An interview with Pascal Lamy, the longest serving director of the World Trade Organization

One of the leitmotifs of populists, including Donald Trump, is opposition to globalisation. Who has benefited most from the unprecedented economic interconnection of the world over the past forty years, and who is the loser?

Globalisation has worked exactly as the theory goes: the whole world has benefited greatly from the opening up of markets. But this result was the sum of a number of pluses, which, for example, led to the lifting of hundreds of millions of people out of poverty, and a few minuses, which were felt especially by a section of the middle class in the rich countries.

Could it have been avoided, then, that a significant proportion of the electorate felt themselves to be the losers of globalisation?

It was clear that opening up markets increases economic efficiency and is accompanied by Schumpeterian « creative destruction ». This can only be tempered in terms of nation states. In continental Europe, which has a tradition of welfare states, politicians have largely succeeded. But much less so in the US, which resists redistribution for ideological reasons. At one time, there was a program launched to help workers in disappearing industries retrain or move to other opportunities. It was supposed to be paid for out of the federal budget, but because of ideological disputes, not enough money was found to really expand the program on a mass scale. Republicans saw it as too much state intervention, the first step towards socialism… The rise of Donald Trump really cannot be understood without the decline of industry in the so-called rust belt and the lack of a social safety net for workers.

So weren’t the radical left critics of globalisation who protested against the opening up of markets in many cities – including Prague – a quarter of a century ago right after all?

This movement argued that globalisation would harm poor, developing countries. But in the end it was exactly the opposite. Masses of people were lifted out of poverty, and more negative consequences were felt by people in rich countries. If you look at opinion polls, you see that globalisation is much less popular today in rich countries, while the poor still see hope in it.

Isn’t China the main winner of globalisation?

It has earned more from globalisation just by being so big – and therefore overshadows other countries in the statistics, the largest number of people have been lifted out of poverty there. But it has also opened up its markets much more than India, for example, and the government there has had a consistent economic development plan. They have made some mistakes in their state planning, such as the one-child policy and the Three Gorges Dam, but overall they have invested their resources in a way that has benefited greatly from globalisation. And the rest of the world has also benefited from a higher economic defelopment

So has the West not weakened itself by opening up markets and strengthened Chinese authoritarians who are promoting an alternative to democracy? Should not engagement in globalisation be conditional on democratic reforms?

I’d like that, of course, but it wouldn’t work. Bangladesh and Sweden disagree on social standards, and it is similar for democracy. China will simply say it has its own way of consulting its citizens. I don’t think that if China was less connected to the world it would be less authoritarian today. It’s rather the opposite.

Maybe it would be weaker than it is?

But for how long? It’s a huge country, it had been a a major world power for hundreds of years before it closed during the XVth century?

During the pandemic, we saw that the effects of globalisation created a dangerous dependency: there was a shortage then of medical supplies and medicines, the basic chemicals of which are made in China.

In retrospect, supply chains were very resilient during COVID. Yes, there is a lot of dependency in some areas, but that can usually be overcome quickly. We can easily produce medical devices or paracetamol ourselves. It is not technologically demanding and it is just a question of price. The bigger problem is the dependence on some critical raw materials, rare earths – it will take longer to solve there.

Relations between China and the US are strained, we have had a pandemic, and nationalist populists in Western democracies are on the rise. Is globalisation coming to an end?

I don’t think there will be a deglobalization. If you look at world trade statistics, you will see that it continues to grow. Although it is not growing as fast as it has in the past, we are experiencing a kind of ‘slowbalization’, as The Economist called it a few years ago. But the phenomenon is not over. The rapid globalisation that lasted from the 1980s until about a decade ago was driven by three factors. Technology, which has made long-distance transport cheaper: in particular, the invention of the internet and the standardised container, which has made it cheaper to ship much more cargo on ships than in the past. Ideology, the idea that opening up is a good thing and leads to a win-win outcome. And geopolitics, that is, the end of the Cold War, the optimism of the time and the opening up of China under President Deng Xiaoping. Technology continues to drive globalisation forward: with artificial intelligence, we are entering a new phase of digitisation, with data in some ways replacing artefacts in trade. We are at the beginning of a new great wave of globalisation in the digital world.

But ideology is turning against free trade and geopolitical tensions are rising in the world…

Yes, those negative effects mentioned above are leading to new protectionist measures. And Donald Trump and Joe Biden share a desire to hit China’s rise, they feel the US has become too vulnerable. They’re trying to stop Chinese innovation, advances in high technology. The same interdependence that was seen as something positive is seen as a security risk at a time of declining mutual trust between major powers. These trends will slow down globalisation, but they will not end it. I do not believe that the world will break up into several trading blocs. It is just that production chains will shift a bit more towards friendly or geographically closer countries. Look, by the way, at the effects of the trade tariffs imposed by Trump on China: their only effect was to make previously cheaply produced goods in China more expensive for American consumers. Yet Biden, for political reasons, cannot remove these tariffs. A paradoxical situation has arisen in American politics, in which the Republicans, who have always been more in favour of open trade than the Democrats, have become the leading force in the movement against more open trade.

Donald Trump may become US President again in the autumn and, as he did during his first term, push for ‘decoupling’, that is, a complete severing of economic links with China. What would that lead to?

It would slow China’s rise, but it would not stop it. China is big enough on its own to cope, although it would grow more slowly. I think China could become a threat to us under certain circumstances. But a self-reliant, independent China will be a bigger threat than a globalised, interdependent China. Here lies the crux of my disagreement with the current US strategy. Moreover, a China that grows slowly will be less complacent, more nationalistic. I don’t think that the eventual dissatisfaction of the population can lead to regime change. Given how strongly authoritarian the current regime is and how it can control society with the help of digital technology.

So the trade tensions between the major powers will continue. How should Europe behave towards China?

We should remove some of the risks of over-dependence in cases when we bellieve it is too risky but not overdo it. For one thing, access to the Chinese market is more important for Europe than for the Americans. And then, at the same time, we should also try to involve China as much as possible in caring for the planet, for so-called global goods such as climate, biodiversity and ocean or poles protection. In the two significant shifts of the past two years – the Montreal Convention on Biodiversity and the UN Ocean Treaty – China has played a positive role. It has similar interests to ours on environmental issues: it is not pushing the green transformation because Europe wants it to, but because it needs it. The fact that we share the same objectives in this area should be exploited more by both sides in our cooperation.

There is currently a dispute over Chinese electric cars. The Chinese government has been massively subsidising them for years, their exports are growing and European governments are worried that cheap Chinese models could seriously damage domestic car companies. The European Union is having China investigated for breaking economic rules – and threatening to impose tariffs. Is this the right course of action?

It makes sense. But we must also recognise that international rules restricting state subsidies are very weak. This was an issue that was discussed in the World Trade Organisation (WTO) before China joined at the beginning of the millennium, and the EU, Japan and the US did not want to limit their scope for state support at that time. China does not break WTO rules more often than we or the US. But the fact is that the structure of the Chinese economy today is based on too little consumption and too much investment. They are not decided by the market, as in our countries, but by the Communist Party. The consequence is the overproduction of cars, which China needs to sell to the world. Entry into the Japanese, American and Turkish markets is limited – and Europe cannot become the only ‘solution’ to this Chinese overcapacity. We cannot fall victim to the fact that China is not a market economy and to the way in which the Communist government runs it. Europe has anti-dumping and antisubsidy trade defense instruments to counter this situation and can use them. It just needs to justify it well,because of WTO rules and that – because of the complex nature of the matter – takes time.

You said in your introduction that the poor have benefited most from globalisation. But I do not see much satisfaction in the Middle East or Africa with the developments of the past decades…

Because the Middle East and Africa are not really globalised. The Arab states largely export oil and import everything else, including migrant workers. Africa imports what it can’t produce and exports what it can’t consume. Russia is similarly poorly globalised, exporting only raw materials, steel, aluminium. That is not enough; globalisation includes a wider diversification of production and implies a lenghty specialisation process.

Why has this not happened in sub-Saharan Africa?

Part of Africa’s problems stem from the legacy of economic structures left by colonialism. But Asia – Indonesia, Vietnam for example – faced that problem too and managed to overcome it. In Africa, a crucial factor is added: a rapid population growth. Because of it, GDP per capita grew too slowly and did not yet create a strong enough middle class to consume more and invest more. Nor is enough foreign investment coming in. If you’re an average capitalist, you’re going to demand, say, a 10 percent return on your investment in most of the world. But from Africa you will demand 15 percent – because investment there is more risky for a number of reasons, including weak governance: that is the crux of the problem. African governments then, although very different, a number of countries, including large economies like Nigeria and South Africa, are very poorly managed.

In this situation, should Europe be targeting investment and job creation in Africa, or do African politicians simply need to get their act together?

Africa has a choice: it can choose its strategic and geo-economic partners. But Europe has no choice.: Africa is too important to us. Fortunately, over the past decade, there has been a growing awareness in Europe that Africa will be our main geopolitical and geo-economic partner in the future. We see what China is doing, investing heavily in infrastructure and gaining influence. We need to do something similar, and the new Global Gateway strategy is such a smaller version of China’s New Silk Road. The European Commission, under Jean Claude Juncker, has gone in the right direction when it tried to reduce the riskiness of investment in Africa, for example, through guarantees. On both sides, the colonial past complicates matters, but it is only a question of when and how quickly this European engagement will be further strengthened.

Full interview here