacturing output grew.
Matthew Rooney (left), Ambassador Ron Kirk, Pia Orrenius, and Sara Wilshaw at the North America Catalyst/World Affairs Council April 2016 event (Andrew Kaufmann/George W. Bush Presidential Center)
At the same time, international trade and investment increasingly brought people with it. The share of foreign-born persons in the populations of the United States and other industrialized countries increased to levels not seen in a century or more.
Taken together, these intensifying changes were deeply unnerving to many people in the U.S. and around the world. Fear – for the future, for security, for identity, for sovereignty – took hold as centuries of tradition in human relationships and political institutions seemed to crumble.
In the past, when movements to bring nations and countries closer together have foundered on similar cocktails of economic and social uncertainty, the result has generally been extended periods of falling incomes and rising international conflict.
In the past, when movements to bring nations and countries closer together have foundered on similar cocktails of economic and social uncertainty, the result has generally been extended periods of falling incomes and rising international conflict.
This was the case at the end of the Roman Empire, which led to the Middle Ages; at the end of the great European empires in the late 18th century, which led to five decades of revolution and war; and at the end of the first wave of industrialization at the dawn of the 20th century, which produced the First World War, the Great Depression, and the Second World War.
Visionary American leadership beginning in 1945 performed one of history’s great feats of legerdemain: using the rising tide of prosperity produced by freeing up trade, we dismantled the remaining European empires and, ultimately, the Soviet empire; we defeated and discredited communism and fascism, the twin authoritarian-populist challengers to our democratic-capitalist model; and we fostered the longest period of spreading peace and prosperity human history has ever known.
Preventing a new Dark Age
With the one-two punch of 9/11 and then the Great Recession, our democratic-capitalist model is on the defensive and the rise of populist leaders and movements around the world suggests that the American-led globalization era has come to an end. What must we do to prevent a 21st century Dark Age?
The conventional answer to this question focuses on education and training; infrastructure; and immigration.
Smart policy in each of these areas will help. People need to feel that they have the knowledge and skills to deal with the challenges and seize the opportunities of the global marketplace. And it is true that inadequate infrastructure adds costs to goods, reducing productivity and prosperity. Finally, we do need to acknowledge that the cultural and social fears focused on immigration are legitimate and they demand a policy response.
Source: Congressional Budget Office
But we need more: we need to restore our control over our nation’s destiny in order to secure our children’s future. Doing so is simple but, as we have learned in the past, not easy: we must balance the federal government’s budget.
We need to restore our control over our nation’s destiny in order to secure our children’s future. Doing so is simple but, as we have learned in the past, not easy: we must balance the federal government’s budget.
Balancing the budget will have many positive effects:
- It will reduce our need to borrow from foreign creditors. It is easy to overstate the level of power that a foreign creditor has over us – the relationship is more of a symbiosis – but our indebtedness certainly creates an additional factor that has to be weighed in making policy. We will have a freer hand without it.
- It will reduce the trade deficit. Reducing government borrowing will increase the pool of available domestic savings, which will reduce our economy’s need to draw on foreign savings to finance domestic investment. This is one of the key drivers of our trade deficit.
- It will free up capital for market-led investment. The government currently soaks up a half trillion dollars a year in capital, devoting it mostly to current expenditures for personnel, operations, and entitlement programs. Leaving this money in the capital markets will open opportunities for entrepreneurs and businesses to invest in plant and equipment.
- It will stimulate innovation. As firms start to invest more in plant and equipment, they will seek higher returns, which will drive design innovations and new products. New jobs and higher wages will follow.
- It will stabilize Social Security and Medicare. As the government reduces its borrowing and starts to redeem its debts, the financial sustainability of these programs will be strengthened. This will have effects beyond public finance, as an entire generation of Americans gains new confidence in their future ability to retire with dignity.
- It will strengthen the federal government’s own finances. We will be better able to confront crises of all kinds, and reducing the long-term expenditure on debt interest will enable decreases in government expenditures even as it frees up resources for investments in education, training and infrastructure.
Which brings us back to the immediate response to the challenges outlined above. At the end of the day, balancing the budget is the key to our ability to preserve globalization’s benefits while addressing its downsides.
