Globalization is in deep crisis. Ms. Carmen Reinhart World-Bank Chief economist recognized: “Covid-19 is the last nail in the coffin of globalization”. She's not the only one either, and Mr. Kemal Dervis wrote similar things in a column published in June 2020 by the Brookings Institution.
What then could be the future of “self-sufficiency” and how it could mix with international cooperation? This question has become a very central one in the current world. But it is not the first time in history. It is important to remind us that in 1933 John Maynard Keynes published in the Yale Review a quite troubling paper titled “National Self-Sufficiency” . How could this paper, now nearly 90 years old, help us to understand current wind of changes?
The Keynes of the 1920s, even if he was lucid about the limits of the standard economic theory of his time, remained a liberal in the sense given to this term at the end of the 19th century. Until the disastrous elections of 1924 for the Liberal Party, which saw its collapse, he also remained affiliated with the Whigs His attachment to Free Trade was deep at the time. He only began a radical intellectual evolution at the end of the 1920s, and this was far to be complete in 1932-33. Moreover, this text was intended for an American magazine. Keynes thus does not write only in a moment of great economic trouble and personal evolution. He also writes for readers living in the midst of a collapsing economy, who must confront their most sacred beliefs, particularly in the virtues of Free Trade, with the tragic realities of the Great Depression.
In this text, if Keynes does not directly challenge the theoretical virtues of Free Trade, he considers that they are quickly exhausted and that its social effects are henceforth unbearable. The heart of his argument here is very close to Veblen's theses regarding the social and political effects of the emergence of a class of passive capitalists However, we have also experienced a similar phenomenon over the past twenty years, with the development of a class of “super-rich”. Keynes sees this opposition between the stateless capitalists and the impoverished population a risk of war. For him, Free Trade is not a vector of peace. As a son of Victorian Great Britain he is well aware of Opium wars and the colonization of India. Peace can only be guaranteed by a return to national sovereign frameworks. But Keynes' defense of self-sufficiency is not just justified in the name of peace. Free Trade, and in particular the liberalized circulation of capital, deprives nations of the freedom of their social choices.
It is important to note that Keynes considers that Free Trade ultimately condemns the existence of private property and prevents the functioning of democratic institutions. He also sees in it an obstacle to the emergence of the necessary diversification of trajectories within capitalism and to the development of dominated countries. Because Keynes does not speak in the name of an anti-capitalist revolution. On the contrary, he sees himself as the defender of the values of an open and pluralistic society. But, it is clear that Keynes sees no other future than chaos, dictatorship and war if one subscribes to the pursuit of Free Trade.It is through the question of the internationalization of capital that he approaches his questioning of Free Trade.
Now, we are facing a quite similar situation. The opposition between two groups of countries is threatening us with the risk of a global war. But war has probably already begun in the economic field. Through sanctions and counter-sanctions we are seeing the global trade framework collapsing. But other issues are to be taken in account for next years, and most of all global warming. Could self-sufficiency be a solution? And, much more important, could self-sufficiency be still practicable?
In the modern economy production chains have become more and more complex and extended to large numbers of countries. This has given freight transportation massive a relevance, and massive an impact on global warming. Such a situation is obviously no more sustainable.
On one hand, Covid-19 pandemic taught us how frail these production chains could become. The current geopolitical situation has doubled on these lessons. On the other hand, global warming has become one of the most influential issues for all mankind. From an economic perspective, could a move toward self-sufficiency reduce uncertainties and give greater a resilience to production chains? From an ecological perspective, there is a distinct urgency to reduce the CO2 emission volume and then to limit freight movements. Could self-sufficiency lead to a significant reduction of traffic and then of CO2 emissions? There is now a trend toward “reshoring” some production. Could this trend become the new norm? To all these problems is to be added the issue of social justice inside different countries, a point well raised in Keynes 1933 paper. These questions are certainly to be asked. Even without the new geopolitical context, there are strong argument favoring self-sufficiency. But the geopolitical context is also adding its weight in creating another trend in production, the one toward “friend-shoring”. This is actually a form of self-sufficiency, not a national but at regional level.
Could a world where countries would have moved more toward self-sufficiency be more resilient in face of new external shocks and then far less destabilized when they will happen is a second question worth to be asked. Let me take a naval metaphor. A ship without internal compartmentation is far easier to load. But would come a tempest it would be at great risk. A ship well compartmented is much harder to load, but also much more resistant to tempest and typhoon.
However, some form of interdependencies will remain. The collapse of the attempt to “isolate” Russia is demonstrating us that for commodities and strategic materials some kind of international cooperation will be needed. How then could international trade evolve? We know that disruptions in world trade for some commodities, oil and grain but fertilizer too are putting a lot of countries, in Africa and elsewhere at risk. The US-dollar standard, which replaced the Gold-standard, is now challenged by the US policy itself. Sanctions on central banks have called into question the broader usefulness of dollar international reserves, especially if the conditions under which restrictions on their use are arbitrary, at least from the perspective of the countries holding them. This poses a “geopolitical Triffin dilemma” where expectations of future restrictions on the use of reserves, instead of insufficient fiscal space, could trigger a move away from dollar assets.
Financial sanctions have then done considerable damages to the global financial market but also to vital commodities trade. The last trips of Mr. Maki Sall, President of Senegal and of the African Union, have enhanced this fact. Could a new standard be developed in years to come or are we turning now toward a new kind of barter, commodities against strategic materials, is too a question to be asked.
This is why international cooperation is still needed and cooperation could be both explicit or tacit. We need some rules to be agreed upon to manage what would be left of international trade. But we would need too specific agreements between countries, at a bilateral or regional level.
