The backlash against global trade liberalisation triggered by growing anger at rising inequality threatens to lead to a period of sustained deglobalisation that would impede the World Bank from hitting its goals of eradicating poverty and reducing inequality, according to its chief economist.
Penny Goldberg, an acknowledged expert on trade and development, said that globalisation had contributed to lifting millions of people out of poverty and was not to blame for the increase in inequality that had fuelled the backlash.
“The statement that globalisation has increased inequality is not justified,” she said, speaking in London on the eve of the bank’s annual meetings. “If you look at the evidence, there are many cases where globalisation reduced inequality.”
However, she acknowledged there was “strong evidence” that the effects of globalisation had been felt unevenly between countries, within countries, between formal and informal workers and between firms and consumers.
“It really matters what dimension of inequality you focus on,” Goldberg said. “The current backlash in my view is very closely tied to regional inequality.”
How to defuse the rising trade tensions and tit-for-tat imposition of tariffs by China and the United States is set to dominate this week’s meetings.
Goldberg said the expansion of world trade seen in the first two decades of this century was driven by trade policy rather than cuts in tariffs or the decline in the costs of transport and ICT. She said the steep falls tariffs and costs were seen in the 1980s and 1990s.
She pointed to a sharp drop in regional trade agreements, the paralysis of the World Trade Organisation due to the US’ refusal to appoint judges to the appellate court and the limited opening of services and agricultural markets in developed economies as examples of policy failures.
Neil Shearing, group chief economist at Capital Economics thinktank, echoed her claim, saying history showed it was policy rather than technology that caused globalisation to roll back. “A more malign form of policy-driven de-globalisation — where cross-border trade and capital flows fall as a share of GDP — is looking increasingly likely,” he said.