The first meeting of the World Economic Forum in more than two years was markedly different from many of the previous Davos forums that I have attended since 1995. It wasn’t just that the sparkling snow and clear January skies gave way to the tips of empty skis. slopes and gloomy May drizzle. Rather, the difference was that a forum traditionally committed to defending globalization focused primarily on its failures: disrupted supply chains, rising food and energy prices, and an intellectual property regime that left thousands of millions without COVID-19 vaccines. 19. pharmaceutical companies can earn billions in additional profits.
Among the responses proposed to address these issues are “reshoring” or “friend-shoring” of production: the former refers to the return of a company’s production to its country of origin in order to reduce the risk of supply chain disruptions; the second refers to similar resettlement but includes exchanges with other countries through strategic alliances. Similarly, it is proposed to proclaim an “industrial policy aimed at increasing the productive potential of each country.” Gone are the days when it seemed like everyone was working for a world without borders. Suddenly there is a person who does not recognize that at least some national boundaries are necessary for economic development and security.
For those who previously advocated unrestricted globalization, this shift has created cognitive dissonance, as the proposed new set of policies means that the traditional rules of the international trading system will be twisted or broken. Unable to reconcile friend-shoring with the principle of free trade without discrimination, most business and political leaders in Davos resorted to platitudes. There was little reflection on how and why things went so wrong, or on the fallacious and hyper-optimistic reasoning that prevailed during the heyday of globalization.
We build without a foundation
Of course, globalization is not the only problem. Our entire market economy has shown its failure. In effect, we built cars without spare tyres: dropping today’s price by a few dollars and caring little about future demand. Just-in-time inventory systems have proven to be remarkable innovations while the economy was facing only minor shocks, but they have been a disaster in the face of COVID-19 shutdowns and cascading supply shortages (for example, when a shortage of microchips led to a shortage of new cars).
As I warned in my 2006 book Making Globalization Work, markets are bad at “pricing” risk (for the same reason they don’t gauge carbon emissions). Consider Germany, which has decided to make its economy dependent on gas supplies from Russia, a clearly unreliable trading partner. Now he is facing consequences that were predictable (and were predicted at the time).
Adam Smith said it in the eighteenth century: capitalism is not a self-sufficient system because there is a natural tendency towards monopoly. However, ever since former US President Ronald Reagan and former British Prime Minister Margaret Thatcher ushered in the era of “deregulation”, increased market concentration has become the norm; And not just in high-end sectors like e-commerce and social media. The catastrophic shortage of infant formula in the US this spring was the result of monopolization. After Abbott was forced to halt production for safety reasons, it didn’t take long for Americans to realize that one company alone controlled almost half of the nation’s supply of baby milk.
The West is discredited
The political implications of the failures of globalization were also demonstrated at this year’s Davos forum. When Russia invaded Ukraine, the Kremlin drew immediate and almost universal condemnation. But three months later, emerging market and developing economies have taken a more ambivalent stance. Many point to the hypocrisy of the United States in demanding that the perpetrators of Russian aggression be punished, despite the fact that they invaded Iraq in 2003 under false pretenses.
Emerging market and developing countries have also taken notice of the recent “vaccine nationalism” in Europe and the United States, fueled by intellectual property regulations imposed on them by the World Trade Organization years ago. And it is these countries that now have to bear the brunt of rising food and energy prices. Along with historical injustice, recent events have discredited the West’s defense of democracy and the international rule of law.
To be sure, many of the countries that refuse to support the US-led defense of democracy are not democratic anyway. But there are other countries, and America’s position as a leader in this struggle has been undermined by its own failures, from systemic racism and the Trump administration’s flirting with authoritarian leadership, to the Republican Party’s insistence on suppressing the vote and diverting attention from the January 6, 2021 uprising on Capitol Hill. .
control the descent
For the United States, the best way forward would be to show greater solidarity with emerging market and developing countries, helping them cope with rising food and energy prices. This can be achieved by redistributing special drawing rights of rich countries (the reserve asset of the International Monetary Fund) and supporting a strict intellectual property exemption from COVID vaccines in the WTO.
In addition, high food and energy prices could trigger debt crises in many poor countries, exacerbating the tragic inequalities caused by the pandemic. If the United States and Europe are to demonstrate true global leadership, they must stop supporting the big banks and lenders who are pushing countries to borrow more than they can bear.
After four decades of advocating globalization, it is clear that Davos regulars have done a poor job. They promised prosperity to both developed and developing countries. But while the corporate giants of the global north were getting richer, processes that could improve the overall situation were met with enemies everywhere. The “side effect” suggesting that enriching the rich would automatically benefit everyone was a scam, an idea not supported by either theory or evidence.
The Davos Forum this year was a missed opportunity. This could be an occasion to seriously reflect on the decisions and policies that have brought the world to where it is today. Now that globalization has reached its peak, we can only hope that we can handle its decline better than its rise.
* Joseph E. Stiglitz is a Nobel Laureate in Economics and Professor at Columbia University. He was the chief economist of the World Bank.
Translated by Julian Knochart.
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