[SCMP Coumn] World Still Integrating

June 24, 2017

Stephen King, the tousled imagineer whose day job is senior economic advisor to HSBC, swept through Hong Kong this week with a new book, and a predictably grabbing message: the west’s 70-year love affair with globalisation and free trade is under threat as “localism” infects the politics of Europe and the US.

Grave New World: The End of Globalisation, the Return of History” plays brazenly on two of the 20th Century’s most powerful and traumatising novels – Aldous Huxley’s 1932 Brave New World and George Orwell’s 1949 novel 1984. It plays games with Francis Fukuyama’s 1989 End of History. Its swashbuckling swoops through centuries of history beguile and mesmerise as he fights to persuade us that globalisation is in peril.

He is impressive, entertaining, and probably wrong. But then as I sit cocooned in Hong Kong, one of the world’s most globalised economies, I am sure Stephen King would tell me I have been lulled into complacency because I am wearing the wrong kind of glasses.

King’s book is nevertheless nothing if not timely. Popular localist politics have thrust earthquakes through the US, the UK and many of Europe’s economies, and in some places undermined confidence in the benefits that international trade and business globalisation have brought. They have lifted to power or prominence a number of wholly improbable new political leaders. They have created an obvious and urgent need to audit afresh what globalisation and liberal trade have delivered over the past 70 years.

Shame on us in business that we have for so long been so complacently confident in the powerful net benefits of liberal trade and investment and global dispersal of manufacturing that we have dangerously neglected to pay attention to those who have lost out in the process. Shame too on governments that have failed to notice or speak up for the casualties, and failed to develop strategies that could protect them, pick them up and prepare them to cope successfully in a globalised world where we are all exposed to international competition.

Stephen King is right to home in on the West’s “souring love affair with globalisation”, among politicians at least, just as Marx and Dickens were right to home in on the dreadful human impacts of the early industrial revolution. But just as Marx was wrong in predicting the imminent overthrow of global capitalism, so too is Stephen King wrong that the trade freedoms and globalised production chains built over the past 70 years are about to be unravelled. Fortunately, businesses and governments still have the capacity to learn lessons from mistakes, and correct them.

Empirically, there is little evidence to underpin King’s claim that globalisation faces a life-threatening crisis. Global foreign investment outflows that rose to US$1.9tr in 2006 tumbled hard to US$1.2tr during the global financial crisis years of 2008 and 2009, but have since recovered to US$1.75tr last year. Imports and exports worldwide took a tumble in 2009, but have otherwise continued to grow – not at the flamboyant pace of the 1980s and 1990s, but still around 3 per cent a year. Between 2007 and 2015, for example, imports have grown from US$16.9tr to US$20.75, while exports have risen from US$17.3tr to US$21.3tr.

True, Donald Trump has pointed gun-barrels at trade liberalising deals like TPP and Nafta, and has perversely argued the virtues of protectionism as he “puts America first”. But it is noteworthy that in recent weeks he has been persuaded to talk about “modernising” Nafta rather than “renegotiating” it. It is also noteworthy that US businesses have so far shown scant interest in unravelling their global supply chains or slowing investment in overseas markets.

In APEC discussions, US business leaders have stood shoulder to shoulder with business leaders from the other 20 member economies in commending the net benefits of free and open trade, and calling for further economic integration across the region. This is hardly the stuff of a collapsing globalisation superstructure.

King is right to rub Francis Fukuyama’s nose in it for his 1989 “End of History” thesis as the capitalist hubris of the 1980s evaporates, but carried away by the flamboyance of his own narrative, he is wrong to link Britain’s appalling Brexit decision with anger over globalisation. Teresa May’s Brexit ministers are working overtime to build strong trade and investment links with anyone anywhere in the world willing to talk to them.

He is right to think about the stressful implications of China’s rise, its creation of post-Bretton Woods institutions to channel China’s international ambitions, and the adjustment challenges the US and other western economies face after more than half a century of international trade and investment shaped by the IMF, the World Bank and the WTO. But he is wrong to see these Chinese moves as a threat to globalisation. China clearly sees institutions like the Asian Infrastructure Investment Bank (AIIB) as a complement to existing international financial institutions rather than as challengers.

True its One Belt One Road initiative may become an important channel for building international economic, diplomatic, strategic and business links, but China remains strongly committed to a multitude of other global and regional institutions – including the Free Trade Area of the Asia Pacific (FTAAP), which is being built on the foundations of the stalled TPP agreement from which it is excluded.

And if the US’s confidence in the merits of globalisation is in question, China’s confidence cannot be in doubt. As hundreds of Mainland companies continue to pour into Hong Kong to list here, and use Hong Kong as their springboard from which to build global business links, so Hong Kong’s stock market continues to explode. From a market capitalisation of HK$49bn in 1997, Hong Kong’s stock market is today capitalised at almost HK$6tr. Mainland companies account for over 40 per cent of this, compared with 16 per cent in 1997. If as Stephen King warns we face the “End of Globalisation”, certainly none of these Chinese companies has yet heard about it.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view.  Opinions expressed are extirely his own. 
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