HIKONE, SHIGA PREF. – It was back in late 1991 that the Soviet Union disintegrated and made clear the collapse of socialism. They marked the end of the Cold War, which had lasted for nearly half a century. Almost simultaneously came a rapid progress in information and communication technology (ICT). I have long maintained that what triggered the fall of socialism was ICT for the following reasons.
During the Cold War, Western and Eastern Europe was divided by an invisible wall called the Iron Curtain. While this wall was effective in preventing the flow of people and goods, it was incapable of blocking the flow of information via communications satellites. Visual information emanating from the West caught the eyes of those living in the eastern half of the divided continent, and drove home to them the way their west European counterparts were enjoying freedom and economic affluence. Thus, the true cause of the collapse of socialism lay in ICT innovations, which served to visualize the disparity between Western and Eastern Europe.
The Iron Curtain collapsed with the November 1989 fall of the Berlin Wall and the disintegration of the Soviet Union. That triggered the worldwide movement toward globalization. The term “globalization” came into frequent use in the 1990s and rapidly became a keyword representing the state of world affairs toward the end of the century.
To varying degrees, all the East European countries ended their socialist regimes, and promoted political and economic liberalization and democratization. The “wall” that blocked the exchange of information, as well as the physical movement of people and goods, was almost completely removed. Even countries like China and Vietnam, which maintained socialist single-party dictatorships, have pursued market mechanism in economic reforms and defied widespread skepticism to achieve a successful coexistence of socialism and a market economy.
While globalization has made big strides in every facet of human activities, the global transition to market economy has brought about enormous impact, both favorable and unfavorable. Today, anybody can engage in stock trading or currency transactions anywhere in the world online. According to a report published by the Bank for International Settlements every three years, the daily spot foreign currency transactions jumped from less than $400 billion in 2001 to over $1 trillion in 2007, and to more than $2 trillion in 2013. Globalization of the money market progressed to such an extent that in 2008, plummeting housing prices in the United States rocked the financial market worldwide and triggered a global financial crisis.
Manufacturers in advanced economies shifted production to developing countries with lower manpower costs to beef up their products’ price competitiveness. Countries in East Asia attracted Japanese, European and American manufacturing firms with their abundant hard-working labor force and low wages. Subsequent wage increases in the developing economies naturally boosted the purchasing power of their populations, which in turn contributed to expanding the markets for the goods produced by manufacturers in advanced nations.
In 1993, the Maastricht Treaty created the European Union, encompassing a large majority of countries in Western Europe. Its members have since grown to 28 as countries in Eastern Europe, having gone through liberalization and democratization, subsequently joined the union. Economic barriers among member states have been eliminated, and people are now free to move across national borders within the bloc.
The market integration of 28 EU members has been desirable from the standpoint of economic efficiency. The North American Free Trade Agreement (NAFTA) was launched in 1994 among the U.S., Canada and Mexico, eliminating import tariffs on most items among the three countries. The Trans-Pacific Partnership (TPP) agreement, which counted Japan among its 12 signatories, came close to coming into force.
To sum it up, 1991 to 2016 constituted a period in which globalization flourished and bore fruit. The first event to inhibit the trend that had lasted a quarter century was the referendum in Britain last June, in which its citizens voted in favor of leaving the EU. Proponents of Brexit claimed that the EU law stipulating free movement of people within the bloc had prompted large numbers of immigrants from Eastern Europe to move to Britain, lowering wage levels, creating unemployment and deteriorating public safety. It was the Brexit vote that sparked off anti-globalism and the rise of populism.
And last November, Donald Trump won the U.S. presidential election. People use the term populism to describe his position, and as if to prove that point, Trump consistently gives top priority to creating jobs for Americans. He asserts that the inflow of undocumented immigrants from Mexico and other Latin American countries deprive U.S. citizens of jobs, that American jobs are being lost to Mexico, where U.S. and Japanese automakers build cars at low manpower costs and ship them to the U.S., and that high border taxes must be levied on imports from Mexico to bring jobs back to the U.S. Right after his inauguration, Trump pulled out the U.S. from the TPP and declared he would review NAFTA to bring back lost jobs. This is in stark contrast with what U.S. President Bill Clinton said upon signing NAFTA — that the free trade accord would create jobs, in particular high-paying ones, in the U.S.
Whether or not this year will prove to be a turning point in history will soon become clear. Following the general election in the Netherlands, France will hold a presidential race in April and Germans will go to the polls for a general election in September. Should gains be made by far right political parties, which, like Trump, carry populist and anti-globalism slogans, a devastating blow could be dealt to the value standards build up in the history of modern Western Europe such as individualism, liberalism and democracy. It is frightening indeed to imagine that economics based on the principles of free competition and market mechanism, too, might be on the verge of extinction.
Takamitsu Sawa is a distinguished professor at Shiga University.
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