People Are Angry About Globalization. Here’s What to Do About It.

By Pankaj Ghemawat

The U.S. is in the midst of a presidential campaign in which both candidates have adopted antitrade stances and one has taken a frankly xenophobic, isolationiststance. The UK has voted to leave the European Union. Much of continental Europe is convulsed with similar combinations of disaffection, protectionism, and, in some cases, nationalism and even racism that have morphed into a more-or-less generalized anger against globalization.

The anger is real, and its possible implications are too threatening for us to simply wait for it to dissipate by itself. IMF chief Christine Lagarde has warned that similar conditions preceded many wars. And although purely economic countermeasures are important, such as the G20 declaration in Hangzhou in September calling for faster growth, they are unlikely to suffice because emotions, not just economics, are involved. For example, the parts of the UK that voted by the biggest margins to leave the EU included some of the ones that are most dependent on exports to the EU, as well as some big beneficiaries from transfer payments from the EU.

Economists, policy makers, executives, educators, the press, and others must become more adept at anger management. I call this the FRIENDS approach — it is not comprehensive, of course, but serves as a reminder that we have options other than surrendering to isolationism.

Facts

The current wave of populism is related, in part, to the robust tendency to overestimate globalization levels that I have termed “globaloney.” I document this extensively in my forthcoming book, The Laws of Globalization, but let’s consider just a few examples. In the U.S., first-generation immigrants make up 14% of the population, but in three separate surveys Americans guessed the amount was in the 32%–42% range. Simply telling Americans the actual levels of immigration lowered the number who felt there were too many immigrants in the U.S. by almost half.  The same surveys indicate that people in more than a dozen European countries overestimated the number of immigrants in their countries threefold to fourfold, with similar effects.

Similarly, those concerned about world domination by multinationals would presumably be surprised to learn that the share of global output generated by multinational firms outside their home countries has hovered around 10% since 2000. And Americans convinced everything is now made in China might be interested to know that products made in China accounted for only 2.7% of U.S. personal consumption expenditures in 2010 and that over half of that amount actually went to U.S. distributors, retailers, and so on.

Rhetoric

Pro-globalizers need to do a better job of making their case. First, they need to let go of their need to rely on economic models that mostly underestimate the gains to be gained from globalization and are written by technocrats for technocrats. The UK Treasury’s April 2016 report about the economic pain caused by Brexit, 200 pages long and generally well executed, is an example: It was dismissed as “gobbledygook.” In the immortal words of Brexiteer Michael Gove, “People in this country have had enough of experts.” That sentiment is clearly not confined to the United Kingdom.

Stories are rhetorically far more powerful than references to elaborate economic models. For example, rather than pointing to one of the many studies of the welfare implications of large tariffs on textile products or abstractions about gains from trade, I prefer to focus on examples such as Kelly Cobb, a textile designer in Philadelphia who set out to make a man’s suit from materials produced within 100 miles of her home. Making a very simple suit took 20 people more than 500 hours, and it was unlikely to be confused with a typical low-end suit because, among other reasons, it lacked sleeves. 

And 8% of the inputs still had to be purchased from more than 100 miles away. That’s a more than a hundredfold escalation in labor costs, plus higher materials costs — and horrible quality.

Of course, there are many other ways of making a more convincing case for the gains from globalization. The point is that rhetoric, broadly defined, matters at least as much as reality.

Informational, International Interactions

The truth is, most of us just don’t hear that many international perspectives. Although the internet is a global network, it is used primarily to transmit information within national borders. One study indicates that as few as 4% of U.S. Facebook users’ friendships straddle national borders; on Twitter, where topics rather than friends are followed, that percentage rises to just 18%. Adults in the United States spent, on average, 60 hours watching television news in 2012. But only 21% of TV news coverage in the U.S. is international, and 11% of that deals with U.S. foreign affairs. 

International traffic on foreign news websites is extremely limited, with page views on foreign news websites constituting just 6% of the total page views generated by the U.S. That percentage is actually higher than for most of the other countries for which data is available — in Germany, for example, the number is 1%, and in France it is 2%. Several studies suggest a persistent decline in the volume of international news coverage over time. On the front pages of major U.S. newspapers, the share of foreign stories has declined from 27% in 1987 to 11% in 2010. Furthermore, U.S. coverage of foreign news was three times as likely to have a negative tone as domestic coverage.

Why does all this matter for the purposes of anger management? Because there’s a strong correlation between not knowing a lot about other countries and thinking your own country is superior. Countries that are deeply connected to international information flows are less likely to view their cultures as superior. And previoussurveys have found trade opposition to be directly related to a sense of national superiority.

For a specific sense of how much such biases might matter, consider a recent survey experiment by Diana C. Mutz and Eunji Kim of the University of Pennsylvania. They found that among U.S. respondents, a hypothetical trade policy in which the trading partner country gains 1,000 jobs and the U.S. loses one job received much less support than a policy in which the U.S. gains one job but the trading partner loses 1,000 jobs. 

Averaging across a range of scenarios involving U.S. gains and trading partner losses (and vice versa), they conclude that people with the smallest sense of perceived superiority were scarcely more likely to favor one type of deal than the other, but “for people with the highest levels of national superiority, the difference is roughly seven times larger.”

Education

In Britain, education levels were apparently the strongest predictor of voting patterns in the Brexit referendum — even though age and income levels tended to get more play in the press. Similarly, in Germany, people with a higher education level were more willing to consider an economic bailout of Greece. In the U.S., Donald Trump has gone as far as saying, “I love the poorly educated,” a group that has backed him in higher numbers during the Republican primary and that disproportionately favors him in general election polls. Cross-country evidence shows that higher education levels in a country cause levels of nationalism and suspicion of outsiders to decrease; one study found this to be true in 10 countries with quite different educational systems. People with lower education levels also tend to worry more about foreign cultural influences, an obvious link back to the discussion of perceived cultural superiority in the previous section. 

My own surveys affirm that although exaggerated perceptions of globalization persist across all education levels, respondents with higher degrees have somewhat more-accurate views.

Beyond the obvious implication that more education is better than less, it makes sense to delve into educational content that can support a cosmopolitan outlook. Combatting globaloney with the real facts about levels of globalization is an obvious starting point. There are also specific types of educational experiences that fit with the notion of a world where the connections between countries are too big to ignore but are greatly dampened by the borders and distances between them. Traveling and living abroad seems to broaden individuals’ perspectives while also improving creativity.

For older adults, a more accurate view of globalization can help provide reassurance that traditional notions of local and national community are not becoming obsolete. To the contrary, as globaloney-induced fears are softened, opportunities for intergenerational learning and community building are expanded.

Nonmarket Strategy

The private sector has a huge role to play in alleviating anger about globalization. Simply put, business is the 800-pound gorilla where this issue is concerned: 80% of global trade is orchestrated by supply chains of multinational firms.

Business leaders have recognized a changing, more protectionist environment, but instead of seeking to change that, they are mostly accepting it. Take the case of General Electric, whose CEO, Jeff Immelt, recently delivered a widely noted speech on globalization and strategy, which included the following:

Today: Big companies are distrusted; governments and global institutions are failing to address the world’s challenges; globalization is being attacked as never before. This is not just true for the U.S. but everywhere….This requires dramatic transformation. Going forward, we will localize….We will produce for the U.S. in the U.S., but our exports may decline. At the same time, we will localize production in big end-use markets like Saudi Arabia.

Both in terms of operations and organization, this is certainly responsive to a more protectionist environment. But it is not clear what it does to help address the rage building at home in the U.S.

Perhaps U.S. executives feel that they do not generally seem to have the kind of social capital that would cushion against a big sociopolitical backlash. Immelt is right when he says big companies are distrusted; executives are distrusted too. A 2013 Pew Research survey found that business executives ranked ninth out of 10 professions in terms of social contribution, only placing ahead of lawyers. Rebuilding the reputation of business may help with the broader challenge of protectionism. Since studies show that protectionism flourishes when trust in economic institutions is low, the restoration of trust in business may help contain it.

My own sense is that any attempt by multinationals to influence public opinion at home is likely to require collective action, perhaps under the umbrella of some business grouping, given how averse the CEOs I have talked to are about having their company singled out for association with the case for more globalization.

For all these reasons, purely market-focused strategies oblivious to the sociopolitical context are more likely than ever to prove blinkered.

Distributional Issues

The anger about globalization isn’t all emotion — economically, it has distributional concerns at its core, as recognized by the discussion these days of those “left behind” as the wellsprings of anger. The U.S. has recently experienced a rise in income inequality to levels last seen in the 1920s, and other countries, especially developed ones, have registered similar if less dramatic increases.

What role globalization has played in all this is a matter for debate. According to a recent IMF report, technological progress and the decline of unions have both contributed to the increase in inequality, with globalization playing a smaller but reinforcing role. Personally, this is the view to which I am drawn, based not just on the IMF report but also on a whole raft of analyses summarized in my book World 3.0: If the Netherlands can preserve a relatively reasonable income distribution despite having a trade-to-GDP ratio six times that of the U.S., it seems implausible to blame the much higher level of inequality in the U.S. economy on globalization. But not all analysts agree on this point.

What there is broader agreement about is that sustained public support for globalization requires safety nets that, in many respects, seem to have frayed in the U.S. and the UK after the years of Reagan and Thatcher. The good news is that once one cuts through the globaloney, this becomes more a matter of summoning up the requisite domestic political will than an impossibility due to externally imposed constraints. 

There is some room for redistribution even if it somewhat dulls efficiency (the classical trade-off), and it could be done through a variety of instruments: tax rates, specific types of support programs, and increases in the minimum wage (which has stagnated, adjusting for inflation, since the 1980s). Attending to inequality is arguably more politically palatable now, given the sharp increases in inequality and a better understanding of its social costs — including possibly triggering a more populist-protectionistic-xenophobic phase.

Cutting through globaloney also frees one to recognize that under conditions of imperfect competition (i.e., almost always), businesses have some discretion in dealing with these issues. While much of the discussion has focused on raising the wages of lower-paid workers, inequality isn’t simply about the stagnation of the U.S. minimum wage in real terms since the 1980s; it’s also about the top 0.01% doing fabulously well for itself over that period. And yet it is almost blasphemy to suggest that some people are simply being paid too much. In a Harvard Business School survey of 2,700 alumni, two-thirds of them thought that addressing rising inequality, middle-class stagnation, rising poverty, or limited economic mobility was a higher priority for the U.S. than boosting overall economic growth. But in the words of survey coauthor Michael Porter, many were “offended by the discussion saying that someone is getting paid too much.”

Instead of being offended, business leaders might do better to realize that if they don’t do something about pay inequality, others might. Consider British prime minister Theresa May’s early focus on two related and relatively radical reforms to business governance: requiring companies to add employee representatives to boards to move toward more of a codetermination model, and making annual shareholder votes on executive pay binding.

Scope Reductions

A final way of helping with both anger and its management is to reduce the scope of what we attempt in terms of global integration or coordination. This is not succumbing to populist anger; it is recognizing that there is only so much public support for grand, global initiatives and that policy makers should keep their powder dry for the ones where global coordination is truly required. Another way of thinking about this is the old idea of subsidiarity, the notion that matters should be handled as close to the front lines as possible.

Global agreements take enormous effort to negotiate and are extremely difficult to implement. Consider pollution. For pollutants that stay more or less within national borders — most ground and water pollution — local solutions are generally appropriate. Pollutants that cross national borders to a significant extent — usually airborne ones — require cross-border cooperation. And yet every year, the UN convenes a massive global meeting to address a vast array of climate issues. The result is an ambitious agenda that too often goes unimplemented.

The 1992 meeting in Rio, for instance, resulted in an action plan that covered an astounding 27 program areas and 116 individual issues, such as promoting sustainable development through trade, providing adequate financial resources to developing countries, meeting primary health care needs, and providing adequate shelter for all. 

Very little actually happened, however, which underlines the question of whether they were all appropriate issues for a global conclave. By my reckoning, action primarily at the global level was invoked for only two of the 116. Of the remaining 114, one-third resulted in calls for action primarily at the local level, and another third for action at a regional level.

Then there is people’s prickliness about external influences on their lives. It is understandable that most people are irritated by, for example, EU-wide directives about abnormal curvature in bananas or hairdressers wearing jewelry. It’s best to reserve their limited goodwill, or at least willingness to listen, for the issues that matter most.

Subsidiarity itself can be seen as just one of a range of approaches that stress selectivity in terms of pursuing initiatives that require cross-border coordination. Consider some examples from the trade agreement arena. Pascal Lamy, the former head of the World Trade Organization, once told me that one-third of bilateral trade pacts never actually get invoked — literally aren’t worth the paper they are written on. If such duds could be identified earlier, policy makers could be more selective about which trade agreements to pursue. Even sequencing can be seen in terms of selectivity: It is basically about not doing everything of interest all at once.

Conclusions

Fifteen years ago, British economist John Kay wrote, “Few components of globalization are inevitable if there is a genuine popular will to stop them. But mostly there is not.” That last bit is what has changed in the last few years.

Unless one is willing to simply cave in to the anger around globalization, we have to think about how to manage and ideally alleviate it. The initiatives I’ve laid out in this article call on a broad range of constituencies — public intellectuals, professors, the public, the press, private enterprise, and politicians and public policy makers — to act. And the initiatives are not mutually exclusive. In many cases, they are likely to prove more powerful if pursued in parallel.

The list of initiatives obviously isn’t complete. Subsidiarity as a principle for organizing the EU is all very well, but it would be better to have a superordinate objective for the European project that Europeans can actually get excited about. Something similar about global rather than regional engagement would seem to be required in the U.S. as well to counter “America First-ers.”

It is time to get started.

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