The Brexit referendum, and some of the political discourse in the US presidential election, shows clearly that there is pushback on globalization. Globalization is a term that I think of as referring to integration across countries in essentially three types of markets: for capital, for goods and services, and for labor. It’s easy to take for granted that the world will always become more and more globalized over time. But it’s not a technological law that globalization must march forward.
In my own lifetime and in my students’ lifetimes, there have been no sustained reversals in the progress of globalization. We’ve seen more and more trade in goods relative to GDP; more trade in assets relative to GDP; more workers crossing international borders. You might assume that things have to trend this way. But if you go back to the late 19th or early 20th century, when the world was also globalizing quite rapidly, people may very well have also taken for granted then that the world would continue to get more and more integrated. Yet, it did not. From about 1914 to about 1945, globalization actually reversed. International capital flows collapsed, as did goods traded relative to GDP in some periods.
For those of us who think enhanced cooperation and cross border flows in goods, services, capital, and labor are important things for productivity, poverty alleviation, and welfare around the globe, it’s important to remind ourselves of these benefits and that we shouldn’t take them for granted.
And further, while globalization might make us better off on average, it certainly doesn’t have to help everyone. Some people gain, and others may lose. For those of us who want globalization to continue moving forward, it’s obviously become more and more important to think harder about ways to make sure the benefits are shared by a broader set of people than perhaps has been the case in some places.
For more from the Chicago Booth faculty on the fallout of the Brexit vote, visit our collection here.