Look out, not in

The crisis-induced trend towards inward-looking policies poses great dangers for Europe. 

When the financial and economic crises steamrolled through the Western world, many warnings were issued against reverting to protectionism. These warnings were needed, because history shows that the gut reaction to economic problems has often been to close borders to foreign competition. So far, the warnings have worked–at least among the political leaders in Europe.

But that does not mean that protectionist ideas are not flourishing in some sections of public opinion, in our political parties or among sections of civil society.

Some people see globalisation as a threat. They focus on production or jobs lost to other parts of the world and tend to disregard any positive effects, like a better and cheaper supply of goods, the export markets, or the influx of new ideas, new technology or even new medicines. Among economists there is no real argument: the benefits of openness to globalisation outweigh the disadvantages by far.

Much depends on the ability and willingness to change, because to fully benefit from globalisation, national economies must constantly adapt. Such change can only be achieved if businesses and labour markets are sufficiently flexible and if flexibility is accepted as a good thing. This comes more easily if social systems are designed to support such change. Because some industries will lose out and new ones will rise, it is important to improve Europe’s social systems in a manner that allows change while at the same time offering the affected workers the support they need, either in training or by way of a safety net.

But openness to globalisation obviously means more than just trade. It means openness to investment, people and ideas. Foreign investments often give rise to concerns like fear of foreigners taking over national assets and moving decision-making out of the country. Fears of an influx of people from other parts of the world can lead to similar cries about “taking our jobs”. Cultural, even racist, arguments are used.

Take the US, where we have seen “made in America” campaigns taking off, and several rather emotional discussions about foreigners taking over national assets. Yet the US is widely considered to be more economically liberal than Europe and also more open to international trade. However, Europe is by no means free of similar emotive ideas, and xenophobic and anti-globalisation movements now influence the political agendas even of some mainstream parties. This trend has no doubt been influenced and strengthened by the economic crisis.

Nationalistic parties, particularly in Northern European countries such as the Netherlands, Austria, Finland and Denmark, are now becoming increasingly anti-European, though France’s National Front is not exactly pro-European. Pressure from these parties has not made policy action against the crisis any easier either. It has also signalled possible future problems, as solidarity between European nations is being challenged. This vanishing solidarity and increased nationalism is undoubtedly one of the main problems facing not only the euro, but the EU project as a whole, and one that carries catastrophic risks for Europe’s future.

More inward-looking attitudes would have several consequences for Europe’s prosperity and ability to innovate. And those attitudes affect our outward relations too, such as with Turkey, whose increasing role as a regional power in the Middle East would be a boon for Europe. Also, inward-looking attitudes would mean a smaller influx of new talent and ideas from other parts of the world.

California’s openness to other cultures and global ideas is often cited as one of the main contributing factors to its success as a centre of innovation. Should Europe choose the opposite course, the consequences would be substantial. Europe’s businesses need inspiration from global markets, and not just to buy and sell. Competitiveness, new skills and innovation will not come from looking inwards.

Openness is also the way to influence global rule-setting. It is clear that maintaining unfair labour standards, breaking copyright rules and operating under poor environmental standards are unacceptable practices that hurt European business and lend justification to criticisms of globalisation. But for the playing field to be levelled, Europe must be out there, and fully involved.

The crisis in Europe has no doubt led many people to become more inward-looking. In times of austerity, there is less to share with others. Although Europe has made good progress in terms of economic governance and austerity measures, our leaders must make much more progress in leading Europe back on to a growth path.

This has to be the main priority now: the present grim situation, with so many dark clouds hanging over the future, and in particular damaging the prospects of huge numbers of unemployed people (especially among younger generations), carries enormous political risk. It also offers fertile ground for populist politicians, whose advice–to look inwards instead of out–is quite the opposite to what Europe really needs.

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©OECD Observer No 290-291, Q1-Q2 2012

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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