Nevertheless, the vision that Grameen represents — one of a peaceful, integrated “globalized” world in which can all prosper — is increasingly coming under threat. In 1996, with Communism defeated, Bill Clinton in the White House and the Internet rising to prominence, a globalized “Washington Consensus” world seemed the inevitable future. However, it’s not 1996 anymore.
In some respects, the technological and ideological changes of the 1990s have already altered the world and are not going away. The Internet has hugely increased the opportunities for sourcing both goods and services from the Third World, and it’s not going to be un-invented. Communism is dead, except in a few outposts like Cuba and North Korea.
Here to stay
However determined Russian President Vladimir Putin may be to recreate the old Soviet Union, he has no particular wish to see it take on again the inefficiencies of communism. Both the intellectual debate and the technological debate are thus closed — globalization, in certain truly fundamental respects, is here to stay.
That’s not to say that either the intellectual or the economic changes of the 1990s are an irresistible river, forcing us to our inevitable destination. They are more like a waterfall, that permanently altered our position, but after which we are in a large pool with complex and dangerous crosscurrents.
Digital age
Economically, the Internet has made it easier to outsource, but it’s a one-off effect.
We can now talk to China and India over the telephone almost for free, but it still takes almost 24 hours to fly to either of those countries, and several weeks to ship goods from them to Western markets. Only over a generation or two will the majority of Chinese or Indians learn to communicate with us in English (still less, of course, are we likely to learn Mandarin or Hindi). Meanwhile, labor costs in China and India escalate steadily, as those societies join the affluent Westernized economy.
Thus, the cost benefits available to early adopters from outsourcing will gradually decline. Eventually, an equilibrium point will be reached in which the remaining communications difficulties of outsourcing balance its cost advantages.
Dangerous ground
The forces which since 1990 have pushed the world towards globalization are weakening, and other forces are appearing — like eddies at the bottom of a large waterfall, which push the world in a very different direction.
The first such force is terrorism and the rise of rogue states. Just as the Internet has made it easier for Western companies to source goods and services on a worldwide basis, it is also easier for terrorist organizations and rogue states to communicate and organize acts of destruction in any Western location they choose.
Attacking global culture
Like the Internet itself, this ability is not going to disappear.
There will always be a minority of people who, for whatever reason, wish to damage the predominant global culture. Terrorist operations can now be conducted on a global basis — without the non-electronic, physical forces of the United States, NATO and the United Nations being able to prevent them. To some extent, we are just going to have to learn to live with acts of terrorism, just as we have always lived with crime.
Terrorism clearly raises the level of suspicion and distrust between societies. Since the Iraq and Lebanon conflicts, it has become clear that an aggressive response to terrorism does the same.
Smart security
Just as trade has always brought peoples together — even as it disrupts established patterns of manufacturing — military activity pushes them apart, no matter how well-intentioned and careful the military force concerned.
Thus, a policy that maximizes trading opportunities, and minimizes military contact (while maintaining appropriate defensive measures against terrorism) is most likely to reduce support for terrorism and its ability to recruit new members.
Western ways
As the Internet enables terrorists, it also brings cultures together, and in particular brings the powerful mass culture of the West into contact with societies that find it disruptive.
Whereas normally conservative inhabitants of a non-Western culture may find Western consumer goods attractive, and Western computer and telecom capabilities useful, they are at best ambivalent about Western popular culture.
The "father" imposes values of materialism and hedonism on societies that are not rich enough to enjoy the materialism, and this hedonism in turn becomes highly repugnant.
Culture critics
Western critics of such countries as Saudi Arabia and China, which censor the content reaching their people, forget that First Amendment rights historically never extended to foreigners, or to foreign propaganda that might be socially destructive. Even in the West, content that offends prevailing social mores can be labeled “hate speech” — and censored as such.
Countries such as Saudi Arabia find it very difficult, acting unilaterally, to prevent Western popular culture from damaging their social structure. They would find it much easier if they received cooperation from governments of the countries broadcasting the culture.
Mass consumption
Just as the United States feels free to ban Internet gambling, we may therefore in the future see treaties between the West and affected societies in the Middle East and elsewhere to restrict the access of the more extreme Western popular culture to local airwaves.
By these means, the friction between societies caused by incompatible social and cultural values would be minimized, giving more traditional societies time to develop their own cultural adaptations of the new technology.
Another complication of globalization is the advent of mass consumption in India and China. China’s automobile sales in 2006, for example, will total seven million, up from 3.2 million in 2002 — and a substantial fraction of the 16-17 million sold annually in the United States.
Draining resources
In itself, this mass consumption is not a problem. We may find that the 2010 automotive designs from the world’s major manufacturers have dragons on the radiator grille, to attract the Chinese market, but that’s capitalism — such minor adaptations are harmless and to be expected.
More serious is the effect of Indian and Chinese consumption on natural resources and the environment. Contrary to current popular belief, oil prices are likely to remain high as Chinese gasoline consumption soars — as are the prices of copper, zinc and other metals in relatively short supply and with substantial industrial uses.
Environmental effect
Whatever effect hydrocarbon consumption has on atmospheric pollution, global warming will intensify.
This, and the related relocation of production closer to new Chinese and Indian markets, is likely to cause economic pain in the West and consequent political pressure for protectionism. A moderate protectionism would not be a bad thing, for three reasons. First, governments have to fund themselves from somewhere. There is no reason to suppose that a moderate tariff is any more economically distorting than a moderate income tax.
It is subsidies – whether to exports, to favored industry or to agriculture — that are truly economically damaging, being both distorting and revenue-losing.
Balancing out
Second, in a world of floating and therefore fluctuating exchange rates, there is a benefit to domestic producers not being wiped out by a relative price fluctuation that may prove to be temporary.
Third, there is reason to believe that in a world of the Internet, Ricardo’s 1817 Doctrine of Comparative Advantage — in which outsourcing to cheaper wage countries is beneficial to both sides — may no longer be true. After all, what happens if the outsourcee country can climb up the value chain and seize the outsourcer’s intellectual property or other comparative advantage?
Pressure for protectionism
The collapse of the Doha Round of trade talks has already increased pressures for protectionism. It is likely that these pressures will intensify further in a recession.
The correct policy response will be to channel such pressures into moderate, revenue-raising tariffs. The world forces that produced globalization and the attempt to “democratize” the Middle East appear to have been temporary, and are being superseded by new pressures.
If we are lucky, the new world will be one of moderate protectionism, tight immigration controls, careful security, isolationist foreign policy and restrictions on disseminating subversive pop culture to traditional societies. This will be less attractive to the theocrats of free trade, but probably more comfortable for everybody else.
Editor's note: Martin Hutchinson's writings appear regularly at Prudent Bear.com
