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GLOBALISATION
has long since proven its worth, opening
up new markets, and bringing efficiencies
that make everyone better off, writes economist
Peter Hall in his weekly Export Development
Canada newsletter.
It's
why political leaders have made huge investments
in trade deals, investment protection agreements,
double taxation treaties and endless discussions
to safeguard what has been put into place.
Then, one or two things go wrong, and we
lose it: globalisation comes under attack
as the obvious villain, and we retreat into
protectionism, or at least into its vile
rhetoric. Is it happening all over again?
Mr
Hall made these remarks against a background
of rising American rhetoric about getting
jobs back from China and Mexico.
And
he reminded us that our last big bout of
protectionism wasn't so long ago. Enter
the Great Recession and with it, widespread
amnesia. Globalisation, which fuelled the
longest growth cycle in recent memory, was
now fingered for igniting the late-cycle
excesses. One by one, countries came out
with "me first" policies that
baldly displayed their ignorance - deliberate,
or accidental - of how the systems of globalisation
really work. Some of globalisation's greatest
beneficiaries became its sworn enemies.
Buy American was our top customer's plan.
Then "France first". China, of
all places, was also trying to ring-fence
activity within its borders.
"What's
the appeal of such counterintuitive policies?"
he said. "First, when the chips are
down, it looks patriotic. Leaders who make
bold statements about protecting growth
appear to be champions of the cause. It's
popular, and it wins votes. Second, it plays
on fears. Chaos increases desperation, which
suddenly makes protectionism sound good.
Third, it's a remedy for the worry - usually
unfounded - that some other country is unfairly
hollowing out activity on the home front.
Fourth, following the recession countries
were spending hefty sums on stimulus, and
they wanted to ensure - through protectionism
- that nothing spilled abroad. Fifth, it's
always more convenient to blame your woes
on outsiders; protectionism "fixes"
the "enemy without". Sixth, it's
a nasty contagion: if everyone else is resorting
to protectionism, well, we have to as well.
Finally, frustration. After seven years
of economic meandering, those left behind
economically are eager for change. That's
why political messages today are replete
with fortress-mentality shock-talk. Is there
a reasonable end-game?"
Business
realities suggest that the crowing will
crumble he said. Costs to the economy are
significant, and they are more immediate
than they used to be. Reprisals to protectionist
measures can rapidly result in domestic
layoffs that reveal the policies' shortsightedness.
Small wonder that some of the post-recession's
most prominent announcements were modified
shortly after the press conference. It was
quickly obvious that instead of ameliorating
conditions, they actually stood to exacerbate
them.
Today's
version of protectionist rhetoric is playing
to the frustrations of a generation left
behind, and is occurring in the context
of troubling financial turbulence, significant
weakening of BRICS economies and others
affected by plunging commodity prices, and
the deep structural weaknesses brought on
by the Great Recession. Unfortunately, but
typically, it has taken its eyes off longer-term
gains. The goldmine of potential in the
powerhouses of China, India, Brazil, Mexico,
Indonesia and others strongly suggests broadening
the reach of globalisation, and investing
in making it more efficient. The opportunity
cost of ill-conceived short-term remedies
is arguably incalculable.
Given
the heightened role that today's circumstances
are giving to sentiment, persuasion has
perhaps never been more important. For globalisation
to work, it's an all-in process. But maybe
there's another way. There's likely no better
demonstration than a business strategy that
sees these longer-term benefits, and through
prudent execution, delivers the results.
There's more: there's actually a huge possibility
of gain through exploiting the open business
channels that another's protectionism gives
rise to. If other economies are running
away from globalisation's realities, there's
a larger opening for the ones intent on
embracing them.
The
bottom line? We can all hope that reason
prevails ahead of concrete decisions being
made that could prove very damaging to world
growth. In the meantime, we can look for
opportunities where others are building
walls.
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