How 'the ineluctable rise of worldwide free market capitalism' has been a 'stunning failure': columnist

18 June 2023

Writing in Sunday's New York Times, global economics correspondent Patricia Cohen broke down how financial globalization proves that "almost everything we thought we knew about the world economy was wrong."

Cohen notes the stark contrast between "the world's business and political leaders'" optimistic outlook on the global economy during the 2018 "annual economic forum in Davos," to "now, as the second year of war in Ukraine grinds on and countries struggle with limp growth and persistent inflation, questions about the emerging economic playing field have taken center stage."

The columist points to the "heady triumphalism that followed the collapse of the Soviet Union in December 1991," adding, "Associated economic theories about the ineluctable rise of worldwide free market capitalism took on" a sense "of invincibility and inevitability," as "open markets, hands-off government and the relentless pursuit of efficiency would offer the best route to prosperity."

During that time, Cohen continues, "There was reason for optimism," noting, "During the 1990s, inflation was low while employment, wages and productivity were up. Global trade nearly doubled. Investments in developing countries surged. The stock market rose."

She then emphasizes, "It was believed that a new world where goods, money and information crisscrossed the globe would essentially sweep away the old order of Cold War conflicts and undemocratic regimes," but "there were stunning failures as well," as "globalization hastened climate change and deepened inequalities."

Cohen acknowledges even though "the financial meltdown in 2008 came close to tanking the global financial system," it wasn't until the Covid-19 pandemic, that "the rat-a-tat series of crises exposed with startling clarity vulnerabilities that demanded attention."

Furthermore, she notes "the consulting firm EY concluded in its 2023 Geostrategic Outlook, the trends behind the shift away from ever-increasing globalization 'were accelerated by the Covid-19 pandemic — and then they have been supercharged by the war in Ukraine.'"

Cohen adds:

The economic havoc wreaked by the pandemic combined with soaring food and fuel prices caused by the war in Ukraine have created a spate of debt crises. Rising interest rates have made those crises worse. Debts, like energy and food, are often priced in dollars on the world market, so when U.S. rates go up, debt payments get more expensive.

She emphasizes, "as the dust has settled, it has suddenly seemed as if almost everything we thought we knew about the world economy was wrong, referencing a recent World Bank analysis, saying, "Nearly all the economic forces that powered progress and prosperity over the last three decades are fading," adding, "The result could be a lost decade in the making — not just for some countries or regions as has occurred in the past — but for the whole world."

Cohen's article continues at this link (subscription required).

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