【Fred Hu,Michael Spence】CENTRIFUGAL FORCES THE PROSPECTS FOR GLOBALIZATION AND GROWTH
SINCE 1945, up until the past year, the global framework for growth and development across a broad range of countries and economies, advanced and emerging, has been fairly clear and broadly shared, though there has been some fraying at the edges. The key components of that framework were:
1. An increasingly open system for trade in goods and services, supported by international institutions for developing and enforcing a rules based multilateral system,
2. Relatively free flows of capital in various categories (FDI, financial capital, real estate investments, infrastructure investment)
3. The very rapid growth of flows of information, data, technology, know-how and knowledge, within and across borders.
4. More limited but still significant flows of people across borders for varying periods of time, filling labor or skills gaps in certain markets and facilitating the creation and operation of multinational companies and supply chain networks.
There were of course, complications. The Cold War distorted this framework especially for some developing countries. Both developed and developing countries benefited greatly from the open global architecture, but only when internal policies were configured effectively to harness the opportunities of trade and a large global market place. Those that were successful had to modify the framework’s prescriptions to mitigate risks and calibrate the pace of change to domestic realities. In practice this meant among other things, pacing sectoral opening patterns to prevent large shocks in terms of output and employment, and managing the capital account carefully with an eye to currency and financial stability and avoiding excessive dependence on foreign capital.
Developing countries were not alone. Advanced countries also sometimes found trade related disruptions in various sectors to be too large and rapid and took actions to influence global investment patterns and hence employment. The Reagan era intervention in the auto sector to push Japanese automakers to set up plants within the US would be an example. There are many others.
While the open global architecture was accepted broadly as the framework for the growth and development journey, pragmatic interventions, while they created frictions, were accepted as necessary.