THE DANGERS OF TURNING INWARD
March 3, 2009
If historians look back on today's severe economic downturn, they could well be analyzing how globalization went into reverse. And they would likely point to the growth of economic nationalism as the root cause, says Jeffrey Garten, chairman of Garten Rothkopf, a global advisory firm.
The last time we saw sustained economic nationalism was in the 1930s, when capital flows and international trade collapsed, and every country went its own way. The kind of economic nationalism we are seeing today is not yet as extreme, and it's also understandable. This generation of governments have never experienced this level of distress before and are so preoccupied with workers and companies within their own borders, thinking about how their policies affect other countries is not their main focus, says Garten.
But as the pressure on politicians mounts, decisions are being made on an incremental and ad hoc basis that amounts to a disturbing trend, says Garten:
- Classic trade protectionism is on the rise; in the first half of 2008, the number of investigations in the World Trade Organization relating to antidumping cases -- selling below cost -- was up 30 percent from the year before.
- Much bigger problems have arisen in more non-traditional areas and derive from recent direct intervention of governments -- like the "Buy America" provision of the U.S. stimulus package.
- Government involvement in financial institutions has taken on an anti-globalization tone; for example, the Swiss are reportedly considering more lenient accounting policies for loans their banks make domestically
- Then there is the currency issue; economic nationalists are mercantilists and they are willing to keep their currency cheap in order to make their exports more competitive.
There are a number of reasons why economic nationalism could escalate. But the point is, economic nationalism, with its save-yourself character, embodies exactly the wrong spirit and runs in the wrong direction from the global system that will be necessary to create the future we all want, says Garten.
Source: Jeffrey E. Garten, "The Dangers of Turning Inward," Wall Street Journal, March 1, 2009.
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