Written by Andrey Yashlavsky

Translated by Elizaveta Ovchinnikova

6 June 2022




The largest Nobel Prize-winning economists admits that globalization policy has collapsed


Something went wrong in the global economy – the West started talking about it right after the regular World Economic Forum in Davos. We even talked about the fallacy of the globalization policy. President of the All-Russian public organization ‘IPA Russian Section’, Doctor of Law, Professor, Honored Lawyer of Russia, Lieutenant-General Yury Zhdanov told what the Western leading economists are concerned about.


– Yury Nikolaevich, it is known that at least two Nobel laureates in economics at the same time expressed concern about the current state of affairs in the world economy. What are the scientific luminaries worrying about?

– Yes, two scientists at once – Nobel Prize laureates in economics Joseph E. Stiglitz and Michael Spence, and on the same day, 31 May, on the same Project Syndicate website, in fact made a critical reassessment not only of the results of the recent Davos Forum but also of the Western economic strategy as a whole. Moreover, Stiglitz, in his article under the characteristic title ‘Getting delocalization right’, even concludes that the longstanding vision of a world without borders is no longer trustworthy.

– Was the current Davos Forum any different from the previous ones?

– It was different, and very significantly. Let me remind you that this year the World Economic Forum in Davos was held for the first time since 1992 without the participation of the Russian delegation, but speeches about Russia were often heard at various forum venues.

Among the main topics of the Davos Forum, which took place from 22 to 26 May, were the Russian Special Operation in Ukraine, the economic crisis and climate change. In addition, the participants actively discussed cryptocurrencies, the threat of a global food crisis and remote work.

And as for how different it was from the previous ones, Bloomberg wrote the best of all.

According to the agency, after a two-year break due to the COVID-19 pandemic, the guest list was hundreds of names shorter. Many regulars, such as the chiefs of Goldman Sachs, JPMorgan and BlackRock, were not at the forum this year, as were Russian tycoons. The Russian delegation was not invited to Davos because of the Special Operation in Ukraine.

In total, about 2,000 people took part in the Davos Forum, including Chief Executive Officer of Citigroup Jane Fraser, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva, as well as 50 heads of states. It is significant that of the leaders of the G7 countries, only Chancellor of Germany Olaf Scholz attended the forum, who spoke on the last day.

– Let’s go back to the Nobel laureates: did they discuss the course of hostilities in Ukraine in their articles?

– No, of course not. But they touched politics. Joseph E. Stiglitz writes that the ‘forum traditionally committed to championing globalization was primarily concerned with globalization’s failures: broken supply chains, food- and energy-price inflation, and an intellectual-property regime.’

He continues: ‘Gone are the days when everyone seemed to be working for a world without borders; suddenly, everyone recognizes that at least some national borders are key to economic development and security.’

‘For one-time advocates of unfettered globalization, this volte face has resulted in cognitive dissonance, because the new suite of policy proposals implies that longstanding rules of the international trading system will be bent or broken. There was little soul searching about how and why things have gone so wrong, or about the flawed, hyper-optimistic reasoning that prevailed during globalization’s heyday,’ Stiglitz complains.

Of course, the problem is not just globalization, Stiglitz admits. He concludes that the entire market economy has shown a lack of resilience: ‘We essentially built cars without spare tires – knocking a few dollars off the price today while paying little mind to future exigencies. Just-in-time inventory systems were marvelous innovations as long as the economy faced only minor perturbations; but they were a disaster in the face of COVID-19 shutdowns, creating supply-shortage cascades (such as when a dearth of microchips led to a dearth of new cars).’

– But isn’t that why he’s a scientist, to anticipate such problems? Especially the Nobel Prize winner.

– Here Stiglitz reminds of his foresight. Like, in 2006, in his book ‘Making Globalization Work’, he warned that markets were doing a terrible job of ‘pricing’ risk. He even refers to the prominent Adam Smith, who recognized in the eighteenth century that capitalism is not a self-sustaining system, because there is a natural tendency toward monopoly. However, since US President Ronald Reagan and British Prime Minister Margaret Thatcher ushered in an era of ‘deregulation,’ increasing market concentration has become the norm, and not just in high-profile sectors like e-commerce and social media. The disastrous shortage of baby formula in the United States this spring was itself the result of monopolization. After Abbott was forced to suspend production over safety concerns, Americans soon realized that just one company accounts for almost half of the US supply, writes the scientist.

– But now the Americans seem to have re-launched the production of baby formula.

– Yes, but with a higher cost. And ‘high food and energy prices are likely to cause debt crises in many poor countries, further compounding the tragic inequities of the pandemic. If the US and Europe want to show real global leadership, they will stop siding with the big banks and creditors that enticed countries to take on more debt than they could bear,’ Stiglitz believes. In his opinion, after four decades of championing globalization, it is clear that the Davos crowd mismanaged things.

‘Davos promised prosperity for developed and developing countries alike,’ Stiglitz continus. ‘But while corporate giants in the Global North grew rich, processes that could have made everyone better off instead made enemies everywhere. “Trickle-down economics,” the claim that enriching the wealthy would automatically benefit all, was a swindle – an idea that had neither theory nor evidence behind it’.

– That is, the West recognized that globalization, in fact, was a pre-conceived grandiose scam?

– Do you remember how the well-known Russian literature and film character Ostap Bender finally crushed the underground millionaire Koreiko and got the coveted million rubles from him? He sent him a book in which the first sentence was outlined in blue pencil: ‘All large modern fortunes are acquired in the most dishonest way.’ The quote is still relevant today.

– Do the Nobel laureates somehow concretize the situation in the world economy?

Michael Spence in the article ‘The Global Economy in Transition’ on the same Project Syndicate platform writes that ‘questions about economic growth, inflation, innovation, and the impact of the Ukraine war on the transition to green energy dominate discussions about the global economy’s condition and prospects.’ The picture that plausible answers paint is clearly not rosy.

‘Europe, too,’ writes Spence, ‘is likely to experience a recession, owing to high energy prices, heavy dependence on fossil-fuel imports, and the (costly) imperative of rapidly weaning itself from Russian supplies. And many lower-income countries – for which soaring food and energy prices are compounding the effects of the pandemic – are facing harder times.’

– What does he see as the reasons?

– The Nobel laureate states that the proximate cause of recent price increases is supply-chain blockages and imbalances between supply and demand. The conflict in Ukraine has intensified upward pressure on energy, commodities, and food prices.

But inflation is also being fueled by secular trends that are not set to fade anytime soon. Populations representing about 75% of the global economy are aging, labor-force participation is declining, and productivity growth is trending downward. Moreover, unused productive capacity in developing economies – a key source of deflationary pressure in the past – is smaller than it used to be, and what there is remains unused.

‘Add to that a coming policy-driven diversification of supply and demand linkages – a response to myriad shocks, from the pandemic and climate change to geopolitical tensions and conflict – and an extended period of supply-constrained growth with embedded inflationary pressures seems likely,’ Spence prophesies.

– But the economy has a good incentive for development – digital transformation, right?

– Here Spence is in doubt. On the one hand, he agrees that lockdowns and other public-health measures spurred an acceleration in adoption of digital technologies during the pandemic. On the other hand, contrary to market expectations, this trend is likely to slow as pandemic restrictions are removed.

Market gyrations, Spence believes, do not mean that the digital, energy, and biomedical transformations that are underway lack substance, or that they will not have long-lasting economic effects. Markets naturally tend to be more volatile than the underlying economic reality they are supposed to mirror. Momentum incentives cause overshoots in both directions.

Spence recommends that growth companies cut costs and conserve capital. In his opinion, now the deal prices are out of line with realistic longer-term values, making funding difficult and impeding growth and innovation.

And he is also very worried whether the conflict in Ukraine, Europe’s resolve to reduce its dependence on Russian oil and gas, and sky-high fossil-fuel prices will derail the low-carbon transition.

– Strange logic. Instead of clearing up the economic rubble that they themselves have piled up, they are discussing how to ‘punish’ Russia even more.

– Nothing strange, it’s a typical gangster philosophy. As Lucky Luciano said, if you don't fix the problem, the problem will fix you. And they see the problem, the source of all their troubles, in Russia. But they will have to ‘decide,’ after all, not us.

The West already admits that the Russian economy has not collapsed at all, and revenues from the sale of energy resources are beginning to grow. At the same time, Donald Trump accuses Joe Biden of humiliating the United States, and UK residents are preparing to spend most of their income on rapidly rising gas and electricity prices.

Trump calls what is happening in the country a ‘declaration of war on American energy,’ and predicts that all this will lead to the fact that the American middle class will be crushed by soaring gas and food prices. In the United States, the price increase in March was 8.5 percent per annum, which could be a record for more than 40 years.

A similar situation is observed in other Western countries. In the European Union — 7.5 percent, in the UK — 6.2 percent. Given the traditionally low rates of price growth in these countries, such figures look really alarming.