You can draw a line in the historical sand: almost pinpoint the date when globalisation ceased being broadly progressive and became crudely self-serving.
Ironically, it was the fall of Soviet communism that tipped the balance. With the tumbling of the Berlin Wall in the late ‘80s the existential threat of the Soviet Union vanished. Sadly, with it went the need for policymaking to focus on strengthening human and other rights or to tie globalization’s outcomes to improving the lot of general populations.
From a policy point of view, the Washington Consensus rested on two foundational assumptions that - although popular at the time - have proven to be fatally flawed.
The first and most damaging assumption was derived from the euphoria of Western victory. It became popular to believe the logic of the End of History. According to this reasoning, victory in the Cold War had cemented Western liberal capitalism as the undisputed champion in the historical sweepstakes.
The policy flaw was manifest in the widely held belief that political considerations no longer needed to play a central role at the global level. Certainly there were political differences at play, but the End of History suggested that major economic players like communist China, post-Soviet Russia and others - if there were not presently liberal in the Western sense of the term - soon would be.
The second fatal flaw in the Washington Consensus was derived from the logic of ‘free market’ monetarism and driven by the major investment banks on Wall Street. In the 1990’s the Washington Consensus, and the International Monetary Fund (IMF) launched a new era, where its relatively new idea of ‘market purity’ applied a broad set of rules to policymaking , including financial liberation, market determined interest rates, elimination of trade restrictions and barriers to foreign direct investment and the privatisation of state-owned enterprises.
From that point onward, it was no longer required from a policy point of view to monitor the outcomes of globalisation. The assumption that ‘markets produce the optimum allocation of given resources between alternative uses’, coupled with the idea that ‘markets always trend towards equilibrium, i.e. an ideal state of price and therefore allocation of resources’, liberated policy makers from responsibility for any damaging outcomes of given policy choices.
Normative economics suggests a return of policy that includes consideration of political realities and a focus on strengthening the rule of law in international relations. In other words, we recommend a return to post war globalisation’s original purposes and operating assumptions.
John Maynard Keynes and Cordell Hull, architects of the most successful post-war institutions were inspired with a bold vision ‘to reconcile liberal international trade policies with high levels of domestic employment and growth’. Their larger goal ‘to devise an international system benefiting not just the world community as a whole, but each of its parts.’
The monetary and currency accords that were adopted at Bretton Woods helped launch a ‘freer trading’ post war world. As a result, globalization got off to a pretty good start.
The Treaty of Paris (1951) established the European Coal and Steel Community, and in the process set an important standard in European cooperation. This was soon followed by the Treaty of Rome (1957), which established the European Atomic Energy Community.
With the success of these early supranational agreements the road was cleared for more globalization initiatives, which accelerated the development of the European Economic Community, set the stage for the North American Free Trade Accords (NAFTA) and laid the foundations for the founding of the World Trade Organisation.
It is a measure of how far we have fallen from those lofty ideals that – 75 years later - globalisation is increasingly labeled as a ‘race to the bottom’ for wages and working conditions, and far from uniting the world in a new vision of harmony has unleashed vast forces of disintegration - the very forces that many believe contributed to the Second World War.
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