Globalisation 3.0 can 'raise living standards across the world'
Globalisation is not a zero-sum game - it has the potential to raise living standards in all regions of the world, but only if it is properly managed.
It has not been a good start to the year for the European economy. A brief moment of optimism in the first two weeks of January has faded after Standard and Poor's decision to downgrade the credit ratings of a number of eurozone countries. And all signs point to the emergence of a Europe-wide recession in 2012. In these conditions, governments are facing increasing pressure to protect their own economies and resist calls for greater economic integration. However, as Peter Mandelson observed in Davos last week, "protectionism is a cul-de-sac that will destroy many more jobs and incomes than globalisation will". Building walls around national economies may give the short-term illusion of security, but as the economic history of the20th century shows - it is no way to generate longer-term growth and prosperity.
Lord Mandelson was in Davos to launch a new Institute for Public Policy Research report, which aims to take a fresh look at globalisation; to consider its impact on the objectives of generating sustainable growth and broad¬-based increases in living standards in every region of the world and to set out a new policy agenda to enhance its ability to realise these goals. In it, we argue that the world is on the brink of a 'third wave' of globalisation, following a United Kingdom-dominated wave in the half-century that preceded the First World War and a United States-dominated wave that emerged from the ashes of the Second World War.
Unlike these previous two periods, the new wave of globalisation is unlikely to be dominated by a single economic paradigm or country – although, the rise of several fast-growing Asian economies will continue to be a prominent feature. Economic policy pluralism is no bad thing. Countries have much to learn from each other's economic models and a pick and mix approach to growth should generate innovation and progress. But in order to maximise the benefits of globalisation, this needs to be underpinned by a shared commitment to a set of fundamental principles that are designed and adhered to by developed and emerging economies alike.
Many people in Europe and other parts of the developed world are concerned about the rapid shifts in the global economy, with opinion polls revealing an increase in the levels of fear and hostility towards globalisation. In 2011, "de-globalisation" candidate Arnaud Montebourg did surprisingly well in Socialist Party elections in France; while the question of how to deal with - and implicitly, to reduce - trade competition from China has featured prominently in the US Republican primary debates. But the emergence of China, India and others does not necessarily mean that the west will 'submerge'.
As these economies grow, new markets for high-value goods and services will be created. To gain from this, governments in advanced economies must become more strategic in the way that they identify their comparative advantages and equip their domestic workforces to compete at the international level. This will require a more activist approach to industrial, education and skills policies. It will also entail reforms to welfare systems to improve their ability to support those individuals who lose out from the churn associated with globalisation. In the report, we argue that these systems should be reoriented to give people more effective and personalised support in times of particular crisis - such as when they lose their job.
Globalisation is not a zero-sum game. It has the potential to raise living standards in all regions of the world, but only if it is properly managed. By viewing it as a means to achieving growth and prosperity rather than an end in itself and designing smart policies accordingly, governments may yet avoid being pulled into the undertow of the global economy.