For Better Or Worse, has Globalization Peaked?

Understanding Global Integration

The average person’s fundamental understanding of the economy is usually closely tied to their personal experience. If they’re working and able to pay their bills then the economy is doing okay. If they’re able to get an extra vacation in during the year and plan to take the kids to a theme park or have saved up enough money to buy a new car, then the economy is doing better than okay. And when bad times hit and jobs become scarce, paychecks become stretched, and rainy day funds are dipped into to cover basic expenses, the economy is bad.

Without identifying it by name, the average person actually has a good understanding of the economic cycle — peaks and troughs, expansions and contractions. Since the 1980s, an added piece to the economic narrative was that globalization would help drive the economy and make the transition between economic ups and downs a bit smoother as global corporations would have a bigger marketplace for their goods and services. Consumers would benefit from a larger variety of imported goods at their local stores and, as corporates set up global value chains, they would also benefit from lower prices on the goods they purchased. In the end, the selling point was the world would be a wealthier place as the rising tide of globalization would lift all boats.

However, not everyone believes globalization actually delivered on its promise. Manufacturing companies in advanced economies were able to create global supply chains utilizing lower cost workers in different parts of the world. And yes, those products came back to the consumer at a lower price, but that didn’t matter if you were the one who lost your job when the factory moved overseas. A decline in manufacturing jobs, an increase in inequality, and lower productivity growth entered the economy and fingers were pointed at globalization.

But was globalization really to blame? Should the fact that many measures show globalization peaked around 2008 be welcomed? In the report that follows, Catherine Mann, Citi’s Global Chief Economist reviews the advantages of globalization in its many guises but also takes a step back to place globalization against the backdrop of rising disparities in outcomes including income and wealth, and across generations, firms, and regions.

Instead of blaming globalization for the ills of the economy, Ms. Mann believes the concern should be reinterpreted as a domestic policy question. Peak globalization means the pie is no longer getting bigger and portends fewer resources to address inequalities, regardless of their cause. From this perspective, the problem is not too much globalization, but too little. To address the adjustment and distributional challenges facing the economy, we need both to reinvigorate and to deploy domestic policies to ensure the gains are widely shared.

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