This article was first published in The Australian on 24 November 2016.
For so many years the main challenge of globalisation lay in getting market access and building global supply chains. Now, the challenge may just be maintaining the status quo.
We are now seeing a dangerous push to abandon or even reverse the process of globalisation and to punish the political leaders that promote it.
Protectionism has been on the rise since the GFC but the UK Brexit vote was this year’s big wake-up call for developed economies and was an indicator of the shockwave that was about to be unleashed in the US.
The US electorate’s decision is a clear signal against a whole bunch of things that are wrapped up in a new term of complaint: ‘Free Trade’.
The President-elect has made it clear that he thinks American negotiators have done poorly in global trade negotiations. Two of his prominent agenda items are stopping the Trans-Pacific Partnership (TPP) coming into force and the repeal of the North America Free Trade Agreement (NAFTA).
The politics against free trade confounds trade and investment with the consequences of technology and blames it for any rises in inequality in developed economies.
It offers a simple narrative that free trade has been a false promise. This is also leading to a widespread disillusion with political leaders around the world.
This changing shift in the political narrative challenges what we have known as the citizens’ bargain. A bargain where citizens accepted the promise made by political and business leaders on the benefits of opening up of economies and acquiesced in domestic reforms in support thereof - believing they would benefit.
So, we are entering an extremely uncertain period. This stage of globalisation is under serious threat. Under protectionist agendas it could become more not less difficult, for foreign companies to invest in foreign property or businesses, or to establish new businesses within foreign borders.
It actually runs the risk of derailing ‘behind the border’ reforms necessary to support economic growth.
The need remains for the process of globalisation to continue, perhaps, reconsidered.
Let’s be clear: Globalisation has opened the world up and Australia, like the rest of the world, has benefitted greatly from this economic, political and social model.
Access to global markets has helped hundreds of millions of people out of poverty within a short time and sustained economic growth. According to the World Bank in 1981 some 43 per cent of the world’s population lived in absolute poverty. By 2013 that figure was below 11% and current projections estimate that by 2030 the global poverty figure could be as low as five per cent.
A commitment to globalism underpinned the creation of the World Trade Organisation, and open regionalism underpinned the creation of APEC (Asia-Pacific Economic Cooperation).
Branko Milanovic, Lead Economist at The World Bank, wrote earlier this year that the mid-1980s to today is “the period of the greatest reshuffle of personal incomes since the Industrial Revolution.” He called the Asian middle class the “winners” of globalisation and Australia has benefited greatly from this ‘win’.
Australia's international economic diplomacy was based on globalism, open economies and open regionalism, and these need to be reaffirmed.
As an island continent, blessed with an abundance of natural resources, Australia is naturally a trading nation. Over the next century it has a vital role in the growth of the Asian middle class and as we move further into this interconnected global society this country’s share of export income from services and knowledge will undoubtedly rise.
Intellectual property and market value are being added at every level of the integrated production process.
Supply chains are now more accurately described as value chains.
For example, is Apple an American company with a Chinese labour force? Or, is it a Chinese product with American know-how and marketing?
Australian companies provide components to Apple, not by exporting them to America, but by exporting them to China.
Local Chinese, Australian and American tech enthusiasts sell Apple products and provide after sales service on the ground. And Chinese, Australia and American consumers – and consumers right around the world - queue up to buy iPhone 7.
So in China, Australia and America, globalisation looks and feels both global and local.
This new stage of globalisation -- or global integration -- is a great opportunity but also offers major new challenges.
It is going to require a superior level of advocacy and decision making from leaders at all levels.
Within the global marketplace a failure in any one place can become a widespread disaster very quickly.
The financial policies, or crises, of one major nation can drive global tremors for everyone.
This is a world of extraordinary interdependence which can prove fragile in a crisis. The deeper challenge of globalisation is that, while it is ubiquitous, its benefits have not been equally shared.
The votes in the UK and US can be seen as a protest against globalisation and an admission that the voters want to see more benefits of their vibrant knowledge economies at home. It is difficult political challenge. But our leaders need to remember if we turn our backs on globalisation the great advances to lift nations and their citizenry out of poverty will stall and even reverse and that risks an altogether different world for our children.
John Denton is a partner at and the CEO of Corrs Chambers Westgarth.
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