Chartbook 413 The future of the world economy beyond globalization - or, thinking with soup.

This year marks the 80th anniversary of 1945. Given the turmoil we are living through, it is tempting to look both backwards and forwards for orientation.

As one of the tailgunners at a conference last week at Columbia University commemorating the 1945 moment, I was asked to give 15 minutes of remarks about “The Future of the World Economy”.

How can one enliven such a bland prompt?

In me, in its sheer blandness, it induces a kind of vertigo. What does it mean, right now, to ask about “the future”? Do you know what moment we are in? What is the future of this present? And does that future include the seemingly familiar thing we call “the world economy”?

To get a grip on the vertigo, let us start by ticking off things that might happen in the “the future” that seem fairly predictable. A short list of fairly reliable points might include:

• Over any reasonable time horizon, Europe’s weight in the world economy will likely continue to decline.

• In the near term, the US economy, despite the deterioration of America’s institutional fabric, will likely continue to play an outsized role. The widespread use of the dollar gives huge weight to the purchasing power of American consumers. America’s motor of innovation is impressive, as attested by the latest tech/AI boom. Can this continue for the foreseeable future despite MAGA, the erosion of the rule of law etc? My strong belief is that it can. The idea that capitalism must have a functional rule of law and predictable governance is a prim Weberian conceit. After Brexit, Ukraine, Trump 1 and Trump 2 we should surely abandon the idea that a liberal normal violation will cause the sky to fall.

• The center of global production will likely continue to shift to Asia. Some think we have already seen “peak China”. I wouldn’t bet on it.

• The really big question mark of the coming decades is the African continent. Given the dramatic demographic prospects that are more or less baked in, it will make less and less sense to consign Africa to the margins of world affairs. It therefore matters, as it never has before to mainstream commentary, whether a sufficient number of substantial economies in Africa can find a workable growth model. If they cannot, is the future one in which the condition of absolute poverty is concentrated in the rapidly growing and youthful population of Sub-Saharan Africa? What will that do to global politics, conceptions of human rights etc? This seems to me a predictable question. But not one to which we have an answer.

• Over the last ten years there has been a pronounced tendency towards nationalism in economic policy, sometimes motivated by populism, sometimes by strategic interests. This is a remarkable change from the prevailing logic of economic policy since the 1990s. Clearly, globalization as a prevailing ideology is over. But for all the talk of disintegration, decoupling, derisking etc, so far the overall impact on major flows in the world economy has been limited. There is a lot of ruin in a vast $33 trillion network of global trade, but also a lot of complexity that was never properly captured by simple stories of globalization (see below).

• Macroeconomic policies - fiscal policy and monetary policy - work and policy-makers have learned how to use them better. Both in 2008 and 2020 we avoided fatal disaster. It is not likely, therefore, that a large financial crisis will induce the kind of collapse the world saw between 1929 and 1933.

These are things that seem quite likely to characterize the world a decade or more hence.

But, in speaking like this I am also conscious that I am engaged in a highly conservative exercise. I am projecting the categories of 20^th-century macroeconomics, a schema of power/knowledge born out of World War I and World War II, into the 21^st century.

Economics is a very complex field, but the version that is commonly used to talk about the world economy is still international economics and to a remarkable degree, as its title suggests - inter-national economics - this body of thought tempts us to think about a world economy made up of more or less substantial national economies, connected through trade and capital flows measured by the balance of payments. That is the “inter” bit between the national segments.

One might call this a lego vision of the world economy, in which some big national chunks are stuck together with other, smaller chunks to form a whole. All the while, the basic building blocks retain their shape, which is both distinctly labeled - the US economy, the Chinese economy, the Belgian economy etc - and basically generic - an IMF report on Germany uses essentially the same categories as one on Indonesia

Source: dirkb86

Much of the standard reporting and forecasting done by agencies like the IMF, OECD, World Bank is based on this model of the world economy, as an aggregation of national economies, small and large. This is unsurprising. Even if they became major drivers of globalization, the Bretton Woods institutions were established as the economic and financial counterpart to the United Nations in the postwar moment.

One way of turning our bland prompt in a more truly historical direction would be to ask whether it seems plausible, in 2025, to imagine a future that can be mapped in terms of the lego brick model?

What might a “world economy” freed from mid-20^th-century categories be imagined or thought as? What would a post-post-war world economy look like?

The mid-century lego block way of envisioning the world economy isn’t, after all, historically the only way of seeing the world.

Early modern historians will tell you about visions of globalism that were wired quite differently, around the seaways of the Indian Ocean, for instance, or the thin skein of the silk road.

The term “world economy”, or Weltwirtschaft, first came into use in the late 19th century in debates between economists in the German-speaking world. One school sought to use graphic tools like maps to describe a world economic organism. Others focused on the institutions and structures created by the competition of Empires. This was same milieu of thinking about “world politics” that also gave us the concept of Weltkrieg i.e. world war. More hardline neoclassical minds refused such substantive conceptions of the world economy, focusing instead on the more abstract representation yielded by the mesh of price quotations for major commodities.

The world economy as envisioned at Bretton Woods in 1944, was composed of “hardened” national economies, which in that form had not really existed in the late 19^th century. The lego bricks out of which the postwar order was assembled, were pressed into shape during the crises of the interwar period and the war economy of World War II.

And - you might be thinking - weren’t we all set to leave that world behind? Didn’t we already entered a world of globalization? Weren’t the boundaries of national economies dissolved?

Certainly, by the 1980s at the latest, as a result of a new wave of trade and capital market liberalization, the 1940s vision of the national economies and the world economy assembled out of them was under massive pressure. In the course of the 1980s, national social democratic projects were adjusted accordingly, as Jean Pisani-Ferry recently reminded us.

Already in the 1970s a debate had begun about the role of multinationals, a tradition continued down to the present day by agencies like UNCTAD. The 1990s Asian financial crisis caused soul-searching about the adequacy of international economics. By the 2000s even at the very heart of orthodoxy a fundamental reconsideration was beginning about what the world economy actually consisted of. As Hyun Song Shin of the BIS argued in a series of classic papers, the world economy began to be reenvisioned as a series of national economic islands (lego bricks), and more and more as a mesh of interlocking private balance sheets.

Shin’s image was coined to anatomize the banking sector that exploded in 2008. But you could also extend it to describe globalization at large and its ramified supply chains. Much of global trade may flow across borders, but it is actually taking place within and between large corporations. Shin’s is a fundamental shift in outlook that I come back to again and again.

What is clear in retrospect is that that vision of a massively networked, privatized world economy not just as a sophisticated statistical description, but as an affirmative model of how the world should be organized, entered a phase of crisis in 2008. Indeed, you might argue that we needed its crisis to see it as clearly as Shin and others were able to do.

Returning to our prompt, one basic way to respond when asked about the future of the world economy is to rephrase the question as one about the future of this networked perspective. Do we expect the world economy as a web of private balance sheets to perdure into the 21st century either as the real undergirding of global production, as a plausible telos of historical development, or as a normative model?

One of the ironies of the success of the Chinese economy in the first quarter of the 21^st century, is that it has given new life not to the world economy envisioned as a network of balance sheets, but to a reheated version of 1950s-style national economies.

• China’s regulation of its foreign exchange account is the sort of “postwar” (1940s/1950s) regulation that Europe and the US finally left behind in the 1970s and 1980s. It is in such a system, with exchange controls and exchange rate targeting that you worry about issues like fx reserves, capital flight etc.

• Domestic national economic integration has been the main driver of Chinese growth, not exports or globalization.

• China has made itself more and more self-consciously into an exponent of powerful national industrial policy e.g. Made in China 2015-2025.

None of this should be taken for granted. In the 2000s China looked as though it was being integrated as nothing more than a node in the interlocking balance sheets and supply chains of Western capitalism. The 2010s and Xi’s reassertion of a nationalist regime of political control and national economic policy, culminating in the adoption in 2020 of the “dual circulation” vision, has reconsolidated China’s national economy. Relentless anti-corruption drives make commitment to that ideal a matter of personal survival for the most prominent figures in Chinese business.

This tendency has been reinforced by China’s increasingly antagonistic relations with the Western economies. Ironically, in both the US and Europe, economic policy discourse has also reacted to the “China shock” with a revival of the national economy model, including, in the American case, explicit references to the 1940s, Lend-Lease and America’s role as the arsenal of democracy.

One is left wondering whether the future of the world economy must now be envisioned as a return to the mid 20th century. If that is the case, it will likely be a story of heartbreak and frustration, as the Biden administration demonstrated all too clearly.

As anyone knows who has ever trod barefoot on a piece of lego, they may be small but they are both hard and immensely strong. This is due to the special properties of the Lego plastic formula concocted by Bayer AT in the late 1950s, and the clever internal design of the bricks.

Source: Brightontoymuseum

To remake the national economy in the hard, robust form familiar from the mid 20th century would take the right ingredients and the right internal structure. Neither of those is any longer present in the West in the 21st century. The stuffing was knocked out European and US political economy in the era between the Volcker shock and the globalization push of the 1990s. The current era is one in which we have seen the efficacy of mid-20th-century economic policy, but without the balance of class forces that defined mid-20th-century political economy.

However giant they may have been, the macroeconomic policy experiments of 2008 and 2020 had no corporatist underpinnings. The aspiration of the Green New Deal, Build Back Better and even the IRA was in fact to bring back into existence the balance of class forces that once propelled macroeconomic policy.

The interest groups politics of tariffs is what national economies once built out of. In the US in 2025 we are witnessing the bizarre spectacle of tariff politics conducted on a Presidential whim, almost entirely without serious interest group politics.

So, if the future is neither the retrofuturism of restored national economies, nor the 1990s and 2000s vision of a privatized world economy of interlocking balance sheets, then what will the future hold? My own personal guess is some kind of patchy, disintegrated globalism, a condition captured by a phrases like “globality beyond globalization”.

How might one imagine such a world, if not as islands, or networks? What would a world look like that consists of a mixture of more or less coherent chunks, threads of networks and hundreds of millions of more or less uprooted, dynamic, fluid components (people, small businesses, small capital etc)?

Its a question I’ve been worrying at for a while. Over the winter break as I was recovering from surgery, I revived two pieces from years ago.

The question is how to imagine the shape of uneven and combined development. How to think a world economy once we go beyond short-hands - synecdoche - like “financialization”? How to imagine something that has less shape, less structure?

Why not try imagining the future shape of the world economy neither as a neat assemblage of robust bricks, nor as a mesh of interlocking balance sheets, but as something more akin to a lumpy potage, or a noodle and dumpling soup.

Everything is suspended in a viscous fluid of footloose money and more or less mobile labour and capital. There are occasional pieces of nutrition to bite into, nuggets of technological systems, good brands or institutions. Then there are the tangled threads of noodles, the networks. Here or there you find an actual hunk of high-value meat - a petrostate, for instance, or a world city like new york – or even a wonton, an object with an distinct outside and inside, with some internal structure, unlike the rest of the soup.

As strange as it may seem to imagine the world economy as dumpling and noodle soup, it seems a more plausible image than a return to lego brick national economies, or all-encompassing hyperglobalism.

But then continue pushing on the image. What is holding the soup? If we assume a container to hold the whole mess, we give the game away. If we have a container - say an environmental envelope with hard boundaries - that is what ultimately gives shape to the world economy and its future. So how to imagine soup without a container? It is going to be precarious, which is surely a sign of realism in our current moment. Imagine our situation as that of soup, in mid air, pouring from one place to another, or splashing onto a smooth work surface, retaining its shape for a while, thanks to its viscosity before running over the edge. One thing you know, is that it will likely be the thin fluid that drips first.

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