Change of perspective

The problem is not economic globalization per se, but the neoliberal belief that it does not need to be regulated and managed

For many years, economic globalization was presented in developed countries as a great promise. The opening of markets, the expansion of international trade and the integration of economies were expected to generate greater prosperity for everyone. The most common metaphor was that of a rising tide lifting all ships: If the global economy grew, all countries and social groups would eventually benefit. Moreover, trade liberalization, the removal of economic barriers and the expansion of global value chains were considered almost inevitable processes. The dominant belief was even that there was no real alternative to a more open global economy, as synthesized by the famous slogan "There is no alternative" (TINA), coined by the former United Kingdom prime minister Margaret Thatcher.

Today, however, in advanced economies that narrative has changed dramatically. Economic globalization is increasingly portrayed as one of the causes of their industrial decline and growing inequality, despite the fact that the GDP per capita of the United States, for example, has continued to grow faster than that of most other advanced economies.

At the same time, advanced countries accuse China of being one of the main beneficiaries of economic globalization due to the adoption of what they usually call "unfair" measures, resulting in a development strategy, which is different from the model promoted by Western economies.

It is certainly true that China combined openness to international trade with a strong role for the government in building productive capacity, infrastructure and technological capabilities.

Yet the Chinese approach is not an unprecedented exception in economic history. Practices that are now criticized as unfair or distortionary were used by today's advanced economies during their own rise. The UK protected its economy before embracing unconditional free trade, made possible by the technological superiority it had gained through the Industrial Revolution.

In France, in the late 17th century, Jean-Baptiste Colbert theorized mercantilist policies to favor his country's economic development. The US, following Hamilton's "Report on Manufactures" (1791), protected emerging (infant) industries through moderate tariffs, "bounties" (subsidies) and other public policies designed to foster industrialization. Those policies were instrumental in transforming the US into the world's leading industrial economy. Germany emphasized the importance of building domestic productive capabilities before fully exposing its economy to international competition. Japan's postwar economic transformation was supported by close cooperation between government and industry through the Ministry of International Trade and Industry, which promoted targeted industrial policies.

To borrow a famous metaphor, all of today's advanced countries developed by "climbing a ladder" made of mercantilism, industrial policies and public subsidies, but once they reached the top, namely their economic development, they "kicked that ladder away", arguing that public intervention would not be legitimate anymore and embracing neoliberal policies, those that allowed them to preserve their technological and economic leadership: it is probably no coincidence that when Western economies held a dominant position in many technological sectors, they were widely in favor of global openness, while today, as China has become a major competitor in several high-value industries, their view has changed.

Economic globalization has undoubtedly produced enormous benefits both in advanced and emerging economies. It has allowed consumers around the world to access cheaper products and enabled Western companies, aided by technological advances, to expand internationally and dramatically increase their profits. It has also contributed to lifting hundreds of millions of people — especially in China — out of poverty.

However, it has also imposed costs on specific social groups in advanced economies. Some industrial regions, unskilled workers and vulnerable communities experienced significant disruption, mostly because of the lack of sufficient support to adapt to new economic conditions, while gains concentrated at the top.

The faith in the self-regulating virtues of free markets and in neoliberal principles was such that they refused the idea that economic globalization should be accompanied by regulatory and compensatory measures.

When the financial crisis of 2008 hit Western middle classes as well, after the disruptions suffered over the previous couple of decades by blue-collar and unskilled workers, however, confidence in that promise began to weaken and the narrative on economic globalization changed dramatically.

When that happened, China became the ideal scapegoat and started being blamed, especially because it emerged as a credible competitor in areas such as electric vehicles, batteries, semiconductors and artificial intelligence: the same governments that for decades had been preaching free markets started rediscovering the vocabulary of industrial policy, national security and strategic autonomy, and tariffs on Chinese EVs, export controls on chips and investment screening mechanisms started being introduced.

The problem, however, is that rather than acknowledging the economic, protectionist nature of those measures, the US-led Western countries mostly justify them with the need to protect their national security.

Protecting certain strategic economic sectors, investing in research, supporting technological capabilities and caring about the most vulnerable citizens, can be legitimate and even necessary protectionist policies: however, they should not be disguised as measures of "protection" against generic, hypothetical and unjustified foreign threats, since doing so risks undermining peaceful relationships between countries, therefore creating an unnecessary and dangerous new Cold War environment.

Advanced countries should not fear calling "protectionism" by its proper name, instead of disguising it as "protection" of national security. They should recognize explicitly that the problem is not economic globalization per se, whose overall benefits are undeniable, but its lack of management and regulation, implemented through redistributive policies.

The world needs a different form of globalization, what I would call "enlightened globalization": One that abandons the prescriptions resulting from neoliberal economics, is better governed and is capable of protecting those who bear the costs of economic transformation.

This objective can only be achieved by combining a cooperatively open international environment with effective domestic public policies: advanced economies should invest in education and skills, support innovation and strategic infrastructure, adopt redistributive policies to be financed through progressive taxation, and implement measures to contain their quasi-monopolistic market structures.

The author is a professor at the Belt and Road School at Beijing Normal University Zhuhai Campus. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.