The recent meeting of the heads of state of G7 countries in Quebec was an utter disaster for the rich countries’ club. The cracks in the global economic architecture, painstakingly built up brick by brick after World War II, are now gaping open. The contradictions arising from capitalism’s globalization fix can no longer be papered over.

The G7 took shape in the seventies, at a time when the post-war Bretton Woods system had caved in and the developed economies were trying to find a way out. They found it in the free movement of capital and free trade on the one hand and financialization of the economy on the other, a system that came to be called globalization by its supporters and neo-liberalism by its detractors. More than four decades later, globalization is under threat, not from external forces, but from its once most powerful advocate—the US. And without the US, what’s the point of the G7? Before the summit, French President Emmanuel Macron joked the group could very well be called G6+1, no doubt a premonition of where the meeting was headed. With friends like Donald Trump, who needs enemies?

Even the International Monetary Fund (IMF), at one time the West’s chief enforcer, has changed its tune. An article in the June 2016 issue of its magazine Finance and Development had the telling title Neoliberalism: Oversold? which caused quite a flutter in liberal dovecotes. The authors said the benefits of free capital flows are far more tentative than assumed by the neoliberal canon, pointing to the increasing number of booms and busts that accompany these flows. They wrote about the effects of rising inequality and the need to correct it through fiscal measures. They concluded, bitingly, “Policymakers and institutions like the IMF that advise them must be guided not by faith, but by evidence of what has worked."

In the same vein, a more recent IMF paper, The Distribution of Gains from Globalization, said there were diminishing marginal returns from globalization across economies and within countries, income inequality increases with globalization.

But we needn’t turn to academia to realise that many people haven’t gained from globalization, especially in the rich countries. The political backlash against the globalizing elite speaks with a much louder voice. It’s plain that, in country after country, the elites who have the money or the skills to take advantage of global opportunities, whether in business or jobs, are the ones that have gained the most. Those whose jobs have been threatened by globalization are the losers. And geopolitically, globalization has had the completely unintended effect of undermining US hegemony.

For countries that benefited the most from the old system, things are getting desperate. It’s no secret that global trade in goods and services has been very sluggish in recent years. But capital flows are far bigger, dwarfing trade flows. And as a recent report of the United Nations Conference on Trade and Development points out, while global capital flows as a percentage of GDP have recovered a bit, they remain well below the levels they reached before the financial crisis. Growth in global value chains, too, has stagnated.

In many ways, the situation now is reminiscent of the 1930s, when countries raised tariffs and retreated into protectionist blocs—Britain’s Imperial Preference, France’s gold bloc, the Smoot-Hawley tariffs in the US. We know how that turned out.

But the global economy is vastly more interconnected now, which is why Trump’s attempt to turn the clock back will probably fail, even if he is not overthrown first by the old elites.

How will the powers-that-be deal with this latest challenge? A descent into more authoritarian forms of capitalism is very likely —China is a shining example, having beaten the West at its own game. It is also likely that we could have a resurgence of fascism. As Antonio Gramsci said in 1930, “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear". Slavoj Žižek puts that quote more dramatically: “The old world is dying, and the new world struggles to be born: now is the time of monsters."

Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at manas.c@livemint.com

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