Fencing-in of the rich world will increase political instability

Globalisation’s assassin BRANKO MILANOVIC EconomicTimes Friday, 21 July, 2006

The world’s first wave of economic globalisation, led by the British Empire in the 19th century, came to an end literally with a bang on a Sunday afternoon in 1914, when Gavrilo Princip killed (with two uncannily well-aimed bullets) Austria’s Archduke Franz Ferdinand and his wife. The years that followed witnessed pan-European carnage, instability throughout the 1920s, and the rise of fascism and communism, culminating in the death of countless millions during World War II.

Is today’s globalising era also coming to an end? If so, it may not necessarily end with a repeat of the slaughters of the last century, but with an economic retrenchment that brings economic stagnation and consigns billions of people to grinding poverty. Various candidates have been proposed for the role of globalisation’s assassin. But one little noticed, yet likely, aspirant has been sneaking up on the world economy: the growing tendency to limit the free circulation of people, to “fence in” the rich world.

We see the menace of this tendency constantly nowadays, but we perceive it in such a seemingly unthreatening way that we may well become accustomed to it rather than arresting it. Globalisation means free movement of capital, goods, technology, ideas, and, yes, people. Any globalisation that is limited to the first three or four freedoms but omits the last one is partial and not sustainable. As soon as people cannot move, there will be little to stop governments from limiting the free movement of goods or other factors of production. After all, if over-populated countries with high unemployment cannot export people, why not reach for higher tariff barriers to protect the jobs they have?

Nevertheless, the “fencing-in” of the rich world continues apace. The US plans to construct a veritable “Mexican Wall” to keep poor people from crossing into Texas or California. Likewise, hundreds, if not thousands, of Africans die every year trying to reach the shores of Fortress Europe. Efforts to restrict people’s movement between countries expose the soft underbelly of globalisation: the deepening gap between countries’ mean incomes. Rather than poor countries growing faster than the rich (as we would expect from Economics 101), mainly the reverse is true. Between 1980 and 2002, average annual per capita income growth in the rich world (defined as the “old” OECD members) was almost 2%, compared to just 0.1% in the 42 least developed countries. Indeed, average income in Latin America is now barely above its 1980 level.

This huge gap spurs migration. People nowadays know much more about conditions in different countries than they did in the past, and if moving across a border means that their income can be multiplied several-fold, they will try to do it. This is why today’s most contentious borders separate economies where the income gaps between people on the two sides are the greatest. There are four such global hot spots: the borders between the US and Mexico, Spain and Morocco, Greece (and Italy) and the southern Balkans, and Indonesia and Singapore (or Malaysia). The income gaps range from more than seven to one in the latter case to 4.5 to one in the case of Spain and Morocco, 4.3 to one between the US and Mexico, and four to one between Greece and Albania.

Income differences were not always so huge. In 1980, average income in the US was a little more than three times that of Mexico, the gap between Singapore and Indonesia was 5.3 to one, and the difference between Spain and Morocco 3.5 to one. Even the gap between Greece and Albania, at three to one, was narrower than it is now. So income gaps between all these contiguous countries have increased significantly during the last quarter-century. So it is little wonder that it is in these places that most illegal immigration and human trafficking occurs — pirates in the Straits of Malacca, fast boats between Albania and Italy, and desperate human cargoes from Africa and Latin America.

If today’s globalisation continues to widen income gaps, the waves of migration will grow. So the rich world will, in a knee-jerk response, erect ever-higher barriers to stem the human tide. If globalisation, which has so enriched the world’s wealthiest countries, is to continue, governments must find ways to increase incomes more evenly. Otherwise, today’s “fencing in” of the rich world will increase the risk of a backlash against free circulation of goods and capital, as well as of political instability punctuated by terrorism. Global income redistribution by the rich countries should be viewed as a matter not of charity, but of enlightened self-interest. (The author is an economist at the Carnegie Endowment for International Peace) (C): Project Syndicate, 2006