Globalization and the Rise of “Smart” Protectionism

by Daniel Wagner Daniel Wagner is Managing Director of Risk Cooperative, and co-author of “Global Risk Agility and Decision Making.” 15.03.2017

Globalization was intended to eliminate borders for the benefit of the free flow of trade, investment, information and people. It has had a good degree of success in accomplishing that, but the blowback from the globalization process has had a variety of unintended consequences, ranging from the breakdown of democracy in some countries and various forms of social disintegration to the spread of disease and deterioration of the environment. Another is the rise of self-interest among individuals and countries that believe they have either largely been left out of the process, or have failed to benefit from it in a meaningful way.

Whether actually justified based on facts, those American voters who subscribed to this view as a justification for voting for Trump have found that a lot of like-minded voters around the world have taken their grievances to the voting booth. Hundreds of millions of people all over the world believe the net negatives associated with globalization now outweigh the net positives, giving rise not just to an anti-globalization backlash, but the rise of populism and a desire to reclaim national sovereignty. Globalization was supposed to remove borders, but now many are wondering whether the model upon which globalization was built was simply fallacious, and whether sovereignty and national interest matter anymore.

Many nationalist political movements around the world have gained the traction they have for a variety of reasons, ranging from economic hardship to problems associated with mass immigration to a desire for change. What they have in common is the need to resolve the question of what their country’s ‘destiny’ is, and how citizens can attempt to control it. To many of them, globalization appears to be exactly contrary to the objective of asserting control over their economies and lives. They are asking themselves whether globalization was really all about self-interest in the first place, and how many of the corporate “champions” of globalization would be participating if they ended up making a loss in the process.

One of the unintended positive consequences of the anti-globalization movement is that it is forcing countries – developed and developing – to take a hard look at just how well they would do if they had to rely primarily on themselves to survive, rather than the global economy. For wealthy and/or natural resource plentiful countries, the answer is obviously very different than for the countries with limited money and resources. But going through this intellectual exercise is forcing many developing countries to realize that, in the end, they have only themselves to rely upon. That is a good thing, because it may compel these governments to focus more on what they need to do to help themselves without remaining under any illusion that simply engaging with the global economy will solve some of their homegrown problems.

The idea of ‘smart protectionism’ – being open to cross-border trading and investing while being protective at home — was raised in an article in The Atlantic last year. The distinction between being ‘protective’ versus ‘protectionist’ is, for example, pursuing a free-trade agreement between the U.S. and Mexico that reduces the prices of products intended for U.S. consumption while simultaneously helping the Mexican economy grow, while also pursuing policies such as income transfers for workers displaced by such agreements.

Other examples of ‘protective’ programs include enhanced re-education programs, an expanded earned income tax credit, and programs designed to invest in the achievement and health of poor young children. As Fareed Zakaria noted lasted year, the smart politics of the future will prioritize being “open and armed”— willing to compete in a global economy while being equipped with an armory of remediation tools and training. That may work well for wealthier countries, but for countries without substantial financial resources, such tools are likely to be in short supply. Aid programs targeting remediation training must clearly be expanded as the transition away from globalization continues.

The tension between populism and globalization can only grow with time, particularly during the disruptive period we are in. As a result, there is clearly a role for smart protectionism to play, which will undoubtedly grow in the future. That said, just as the basic premise of globalization has been challenged — and parts of it proven wrong — over time, some of the basic tenets of populism will be similarly disproven with time. The de-globalization process will have negative and positive impacts. If smart protective programs result in a paradigm shift in how resources are allocated to address inherent contradictions in domestic economies, the benefits will outweigh the costs over time.

*Daniel Wagner is Managing Director of Risk Cooperative, and co-author of “Global Risk Agility and Decision Making.”

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