25 years on: “Globalisation” revisited
Kristian Niemietz // 30 August 2023
When I visited my parents earlier this month, I stumbled across a book which I remember using as a reference for a final-year school essay: Globalisierung: Politische, ökonomische und kulturelle Herausforderungen (=Globalisation: Political, Economic and Cultural Challenges) by Helmut Schmidt. The book came out in 1998, so it is not exactly a “classic” to be “revisited”, but this is an area where a lot has happened in the meantime. Judging from Google Books Ngram Viewer and Newspapers.com, the word “globalisation” or “globalization” was barely used at all before the 1980s, and only really took off in the 1990s. Thus, while Schmidt’s book is not a trailblazer, it still counts as one of the earlier attempts to make sense of the phenomenon, and figure out where it might be going.
It therefore makes sense to re-read it today with the benefit of hindsight, to see which parts aged well and which did not, which parts still seem relevant and which seem a bit quaint.
Let’s start with the latter. In describing what he means by “globalisation”, Schmidt mentions the fact that he can watch up to 30 TV channels at his home in Hamburg and in the hotel rooms he stays in, and that he sometimes watches American and British news programmes. To my Gen Z colleagues (who were born around the time the book came out), the idea that you would get most of your news content from TV channels, and that you would have to wait until you get back home or to your hotel room to access it, will probably seem antediluvian. In this regard, the main impact of “globalisation” would not (as Schmidt expected) be further growth in the number of TV channels, but the rise of social media and smartphones.
Curiously, Schmidt does not mention the internet in this context: he does, in fact, not mention at all until well into the second half of the book. Or perhaps this is not so surprising. When the book came out, only one in ten German households were active internet users. Worldwide, the figure was just one in thirty.
In his description of what “globalisation” is, Schmidt also singles out the fact that most of the container ships he sees arrive at Hamburg harbour are South Korean. One can see why this would have seemed like a big deal to him: when Schmidt was Chancellor of West Germany (1974-1982), South Korea was still a poor (if fast-growing) country, which was probably not on Schmidt’s radar at all.
Today, however, South Korea is richer than Britain, and nobody would deem the sight of a South Korean container ship particularly noteworthy. In the age of “K-pop” and “K-dramas”, South Korea has even become a cultural exporter.
Schmidt is right to say that while there was such a thing as a “world economy” before, globalisation was nonetheless a sufficiently novel and distinct phenomenon. When Schmidt took office as the West German Minister of Finance and Economics in 1972, the world’s trade-to-GDP ratio (=imports plus exports divided by total economic output) was about 25%, and Foreign Direct Investment accounted for less than half a percent of global GDP. By the time this book came out, global trade had risen to 45% of global GDP, and FDI to 2.5%. This was, in large part, driven by emerging economies, such as China, India, Brazil and Mexico, integrating themselves into the world economy to an unprecedented degree. Schmidt was right to say that the globalisation process would continue, but it did not go full steam ahead. Today, the world’s trade-to-GDP ratio stands at 56%, but it has largely stalled since 2008. FDI has stalled as well, or if anything, it may even have slightly fallen.
What seems odd, with the benefit of hindsight, is how worried Schmidt was about population growth. He does not go quite as far as reviving Malthus, but he does believe that the world is becoming a more crowded place, and that this would amplify all kinds of social ills. Today, the world’s population is still growing, but we are bound to reach a peak soon, and economists who pay attention to such matters are far more likely to worry about the near-future prospect of shrinking populations. Global fertility rates have been falling since the 1970s, and they are strongly negatively correlated with wealth. In Europe and North America, but also in upper-middle income countries, they had already fallen below replacement levels when this book came out.
What aged rather poorly are the passages about the coming European single currency. Schmidt asserts confidently that warnings about the potential downsides of the euro are greatly exaggerated, and brands its opponents as Luddites. The euro would be a great success, because it would eliminate exchange rate fluctuations and the transaction costs associated with dealing with multiple currencies. That did, indeed, happen. But we now know that this was not the whole story.
Globalisierung is, by no means, an anti-globalisation book, but Schmidt is not exactly enthusiastic about the phenomenon either. He sees its main effect as, if not quite a zero-sum, then maybe a small-positive-sum competition for jobs and investment, in which the old established developed countries are being undercut by up-and-coming rivals. Unlike Trumpian economic nationalists, Schmidt thinks that it would be foolish to complain about this, and even more foolish to try to stop it. Instead, what the West needs to do is shape up, and sort out its own homegrown problems. So he sees globalisation as a manageable problem, which has the beneficial side-effect of shaking us out of our complacency – but a manageable problem with some positive side-effects is still a problem.
This is perhaps my biggest issue with the book. Globalisation is not, and was never, a “problem” to be “solved”. People in emerging economies are not rivals for a fixed number of jobs, or a fixed pool of investment. They are potential customers, suppliers and business partners. Schmidt overemphasises negative impacts on Western producers, and neglects beneficial impacts on Western consumers.
To name just one example: I am typing these words on a notebook, which I bought for less than £400. It is not just cheaper, but also vastly better than the clunky computer on which I wrote the aforementioned school essay in which I referenced Schmidt’s book a quarter-century ago. At the time, I would not seriously have considered getting a notebook, because I thought of them as unaffordable luxury goods. Would this kind of progress have been possible without globalisation, and the more efficient division of labour and specialisation it enables?
Either way – what struck me even at the time, and much more so today, is how market-friendly Schmidt’s policy recommendations are. There are some obligatory left-wing buzzwords about “shareholder value capitalism” and how it resembles “Social Darwinism”, but Schmidt’s overall diagnosis is that Western economies have become overly bureaucratic, stifling work, investment and entrepreneurship.
It is hard to imagine a member of Schmidt’s party, or, for that matter, its British sister party, to come to such a verdict today. We now have a much better understanding of globalisation than we had 25 years ago, but we have lost that pro-market, entrepreneurship-friendly strand of social democracy, of which Helmut Schmidt was perhaps one of the last representatives.
This article was first published on the IEA’s blog.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).