Understanding and Correctly Addressing Globalization
By: András Inotai, Research Professor, Hungarian Academy of Sciences
Globalization cannot be stopped. Evidently, as all processes produce benefits and losses, globalization has and will keep on producing its winners and losers as well. The key challenge is to enhance and make sustainable benefits and reduce costs with appropriate medium- and long-term policies.
Understanding the process of (economic) globalization is difficult due to its uneven development, both in time and space. It is not linear and characterized by set-backs, such as economic protectionism, or de-globalization, and populist movements. Also, different areas are differently affected by globalization. Looking at the five decisive factors of economic globalization, we can identify very different degrees of globalization.
About 60% of the global flow of commodities is covered by free trade agreements, the European Union being the unquestionable pioneer. A bit less but rapidly increasing is the globalization of services, a key element of current and future bilateral liberalization. Any restrictions on the free flow of technology are, in turn, in part due to competition issues and in part due to security considerations.
However, the largest gap can be observed between the practically unlimited globalization of capital and the very restricted cross-country flow of labor. Financial liberalization coupled with modern technologies have become the driving force of globalization in the last three decades. Without any binding international agreement, this process was responsible for the global character of the financial crisis in 2007–08, and, in absence of international rules, it is likely to become or remain the source of new (and repeated) financial crises with unprecedented negative impacts in a world of a rapidly growing network of interdependence.
In contrast, only about 3 per cent of the world’s population, about 250 million, is constantly living and working outside its native country. This gap will definitely be narrowed in the next 20 years. In 20 years, taking into account the growth of global population, 6 per cent constituted by such people would represent about 500 million, or the double of the current figure. Accelerated flow of labor will be fuelled by higher education, expectations of better living standards, ongoing globalization of production and service networks and, last but not least, by the access to current and new forms of communication (from television through computers to smartphones). This prediction does not consider massive flows of people due to natural catastrophes, durable climate change or wars, none of which can be left out of any realistic calculation. Even if large part of the additional flow will be concentrated in the geographical neighborhood, massive migration (pressure) is likely to be experienced in developed countries, not least in Europe, due to its geographic proximity to regions with rapidly growing population and considerable political and economic instability. In addition, the potential impact of digitalization on the future size and structure of labor market demand has to be taken into account.
Correctly addressing the manifold impact of globalization requires a carefully composed package of policy instruments and communication. The former has to include economic incentives, social programmes, future-oriented education, increasing labor market mobility, adequate tax systems, reforming the pension system, and investing much more in sustainable health. The latter has to prepare to face the growing challenge of de-globalization and populist arguments.
In this context, the costs of potential de‑globalization have to be highlighted. Most supporters of de-globalization movements feel that they are losers of globalization, although they are in fact clear winners of this process. It has to be made clear for them that, in a complex and interdependent world, there is no possibility of „cherry-picking”. Any kind of de-globalization would deprive them of the benefits of globalization they used to enjoy and have become accommodated to as to a „natural state of living”. Therefore, a widespread communication campaign should be started both on the global, European, and nation-state level addressing the real and potential costs of de-globalization. This should go hand in hand with the simultaneous implementation of effective policy instruments that are likely to tame the negative consequences of globalization.
However, no sustainable success can be reached without a more active and cooperative role of the societies. Thus, traditional elements of investment into the human factor, the key pillar of sustainable competitiveness and social cohesion (education on all levels, research & development, and healthcare), have to be complemented by „investment into the innovative society”. Only innovative societies will be able to remain successful and sustainable over the 21st century, experiencing unprecedented globalization with all of its advantages and disadvantages in a rapidly accelerating timeframe. Innovative societies are characterized by:
- openness (rather than closing down and self-marginalization),
- solidarity (rather than hate-generation),
- cohesion (rather than polarization sometimes fuelled by highly irresponsible government policies),
- future-oriented attitude (rather than fleeing back into the not always „glorious” past),
- increased risk-taking by prioritizing chances and new opportunities (rather than overestimating risks and potential costs of adjustment).
Overcoming the deep-rooted aversion to any change, partly reinforced by the decades-long peace and stability, represents a unique challenge to democratic institutions, policy-makers and societies alike. In order to avoid any new and probably irreparable catastrophe, several times experienced in our history, we have to start a multi-level discussion and dialogue in the broadest form possible among policy-makers, experts, different interest groups, large social strata with different conditions of economic welfare and degrees of education. Convenient fora should be organized on local, regional, national, European, and global levels simultaneously. Rightly addressing and managing globalization is our common and indivisible responsibility.