History repeats itself. That was the message from Mark Carney as the governor of the Bank of England sought to draw some conclusions about the future of globalisation at the end of a turbulent year.
Carney’s argument was that the current lost decade is not the first. The 1860s had its own financial crisis: the run on Overend, Gurney & Co was the last to befall a UK high street bank until the queues formed outside Northern Rock in 2007. It was a time of rapid technological change and a prolonged period of falling real wages.
The mid-Victorian era was the first great era of open markets. Trade was liberalised, wages were allowed to find their own level, economic policy was dictated by the gold standard, and government intervention was minimal.
The past 25 years have seen another great burst of liberalisation. Capital has been free to move around the world; once closed economies such as China and India have been opened up; tariffs have been cut. In the emerging world, 1 billion people have been taken out of poverty but in many advanced economies globalisation has come to mean, according to Carney, “low wages, insecure employment, stateless corporations and striking inequalities”.
His solution to the problem is threefold: an acceptance by economists that not everybody has gained from trade and technology; a better mix of monetary policy, fiscal policy and structural reform to boost growth; and more inclusive growth.
In essence, this is the same conclusion that was reached in the earlier phase of globalisation when there was a fear that market forces had to be moderated to prevent capitalism from eating itself.
The good news is that this recognition led to real policy changes: an extension of the franchise, the growth of trade unions, the creation of welfare states, a move to more progressive tax policies, nationalisation of key sectors of the economy, and more activist demand management.
The bad news is that this process took about 100 years and was not completed until the end of the second world war. What’s more, Brexit and Donald Trump’s election victoryare proof that lessons have been unlearnt and the clock turned back.
