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E-book Think Piece N°7: Anti-Trade Backlash: Ignorance & Abdication of Business “Elites”

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E-book Think Piece N°7 – 28 July 2016

 

Anti-Trade Backlash: Ignorance & Abdication of Business “Elites”

by Jean-Pierre Lehmann, Emeritus Professor, IMD, Lausanne, Switzerland, Founder The Evian Group

 

The front-page story in today’s (25 July) Financial Times is that Donald Trump has suggested the US might pull out of the WTO. I have also been receiving frequent e-mails inviting me to “Rock Against the TPP”. As the organisers of this movement put it: “Join us for a nationwide uprising and concert tour to stop the biggest corporate power grab in history: the Trans-Pacific Partnership”.

Looking back over the years since the beginning of this century – and the launch of the WTO Doha Development Agenda (DDA) – it is clear that the “protest community” has won, hands down. When you go to Geneva these days and pass in front of the WTO, as opposed to say the first decade of this century, you will note the total absence of demonstrators. Why? Because the WTO does not matter anymore! It’s history.

Therein lies a huge and complex paradox.

 

A brief review

After World War Two, the world split ideologically into two camps, the communist world and the capitalist (aka “free”) world. The latter opened up borders to trade. The former closed them and adopted policies of state-controlled autarchy. The former (communist) world continued to exercise considerable “soft” power – in addition to its “hard” military power, as left-wing thought leaders in the developed world kept urging the adoption of the socialist model, while most Third World governments opted for a Soviet model of economic (and political!) governance.

By 1989, the year the Berlin Wall fell, it was a no-brainer. As the capitalist world experienced unprecedented prosperity, the socialist world stagnated. The only Third World economies that had experienced rapid sustained growth and rising incomes since the 1970s were those few that had opted for trade and export-promotion strategies. These were the so-called Asian NIEs (Newly Industrialised Economies) – Hong Kong, Singapore, South Korea and Taiwan; they followed a pattern set by the  Japanese economic miracle” of the 1960s, which in turn after its great reforms became the case with the “Chinese economic miracle” of the 1990s and 2000s.

Trade is indisputably an engine of growth. Those economies that have grown, in some cases flourished, had active trade policies. Those societies that did not grow and instead languished had reactive closed trade policies. Note: this is not to say that trade per se is a guarantor of sustained growth, but is, as indicated, an indispensable engine.

Prior to its opening up reforms of the early 1990s, India wallowed in what was referred to as the “Hindu rate of growth”. For a couple of decades Brazil was able to achieve quite phenomenal growth – second only to Japan, from a GDP per capita in 1950 of $960 to $4000 in 1980. There it plateaued. Brazil, arguably the world’s biggest economic disappointment of the last half-century, has yet to succeed in escaping the middle-income-trap. There is little doubt that the closed protectionist nature of Brazil’s economy accounts as one of the main causes of this failure.

Trade, while by no means the perfect silver-bullet, on balance is positive. Trade, again indubitably, has contributed substantially in this last quarter-of-a-century, as economies throughout the world have opened up and engaged in the global market, to massive poverty-reduction.

 

The great paradox

The great early 21st century paradox, therefore, is that there should be such a universal populist backlash against trade, given that trade has helped societies achieve so much. There are, of course, many reasons. The most critical is that while growth has been generated, it has not been well distributed. There have been winners and there have been losers – and the losers are angry. They are the ones who in the US have rallied euphorically to the anti-trade rhetoric of Donald Trump, but also Bernie Sanders and, even if in more muted terms, Hillary Clinton. She knows which way political trade winds are blowing.

But there is another less discussed but no less compelling reason: this is the yawning chasm in discourse between the main actors and beneficiaries of trade, business executives and leaders, and the remainder of the population, those who perceive themselves as the losers, and those who are at the sticky end of rising inequality.

There is no dialogue between the two. This, however, is in a context where both sides suffer from ignorance. The backlashers react viscerally to perceived threats from open trade. Business leaders seek to exploit opportunities emerging from trade, without the intellectual effort to understand its deeper implications and articulate them. What is needed is to sustain the opportunities through more inclusive and dynamic policies. Inclusivity will arise from dialogue in diversity. This is not happening.

I have been actively engaged in teaching business executive globalisation programmes since the establishment of the WTO in 1995. One of the (not very popular!) techniques I use is to set the executives what I call “globalisation literacy tests”. These include fairly basic questions on global governance institutions, in particular on the functioning of the WTO, including the Doha Development Agenda (DDA), trade policies and flows, the adoption of open trade policies by developing countries, the rise of China, etc. The questions are not particularly erudite; they would fit easily into a syllabus of “Globalisation 101”.  The results, with occasional notable exceptions, range from the terrible to the appalling. These men and women are at the forefront of the globalised economy, yet they have very little understanding or knowledge of globalisation, including the history of globalisation.

In the early years of this century, following the launching of the DDA and all the noise that ensued both between governments and among the protest community, I would take business executives to Geneva to meet with WTO officials as well as members of civil society to engage in dialogue and learn. After a few years, the project had to be abandoned due to negative feedback and evaluations. “Waste of time”, “better things to do”, “irrelevant to my business”, “these guys are far too slow”, “business is in the real world”, “global geopolitics are bunk”, “business is about action”, etc, were among the responses. At a recent event at IMD in Lausanne, a keynote speaker was UN former director general Kofi Annan, who said that one of the greatest fault-lines of our age is excessive short-termism. This applies to the business community, again, with notable exceptions, in spades.

I have observed a similar phenomenon in my travels. My commitments require me to travel a great deal pretty much across the planet, though mainly between Western Europe and east and south Asia. On long-distance flights, I invariably use business class. I find that business class passengers (when not sleeping) are for the most part watching silly videos that require the IQ of a twelve year old, or reading corporate briefs. One hardly ever sees one reading a book on, say, the history and present condition of trade, or the socio-economic conditions of China, or the growth prospects and obstacles of Africa, or … . There is an absence of intellectual curiosity. The state of the world is taken for granted; no thought is given to its fragilities and what business might do to strengthen the global economic structure and institutional framework. The point is often made that one of the main reasons for the failure of the DDA has been the lack of business support. I would agree with a caveat: it is not so much support that has been lacking, but interest. No interest, no support.

There is on the part of too many business leaders a desire to profit from globalisation, but no evidence of a desire to learn, share or explain. We live in a truly amazing period and in many respects, overall progress and improvements have been unprecedented. In a highly stimulating, indeed challenging book, Age of Discovery, authors Ian Goldin and Chris Kutarna argue that this current era is the New Renaissance, reminiscent in many fundamentals to the Renaissance of half-a-millennium ago. There are, as was the case in the 16th century, great potential rewards, but also great risks.

 

Conclusion

As things stand in the summer of 2016, the risks seem to be overwhelming the rewards. There are fractions within societies – illustrated by the rise of populism and the Trump syndromes – there are fractions within regions – illustrated by Brexit in Europe – and there are global systemic fractions, – eg conflict between the established hegemon, the US, and the rising global power, China – and the growing chasm between those developing countries that have been integrated in the global market (eg Vietnam) and those that remain on seemingly perpetual periphery (most of Sub-Saharan Africa). Business executives have a key role to play in mitigating the risks and enhancing the rewards in a truly globally inclusive manner. But in order to do so, business elites need to understand what is happening, how we got to where we are, what steps might be taken towards a more cohesive world than is the lamentable case at present.

If globalisation is not to fail, as it has so dramatically in the past, business elites need to be less ignorant, more educated, and assume leadership responsibilities. For the rewards of the New Renaissance to be reaped and spread, the business elites need to be comprised of Renaissance men and women. Nothing less is required for ensuring the future of the WTO – and thereby inclusive, equitable, sustainable and dynamic globalisation.

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