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|Nightmares about globalisation|
Asahi Shimbun - September 3rd 2007
There are two popular nightmares about globalisation, and sadly neither is quite foolish enough to be easily proven false. Over the next year, both are going to be tested by events in the world economy—especially by the financial turmoil that woke the world out of its usual August slumber.
The nightmare that emerges most directly out of that turmoil has already featured in some of the market commentary. It consists of a fear that with open capital markets in most countries around the world, financial distress in one will lead to financial distress in all of them.
Hence stockmarkets in Asia, Europe and
In 1998, when the East Asian financial crisis spread to
Observant readers may have noticed that it didn’t happen. The nightmare was believable, given the way markets reacted in the first few months of the crisis. But in fact, although there were some worldwide effects there was no worldwide collapse.
In that crisis, it turned out that, contrary to Mr Soros’s fears, globalisation had a stabilising effect, not a destabilising one. In particular, the continued economic boom in
The question is: will this happen again? This time, the origin of the turmoil is in
That, however, has always been true: when
Moreover, even if credit losses are painful for some banks, there will be no shortage of capital around the world. The real danger is of a loss of trust by lenders. But that is unlikely to take hold on a global scale, with so many different borrowers to choose from. Capital will be reallocated, helping to counteract the slump.
That is an optimistic prediction; we shall have to wait and see whether it comes true. We mustn’t forget the second nightmare, however. For there is a danger that it could combine with the first, to make things worse.
The other nightmare about globalisation is the idea that it destroys jobs and incomes in the richer countries, especially of the poorest and least skilled, as low-cost competitors in
They also need to elect a new president, in the
Now, however, the financial turmoil that has arisen from
In principle, these nightmares are contradictory: if everyone suffers because of connected capital markets, then the pressure on American jobs will be eased by that process, not worsened. It will also be better to solicit Chinese investment, not rebuff it. Logic and rationality are not, however, the finest features of election campaigns, nor of political discourse in general.
It will be hard to prevent trade being blamed for job losses. But to avoid a really damaging backlash against globalisation, we will need to promote the benefits of open capital markets with great vigour—as long as, during the coming year, globalisation does turn out to be stabilising, rather than the reverse.