Globalization's latest last stand

• Published date: 01 March 2023
• Publication title: The Korea Times

LONDON ? Is the world economy globalizing or deglobalizing? The answer would have seemed obvious in 1990. Communism had just collapsed in Central and Eastern Europe. In China, Deng Xiaoping was unleashing capitalist enterprise. And political scientist Francis Fukuyama famously proclaimed the "end of history," by which he meant the triumph of liberal democracy and free markets.

Years earlier, the British economist Lionel Robbins, a firm believer in free markets, warned that the shaky political foundations of the postwar international order could not support a globalized economy. But in the euphoria and triumphalism of the early 1990s, such warnings fell on deaf ears. This was, after all, a "unipolar moment," and American hegemony was the closest thing to a world government. With the Soviet Union vanquished, the thinking went, the last political barrier to international economic integration had been removed.

Dazzled by abstractions, economists and political scientists should have paid more attention to history. Globalization, they would have learned, tends to come in waves, which then recede. The first wave of globalization, which took place between 1880 and 1914, was enabled by a huge reduction in transport and communication costs. By 1913, commodity markets were more integrated than ever, the gold standard maintained fixed exchange rates, and capital ? protected by empires ? flowed freely and with little risk.

Alas, this golden age of liberalism and economic integration gave way to two world wars, separated by the Great Depression. Trade shrank to 1800 levels, capital flows dried up, governments imposed tariffs and capital controls to protect industry and employment, and the largest economies separated into regional blocs. Germany, Japan, and Italy went to war to establish blocs of their own.

The second wave of globalization, which began in the 1980s and accelerated following the end of the Cold War and the rise of digital communications, is now rapidly retreating. The global trade-to-GDP ratio fell from a peak of 61 percent just before the 2008 financial crisis to 52 percent in 2020, and capital movements have been increasingly restricted in recent years. As the United States and China lead the formation of separate geopolitical blocs, and the world economy gradually shifts from interconnectedness to fragmentation, deglobalization seems well underway.

To understand why globalization has broken down for a second time, it is worth revisiting John Maynard...