Globalisation and its Malcontents

Photo courtesy of Chatham House

The World Bank predicts global growth to weaken to 2.3 percent in 2025, “a significant downgrade from previous forecasts” with potential for even lower growth “if trade restrictions escalate or policy uncertainty persists.” Among Sri Lankan economists, there is much disagreement over what must be done.

I recognise three broad groups here. The first contends we need to concede to Washington by opening up our markets to the US. This would presumably let in a flood of US imports, which in the longer term can widen our deficit and exert pressure on the rupee. The second says we need to explore and ramp up agreements with alternative markets. The third group argues we need to abandon trade liberalisation and shift to manufacturing and production, which can be financed by higher progressive taxation.

I believe all three groups are in agreement that the globalisation we once knew is no longer there. Some would celebrate this, others would lament it. A few would not care, perhaps because globalisation has not touched or impacted them the way its architects envisioned it would a quarter century ago.

Speaking at Advocata’s discussion on Sarath Rajapatirana’s Policy Challenges of Globalisation in Sri Lanka, Ranil Wickremesinghe noted that globalisation has been with us for centuries, if not millennia. This is the whole point about globalisation: that it has materialised in different forms across different periods and that we need to prepare for a new iteration of it soon.

Which makes me wonder, does it make sense to stick to the same recommendations which were made half a century ago? I think not because it’s not just the rules of the game but the game itself which has changed. The US is attempting to fight it, as evidenced by US President Donald Trump’s tariffs. As Ranil Wickremesinghe put it, at a time when China is transitioning to a post-industrial age, Washington is trying to revive domestic industry. The way things are going, this is not a fight that bodes well for the US but President Trump seems confident that he can bring it about as evidenced by the drama over the Big Beautiful Bill.

The question here is, what’s in it for us? The remarks of the economists at the discussion revealed to me a disjuncture between what “experts” have to say and what the politicians have been doing.

What the experts are saying has been recommended for so long: come up with the same proposals and convince people that they are the only ones that will work. For instance, on both the left and right, there is a near-mystical valorisation of the East Asian economic miracle, forgetting that much of that miracle was achieved against the backdrop of the Cold War, US military support and an inherently authoritarian political system.

The challenge lies in convincing people not only that reforms are necessary but also that they make sense in light of recent developments.

There is no point harping on these points if they do not translate into material outcomes for people on the ground. No amount of marketing and propaganda will convince those who live outside Colombo that Aswesuma is a success if they feel that all it has done is disconnect them from the political process.

The problem has become even more acute considering that the bedrock on which all these reforms stood – globalisation – is in its present form being upended by the very countries that institutionalised it a long time ago. There is politics and geopolitics involved in all these developments, a point which Dr Rajapatirana noted when he said that economics alone cannot save us. But that disconnect between economics and politics remains and nowhere is it more painfully evident than in Sri Lanka.

One solution would be to get out of one world and get into another. At present, China offers one way forward. Western publications are full of cynical predictions about the Chinese economy these days. The Guardian says that “Beijing’s model is hitting roadblocks” and The Economist makes a killing from hitting out at it every other week. But as the economist Michael Roberts put it, China is on the path to reach a high per capita income of $41,278 by 2041. He adds that “none of the [other] BRICS countries would catch up” over the next 20 years.

In that sense, Beijing is going to be the engine of growth for Asia, which in turn is the engine of growth for the future as Wickremesinghe admitted. In Wickremesinghe’s scheme, it would do well for China and Japan to band together, which can bring East Asia and the rest of Asia together.

I certainly believe that we need to reach out to India as our closest partner but I am not convinced that the level of integration the Wickremesinghe government hoped to achieve will go down well with a society that views India with almost uniform suspicion. Recent concerns over the Digital NIC project show how deeply embedded these fears are.

I am also not convinced that globalisation and financial investments will continue to flow to open economies or that we need another round of liberalisation. As Robert Reich has put it, there is no such thing as a truly open, non-interventionist economy. China and East Asia, examples that are invoked almost like a mantra by our economists, prospered by subverting the very prescriptions that are made in Sri Lanka.

But even that point can be set aside by the fact that we are an electoral democracy where reforms take time and risk being reversed every five years. The level of politicisation of economic reforms here offers no hope for those who think all we need is a round of imposed from above reforms which will take us to the promised land. But it is a fact we will have to navigate with.

I also found the former president’s point that the East Asian economies prospered because US policymakers and economists from universities such as Princeton and Harvard went on to advise their governments rather questionable. According to Wickremesinghe, the Sri Lankan economy could not do so well partly because it was British policymakers, scholars and research institutions which were advising the government at a time when Britain was in terminal decline.

This argument may be true, but only in part. US advisors did play a role in the East Asian miracle. Yet as Robert Wade has put it, none of it would have materialised without the political support these countries got from Washington during the Cold War. Singapore played both sides by allying with the US during the Vietnam War and then latching themselves on to China when Beijing embarked on reforms in the 1970s.

As for US economic advice being (presumably) the world’s best, Chicago produced an entire school of economists that advised Latin American governments. What happened to those countries during the 1980s is in the public domain. Moreover, it is no longer practical to rely on US support, in particular when the Trump administration has demonstrated how unreliable it is.

The whole point about globalisation is that there is no one truly universal, generic form of it. What the world thought to be globalisation in the 1990s was anything but; it was more so McDonaldization, a point admitted even by its champions. It had its share of benefits but also its limitations. Perhaps its biggest limitation was that it could not adjust to how its fundamental paradox. Perhaps its biggest limitation was that it could not adjust to how its fundamental paradox – as Andre Gunder Frank put it, it “unifies but does not homogenize and instead simultaneously polarizes and thereby fragmentizes” -would undo it over a quarter century. Not that I lament or regret this: the death of one form of globalisation can pave the way for the birth or revival of another.

The question is not when this will happen but whether we – including politicians and policymakers – are ready to confront it when it does. All too often one sees the same prescriptions being bandied about. To reiterate the former president, we need to get out of one world and inhabit another. One can debate whether we are ready or willing to do so, especially when we harp on the same solutions that have not worked for the last 20 or so years and will not work in a world being reshaped by President Trump and China: the two sides of the global coin since at least 2016.