Quarter of a century in an era of global capitalism

If there is one lesson from the past 100 years it is that we are doomed to co-operate

Wed, Jun 11, 2014, 01:00

The salient characteristic of the past quarter of a century is globalisation. Driven on by the worldwide acceptance of the market economy and turbocharged by the digital revolution, humanity has created an economy that is more highly integrated than in 1913, except for the migration of people, which is smaller. Moreover, this has happened not under empire but under the aegis of global institutions, both public (such as the International Monetary Fund, the World Trade Organisation and the EU) and private (transnational companies).

Era of achievements

It has also been an era of achievements, notably a rapid fall in the proportion of people in extreme poverty and the astonishing rise of China and India, with almost 40 per cent of the world’s population between them. In Europe, too, countries that embraced structural reform, such as Poland, have done extremely well.

This, then, is a world that has come full circle, albeit with big changes along the way. It is a world marked by some familiar stresses: history does not repeat itself but it rhymes. The Great Recession, like the Great Depression, damaged globalisation, as the McKinsey Global Institute shows in a recent study. Affected by a collapse in cross-border finance, total flows of trade in goods and services, as well as of finance, fell sharply relative to world output. Trade has proved more robust than finance, but even it ceased to rise relative to world output between 2005 and 2012. It is not yet clear how deep-seated this slowdown in globalisation will prove. But given the damage done by the global financial crisis and evident concern about how the global market economy is operating, notably over the distribution of the gains, a bigger backlash than today’s is possible.

Possibly even more important are the political stresses, just as before 1914. The tension between economic integration and political division remain the Achilles heel of any globally integrated economy. Today, Russia defines itself as revanchist and China as assertive. Nuclear weapons reduce the chances of military conflict but they do not eliminate it. They would also make the consequences far worse.

If there is one lesson from the past 100 years it is that we are doomed to co-operate. Yet we remain tribal. This tension between co-operation and conflict is permanent. In the past century humanity experienced extremes of both. The history of the next century will be shaped by how we approach very similar choices.

– Copyright The Financial Times Ltd 2014

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