Globalization: Time to deal with past mistakes to predict the future

Fifty years ago, I published the book “Globalization and discontent”, which explained why there was so much dissatisfaction with globalisation within developing countries. Simple, many people believed that the system was manipulated to turn against it, and global trade deals were incorrect.

The frustrations with globalisation these days have fuelled a wave of populism in America and other developed economies, led by politicians claiming the system is unfair to their countries. In the United States, President Donald Trump insists that American trade negotiators had been misled by Mexico and China.

How could something that should benefit everyone, in developed and developing countries, become abusive by all? How can a trade agreement be unfair to all its members?

For developing countries, Trump's claims are ridiculous. The United States practically set the rules and established the institutions of globalisation. In some of these institutions, IMF (International Monetary Fund) for example. The US still has the power of veto, despite its reduced role in the global economy (a role Trump seems to have determined to be even smaller).

For someone like me who has looked closely at international agreements for more than a quarter of the century, it is clear that US negotiators received exactly what they wanted. The problem was with what they wanted. Their agenda was set, behind closed doors, by corporations. It was an agenda written by, and for large multinational companies, at the expense of the workers and ordinary citizens everywhere.

True, it often seems that workers whose salaries have been reduced or left without jobs are only collateral damage to innocent but inevitable victims in the indecisive march of economic progress. But there is another interpretation of what happened: one of the goals of globalisation was to weaken workers' power. What corporations wanted was cheaper workers, no matter how they did it.

This interpretation helps to explain some unambiguous aspects of trade agreements. Why, for example, have developed nations given up their greatest advantage, the rule of law? True, the projections embedded in most recent trade agreements have given foreign investors more rights than offered to investors inside the US.

There are three answers to global discontent with globalisation. The first thing we call Las Vegas strategy is to do something down on betting globalisation on how it managed in the last quarter. This bet, like all the bets of political proven failures, is based on the hope that somehow it will come out in the future.

The second answer is Trumpism: Stop globalisation, hoping that doing so will bring back the past world. But protectionism will not work. Globally, manuukture jobs are in decline, simply because productivity is beyond demand.

Even if the manufacturing would come back, things wouldn't come back. Advanced manufacturing technology, including robots, implies that few created jobs will require great skill and will be placed in various locations that jobs have been lost. As double down, this effort is doomed to failure, increasing the discontent of those who have suffered.

The Trump will fail even in its proposed goal of reducing the trade deficit, which is determined by inequality between domestic reserves and investments. Now that Republicans have a clear path and can cut taxes for billionaires, national reserves will drop and the trade deficit will increase, leading to an increase in dollar value. Trump may not like it, but as he will know a little bit, there are some things that even the most powerful person in the world can't control.

There is also a third attempt: social protection without protectionism, a type of effort that took over small Nordic countries. They knew that as small countries they should remain open. But they also knew that the remaining ones would expose their workers to danger. Thus, they had to have social contracts that would help workers to move from old to new jobs and provide temporary assistance.

Nordic countries are deeply democratic societies, so they knew that although most workers took globalisation as something in their best interests, that would not be sustainable. And the rich people of these countries realised that if globalisation worked properly, they would have enough benefits to get.

U.S. capitalism in recent years has been marked by rampant greed - the 2008 financial crisis proves that.

We can learn from such successes as we can from past mistakes about what not to do. As it has become evident, if we don't manage globalisation in order to benefit all of us, the clash from the new frustrations in the north and the old disappointments in the south is dangerous to intensify.

Subtitles by: Periscope

Author is Nobel Prize winner in Economy