The great Anne Applebaum argued
in the Washington Post on Friday that Russia’s embargoes on Western products were
the first stage of the end of globalisation and the final disproof of the theory that countries with McDonalds don't fight each other (the "McPeace" theory). Anne knows more about Russia and Eastern Europe than I can ever hope to,
and on that ground I wouldn’t take her
on. But she set me thinking. On her broader point on globalisation, I don’t
think she’s quite right, but (as you’d expect)she's wrong in an interesting way.
Anne is certainly right to argue that the successive waves
of sanctions mean that:
“a large country…has decided it
prefers a territorial war with one of its neighbours to full membership in the international
economic system”.
given that there is little doubt that Western financial sanctions
are going to make it much more difficult for Russian banks and other countries
to play as equals across (at least) Western markets.
Is it right to extrapolate from that, though, that:
“This week globalisation suddenly
began to unravel a lot faster than anybody imagined”.
and, more, that, this was a shock, because:
“globalisation offered a
reassuring promise of irreversibility … we have taken for granted the
assumption that globalisation is a new stage in world history, not a passing
phase”.
In fact, I doubt many international economists really think that. It is, after all, almost obligatory to refer
ominously to Norman Angell’s “The Grand Illusion” in any serious discussion of
globalisation. And it is possible after all for any country to opt out of
anything if it really wants to.
Still, reversible or not, is this in fact the beginning of
the triumph of politics over international economic integration? I don’t think so.
First, what’s been striking since the Great Crash of 2008 is
the continuity of economic integration, even though many countries will have
been tempted to put up politically-driven barriers to trade and investment. There’s been a bit of that, as the WTO has
documented, but on the whole it’s not been significant, even in zones of
relative tension like East Asia. The
only country that seems to have had a serious go is Argentina, marginal to the
system and with its own brand of dysfunctional domestic politics driving
it.
Second, where countries have used trade measures,
they’ve done so more to make a point rather than to cut themselves off seriously
from global markets. The EU and China’s trade
niggling with each other over the last few years has aimed mainly to demonstrate
to each other, and to domestic opinion, that they can’t be pushed around. Russian sanctions on Western food products
are a notch up from that, but probably only a notch, and anyway these products
are a small part of most Western economies and often not very freely
traded in the first place, thanks to the excellence of agriculture
policy-making over the years. (Russia is
after all hardly the only country to have decided, as Anne’s article puts it, “it
can accept higher food prices in the name of national honour”.) Western sanctions are more serious, but would
of course be rapidly reversed if Russian policy ever changed
significantly.
Third, Russia is only imperfectly globalised anyway. True, Russia’s energy is traded on global
markets, and Russian banks are significant participants in global capital
markets. But otherwise Russia is barely
connected to the supply chains that drive industrial production nowadays,
or to the flows of services that go with them – the global value chains that
fuel prosperity. Indeed that lack of connection
is one reason why a business like McDonalds finds it
hard to operate in Russia as it would elsewhere. Russia
can afford to cut itself off for a bit because the connections are quite weak
anyway.
So, no, I don’t think this is the beginning of the end. But could it ever happen? Could globalisation reverse out?
Obviously it could. Political
conflict could bring the whole thing crashing down as in 1914. But a more likely scenario over the next
decade or two is that political tensions between the big regional players encourage
globalisation to stay regional. Most value
chains are still regional not global, in three great economic regions centred on
the US, Germany, and China. The
connections between them are relatively weak and many African and Latin
American countries are not connected to any.
There are definitely scenarios where none of these connections ever get
made, with foreign policy and domestic political pressures causing global integration
to stall. That could easily be a world
of persistent political tension between
the blocs and maybe, one day, low-level conflict in the border areas.
That’s why inter-bloc initiatives like TTIP, TPP, and the EU/China
and EU/Japan trade negotiations matter so much.
However slow, imperfect, and frustrating, they are ways of putting in the
high-level economic wiring between regions that will make it harder to turn the
lights out in years to come. We should
all be getting behind them. They need to
succeed. If they don’t, then, yes, we
could one day be in that world of regional blocs, with the balance of power determining
relations. Sound familiar?