By Paul S. Rowe
Professor of Political Studies & Coordinator, Political Studies and International Studies
I teach in the fields of international and developing world politics, and coordinate Trinity Western University’s International Studies degree program. In my fields, it has become cliché to read about how the world is “increasingly interdependent” or “increasingly globalized”. For decades, almost every country in the world has embraced freer trade in goods, services, and investment flows. People have crossed borders routinely and easily and the expansion of air transportation has facilitated the integration of peoples, cultures, and economies.
But in an age of renewed protectionism and the global response to the COVID-19 pandemic, the old cliché no longer seems a reality. Globalization has gone into reverse – whether temporarily or permanently, we cannot say.
We are only beginning to see the implications of this great reversal for the global economy. Since this spring, virtually every country’s economy has moved dramatically into recession. They have also imposed new restrictions on the movement of people, if not goods, across borders. The parallels to the early 1930s – when governing authorities worldwide used highly protectionist tactics to fight a
cyclical recession, leading to the Great Depression – are stark.
Over the decades since the 1930s, economists have found new ways to address the challenges of unemployment, finance, and inequity that attend recessions. A recent wide-ranging essay in the newsmagazine The Economist (required reading for those of us in international studies) summarizes three generations of economics in response to economic crisis.
The first generation followed the advice of John Maynard Keynes, an English economist. He wrote “The General Theory of Employment, Interest, and Money” in 1936 and become the most influential economist of his generation. Keynesianism promoted countercyclical government (or “stimulus”) spending to promote demand in recessionary times. By the 1970s it become clear that Keynesian spending promoted inflation without necessarily reducing unemployment. A second generation, championed by University of Chicago economist Milton Friedman, promoted high interest rates and a tight money supply. This generation believed that a predictable and stable investment environment created the best foundation for a growing economy.
(Keynes, left (Corbis), Friedman, right (EconLib))
In the early 2000s, we saw a marriage of sorts between the children of Keynes and Friedman to produce a new generation of economics. Governments fought unemployment while independent central banks fought inflation – each side scoring remarkable victories by the late 2010s. In the wake of the economic downturn of 2008-09, central banks (like the Bank of Canada, or the United States Federal Reserve) began to get involved in fighting the recession through purchasing corporate debt and the creation of large debt assets in their hands, something called “quantitative easing”. The experience of the last economic crisis has led central banks to guarantee larger and larger loans of money to their economies. Today, governments are using these massive outlays of credit to try and spend our way out of the COVID-19 crisis.
In such a world, there are three possible futures envisioned by economists. In one, the continuing extension of credit is sufficient to get the global economy through the current crisis. In another, governments continue to spend without concerning themselves with rising levels of debt, since the central bank can continue to lend to them at virtually zero interest. A third possibility is that it will be necessary for central banks to pursue “negative interest rates”. This could kick-start the economy by forcing those of us who save instead to spend our money, since saving would then come at a cost.
All of these futures mean that central banks have an important role to play in trying to “fix” our economic problems. But one thing to note is that in spite of the march of globalization, the banking sector has traditionally proven resistant to international management. With the election of populists worldwide, most of whom are suspicious of global governance institutions like the United Nations, the World Trade Organization, or the International Monetary Fund, a truly global solution to these economic problems is less and less likely.
Back in the 1970s, advanced industrialized states addressed a mounting global inflation and unemployment crisis by
convening a new annual summit, now known as the G7. At the centre of this grouping was the United States, still the leading economic player in world politics. Today it is unclear that any one state will be able to take such leadership. But will nation-states going it alone find themselves capable of addressing the challenges of the future?
Students of global politics and economics will be the leaders of the future, confronting these and many other tricky questions. TWU’s International Studies program provides the foundational knowledge necessary to address the daunting future of a world after the COVID-19 crisis. When globalization switches out of reverse and back into forward gear, as it someday must, these students will be the ones prepared to propel it in ways that are more effective, just, and efficient.
Professor of Political Studies
Coordinator, Political Studies and International Studies
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