Today’s woes have their roots in the 1990s, when policymakers set the world on its current, hyperglobalist path, requiring domestic economies to be put in the service of the world economy instead of the other way around. In trade, the transformation was signaled by the creation of the World Trade Organization, in 1995. The WTO not only made it harder for countries to shield themselves from international competition but also reached into policy areas that international trade rules had not previously touched: agriculture, services, intellectual property, industrial policy, and health and sanitary regulations. Even more ambitious regional trade deals, such as the North American Free Trade Agreement, took off around the same time.
In finance, the change was marked by a fundamental shift in governments’ attitudes away from managing capital flows and toward liberalization. Pushed by the United States and global organizations such as the International Monetary Fund and the Organization for Economic Cooperation and Development, countries freed up vast quantities of short-term finance to slosh across borders in search of higher returns.
At the time, these changes seemed to be based on sound economics. Openness to trade would lead economies to allocate their resources to where they would be the most productive. Capital would flow from the countries where it was plentiful to the countries where it was needed. More trade and freer finance would unleash private investment and fuel global economic growth. But these new arrangements came with risks that the hyperglobalists did not foresee, although economic theory could have predicted the downside to globalization just as well as it did the upside.
“It is to the more flexible principles of Bretton Woods that today’s policymakers should look if they are to craft a fairer and more sustainable global economy”
|Globalization’s Wrong Turn https://t.co/Tr4aUBz7du via @ForeignAffairs
— Gbádégésin Fábùnmi (@Seun731) June 23, 2019