Globalization and Complexity

To think clearly about globalization, one must first consider how the modern international system came to be. After World War II (WWII), the United States found itself as the world’s preeminent economic power as the industrial base of Europe, Russia, Japan, and so much of the rest of the globe were severely damaged. The decades after the war provided an opportunity for the United States, given their economic preeminence, to help rest of the world develop economically. This provided a source of status for American officials as they travelled the world dispensing advice and wealth to the world’s underdeveloped nations. Note too that the very term “underdeveloped” reified the development concept to the extent that development is of course a goal to be desired and sought by all countries. Note also that the international social bargains and narratives established after WWII all assume American international leadership that sustains and maintains the international system.

As noted by economist Michael Spence, writing for the World Economic Forum (WEF) however, all good things must come to an end. Those “good things”—or more accurately, “public goods” provided by the United States since WWII—take a range of forms, both security “guns” and economic “butter”. For example, the United States continues to participate and promote the North Atlantic Treaty Organization (NATO) that protects Europe from Soviet Union even though the Soviet Union ceased to exist over twenty-five years ago. Moreover, Europe has been able to afford to protect itself for longer than that, and the European Union (EU) has used the extra money it saved not buying guns to buy butter — i.e., to fund a lavish welfare system. Economically, the United States has participated in multiple multilateral trade deals, such as the North American Free Trade Agreement (NAFTA), that have undeniably reduced trade barriers and increased trade. Such trade deals have significantly impacted traditional manufacturing in the US and other developed nations while helping Mexico, China, and other developing countries. President Barack Obama sought to further free trade through the Trans-Pacific Partnership (TPP) as part of his “Pivot to Asia” strategy. The impact of TPP on American jobs was unclear and was being debated until Donald Trump was elected, and now the TPP appears, “dead in the water.”

Spence notes that while free trade increases economic equality among countries, it may also increase economic inequality within countries. His observation is both accurate and commendable for a range of reasons. First, Spence’s understanding is nuanced as he recognizes that all good things do not go together, an all to common error in today’s soundbite driven 24 hour news cycle society. While policies generally and globalization policies specifically throw off both benefits and costs, this is not always recognized by economic policy analysts. Second, he recognizes that these costs and benefits of free trade policies obtain differentially though space, with increased equality at the international scale being entirely compatible with and related to problematic inequality at the national scale. Third, he recognizes that these costs are fueling nationalist movements to reconsider globalist policies and norms, and the trajectory and outcomes of these movements is not clear.

However, there also exist opportunities to extend and reframe Spence’s analysis. First, the benefits and costs of free trade are not only disassociated in space but also in time. That is, the benefits of trade-based integration tend to be realized before the costs—which predictably leads to globalization’s costs being delayed. In the United States, the benefits of cheap Chinese goods became known long before the consequences of America’s manufacturing jobs moving overseas became felt, acknowledged, and appreciated. These concerns surprise those who focused on the benefits of and benefitted from free trade. Second, the costs of trade may be most “surprising” to those who bear the costs of free trade, those who are on the reduced-information side of free trade’s information asymmetry. Phrased more directly, those in a privileged information position, either within government or industry such as Wall Street or a multi-national corporation, may seek policies that help them and hurt American workers by stressing the benefits and obfuscating the costs of globalization. Over the many decades of the American political establishment’s international largesse, these globalist arguments and views have become institutionalized to the extent that they form an establishment globalization narrative. That is, the winners of globalization have written its history and are surprised by those who disagree with their work.  Third, Spence specifically mentions the “fake news” of the 2016 American election, but he uses the term carelessly and, ultimately, incorrectly. Spence uses the term “fake news” to describe the complaints of those who have been harmed by globalization. He mischaracterizes the information flows that until recently have been ignored by the establishment’s self-authored globalization narrative that has greatly benefitted that establishment. Those who, by Spence’s own admission, have borne the brunt of globalization’s excesses led to the creation of political entrepreneurs—such as Nigel Farage in Great Britain and Donal Trump in America—who have given voice to the economic challenges and social frustrations felt by everyday people. Moreover, these voices were expressed in alternate information channels not controlled by the establishment.

Examining economics generally and globalization specifically from a complex systems perspective is advantageous because allowing these competing social forces to be accounted for and examined within an integrated perspective. The extended temporal perspective afforded by such a view shows how initially small concerns—such as the potential loss domestic manufacturing jobs—can grow, shift, and eventually dominate over time. However, the dynamic behavior of these complex social systems do not readily correspond to the regression-based methods that dominate economics. While more complex, computer-based methods have been proposed, they have gained acceptance by economists and senior policy makers slowly if at all. In the 20th century when economic growth could be confidently counted upon, the benefits outweighed its costs,  and the computational power available to study trade processes and global systems was limited, such concerns as the costs of free trade could be discounted. Now that economic growth has slowed, costs outweigh benefits for significant sectors, and powerful analytic tools are available, there is an opportunity to extend Spence’s analysis to address the challenges, excesses, and costs of globalization. Such analyses could help guide the nationalist forces that will only increase in the 21st century.

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