The Trilemma of Globalisation: Free Trade, Fair Trade or Fear Trade

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Ken Costa
Chairman: Europe, Middle East and Africa UBS Investment Banking Department 2 Finsbury Avenue London EC2M 2PP

Cass Business School
2 March 2006 EMBARGO UNTIL 19:30pm 2 March 2006

The Trilemma of Globalisation: Free Trade, Fair Trade or Fear Trade In discussing the challenges presented by today’s diverse global environment few topics can be as important as the issue of globalisation. It is at the heart of the structural change that has taken place in our generation as borders have shrunk, technology changed and communications enhanced.

Economists believe – almost universally, which says something(!) that globalisation is a net benefit. But, if recent examples are to go by, there seems to be a growing doubt gnawing at its foundation. Globalisation faces a trilemma. Which is to be master? Free Trade, Fair Trade or Fear Trade. Free Trade

For globalisation to succeed there needs to be a common acceptance of the frictionless flow of capital across borders and the determination to eliminate

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impediments to the free movement of resources and products. Free trade is the pillar on which the argument for globalisation is founded. For the last decade we have lived with the prevailing sense that the globalised environment is here to stay. There has of course been a vigorous debate about how the benefits should be shared, the implications of the growing technology divide and the sustainability of regional development. But by and large the foundations have been in place. What has become disquieting recently has been the realisation that some of the most basic premises of globalisation are far from secure. The case for globalisation still has to be made. Globalisation still needs to be nurtured as a beneficial system and shown to be demonstrably favourable to all participants in the global market place. This is an argument that needs to be advanced and argued for and can not merely be assumed. Fear Trade

But free trade seems to have been supplanted by fear trade. The recent actions in the United States to prevent the completion of the acquisition by the Dubai Ports World of the US ports previously owned by P&O underlines the serious challenge to the argument. Here we have the US, the major exemplar of modern capitalism, wishing to restrict the take-over by one foreign company of another foreign company with operations in the United States. This action is unfortunately not an isolated example, it comes

sharply on the heels of the decision to prevent CNOC, a Chinese company, from acquiring Unocal in the US. The ports case has become a testing place for the future direction of globalization. At issue is ownership. There are after all in any market regulations that govern ways in which corporations

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act. In any event these ports will overwhelmingly be run by and managed, as they have been in the previous foreign owners’ hands, by US citizens. Of course there are arguments for national security. That would be true in any country. But it is of deep concern when these concerns are deployed

selectively discriminating between one foreign owner and another. Friends of the United States, and I count myself as one, will do the country the highest favour by lobbying actively against these barriers. Not only on their merits but also because of the sign that is given. Free trade flourishes in a climate of reciprocal openness and mutual advantage, fear trade now seems to be an underlying assumption lurking not only in this decision in the United States but in other countries as well. Security, national interest, cultural preservation and other nationalist reactions can easily stoke these fears.

Italy have complained about protectionist activities within the European Union, but recently, albeit unsuccessfully, Italy attempted to prevent nonItalian acquisitions of domestic banks.

In France, the Prime Minister has attacked “fragmented share capital” as being a risk to independence and is looking to...
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