Where did globalization go wrong?

And the effort and empathy necessary to make it right

Globalization has become a deeply polarizing topic in the last year, a catchall term for everything wrong (or right, depending on where you stand) in the world. Once considered an experiment in free trade, globalization is in many ways now seen as the beginning of the end—a reaction amplified by increasingly displaced workers, vulnerable supply chains, and a rapidly evolving geopolitical situation. But to fully understand the impacts of globalization—both in the aggregate and at the individual level—we have to go back to the start.

David J. Lynch—a global economics correspondent at The Washington Post—does exactly that. His new book The World’s Worst Bet: How the Globalization Gamble Went Wrong (And What Would Make It Right) offers a fast-paced yet rigorous account of the economic and political decisions made over the last 30 years that got us to where we are today.

I had the pleasure of speaking with David recently about The World’s Worst Bet. In this interview, we discuss globalization in terms of its disproportionate impacts in the US, implications for developing countries, the role of social protection over protectionism, and lessons we can apply to the rise of AI.

Highlights from the interview can be found below, along with timestamps to key moments in the audio. Listen to the full interview here:

The World’s Worst Bet is out now and currently #1 on Amazon for books on Globalization. The prologue is available for free on Politico.

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The winners and losers of globalization

It seems like The World’s Worst Bet has kind of come out at this perfect time with record high tariffs marking the end of US-led globalization. But of course, this book has been in the works for a while now. What made you decide to write it? [1:08–3:31]

“I think the idea came to me around the time of the G20 meeting in November 2022 in Bali. […] It struck me how different a world we had ended up in by that point than the one we had anticipated in the late 1990s. People in the US, US political leaders like Bill Clinton and others, were very optimistic about the future. It seemed like democracy and free markets were really sweeping the globe. The Berlin Wall had come down, and the expectation was, you know, we're going to have this one happy global family, this globally integrated economy.

And it was going to mean widespread prosperity here at home, shared prosperity and political liberalization abroad. That you'd see places like Russia and China opening up their political system and, if not becoming genuine democracies, at least moving in a more liberalized direction. And fast forward to that time in 2022 as I was getting ready for the G20 meeting. And boy, it was a different story.”

The World’s Worst Bet does acknowledge a lot of the gains of globalization in the US. This led to lower prices and expanded purchasing power, but the losses were concentrated among a few specific groups. Could you broadly characterize who some of the winners and “losers” of globalization were? [3:31–7:04]

“Well, let’s take it at that the biggest level first. Spreading goods and ideas and capital and technology more easily across borders was a great boon to the developing world. The IMF says it lifted something like one and a half billion people out of poverty worldwide. That's really, you know, that's a remarkable achievement. It's one that I think people in the United States probably don't take seriously enough. […]

That won't get you elected to office in Ohio or Indiana. That's the problem. The costs domestically here in the United States were concentrated in a particular cohort of people: the least well educated, the least skilled manufacturing workers. People who might just have a basic high school education went to work in the local factory and had been there for 20 years or 10 years, doing the same sort of job over and over again.”

Globalization, poverty, and development

You mention the IMF stat about 1.5 billion people being lifted out of extreme poverty. This was in part made possible because of lower labor standards. Could you talk about the ways in which globalization may have reinforced this sort of poverty in developing countries? [7:04–9:08]

“I do think of globalization the bottom line being poverty alleviation more than poverty reinforcement. I have seen that this plays out different ways in different countries, depending upon the adequacy of the local political and policy choices that are made.

Take a country like Egypt and contrast it with Vietnam, roughly the same population size. If you look at the sort of growth that we've seen in Vietnam, and the extent to which multinationals have gone in to Vietnam, companies like Nike, which has a lot of plants there, Vietnam has kind of followed sort of the Chinese playbook of export-led development and growth.

I look at a country like Egypt, and it feels to me like they've kind of missed the globalization boat as it was coming by. And Africa in general has not yet done as well. We may be on the dawn of some better times arguably in Africa. […]

The low hanging fruit has been plucked. There's just not going to be as many opportunities for the next eager developing nation to come follow that merchandise export-led path.”

Trade with China finances US consumption

Between 2008 and 2018, China was the largest holder of US Treasury securities and hence US debt. How did this trend come about, and what were the implications of this for the US economy? [13:13–17:08]

“If you go back to the late 1990s we always traditionally bought more from China than the Chinese bought from us. And that's not terribly surprising when you think about the relative levels of affluence of the two societies in those days in particular. […]

In the late 1990s we had a trade deficit with the Chinese of, I don't know, somewhere in the order of $65 billion a year, buying products from the Chinese with dollars. They take those dollars, and as they accumulate, they've got to put them somewhere, and typically, they invest them back into US securities, US Treasury securities in particular, because that's the deepest, most liquid capital market on the planet. […]

Now the implications of that, the fact that the Chinese are always there, ready to buy, allows us to effectively live beyond our means. We're financing our consumption that way. Yes, it raised political concerns, particularly in recent years, as tensions got more serious between Washington and Beijing, people started to worry.”

The role of policy in protecting displaced workers

In a 1962 special message to Congress, President Kennedy said that “the burden of economic adjustment should be borne in part by the federal government.” Has this been the case in recent decades, and do we see that happening today at all? [9:17–12:15]

“The short answer is no. That type of promise has been echoed down the years and in the era that I described in the book, but most clearly by Bill Clinton, who always said, globalization is a fact. It's not a choice going to be winners and losers, and we have got to make sure that the winners take care of the so called losers, give them the relocation assistance, the training, the education, whatever help they need to lift them up so they can be a part of this globalized economy.

And Clinton was very clear eyed about the need to do this, that the need wasn't just because, you know, it's morally the right thing to do. […] But there was always, both in his time and in subsequent presidencies, there was always something else that was a higher priority at a given moment.”

One detail I found really interesting was the mention of how in Denmark, they use randomized, controlled experiment to trial the effectiveness of their workforce programs. How did the experiences of displaced workers in the US compare, especially with regards to programs like the Trade Adjustment Assistance program? [23:57–28:05]

“The Trade Adjustment Assistance program has really been a chronic disappointment. Over the course of its long history, I don't think anybody's satisfied with it. It's always been inadequately funded. […]

Studies that have been done show that the workers who participate in it often would have been better off just looking for a job on their own, because of the time that you're spending in one of these programs, by the time you kind of wait in line to get into the retraining, get the retraining, and then emerge from the program, labor market needs may have shifted in a way that you could be trained for something that by that point nobody wants. […]

Trying to parse whether somebody's lost their job because of trade policy may be beside the point. Whether you lose your job because of automation or trade or some other reason, maybe the government ought to be providing you more creative forms of assistance that can equip you to participate in some fast growing sector of the economy.”

It's not that the US is incapable of more ambitious social programs like the GI Bill. Would you agree that the way of addressing globalization is more likely to be greater social protection as opposed to protectionism? [28:11–31:02]

“I think so. And I also think it's about the only thing we haven't tried yet. We've tried tariffs, we've tried industrial policy to some degree, both of those policy tools have a long history that we can look to and render judgments on the likelihood that either one of them are going to be successful. And I would say there are serious questions about both. And so I would like to see a little more policy experimentation with active labor market efforts and social programs. […]

I don't want to give anybody the idea that there's some magic wand that we can wave, or silver bullet that has been lying around that people haven't used. I would just like to see some more effort put into the policy experimentation on this labor market social program side, because, as you say, the GI Bill is a terrific example. […]

I think we've lost sight of the ways in which some of these programs can echo down through the years and make lives better.”

Applying the lessons of globalization to the rise of AI

With regards to artificial intelligence, you write that its impact “may be reminiscent of what happened as Chinese goods became more widely available in the United States.” What can we learn from the last few decades of globalization and apply to the inevitable displacement that is expected to be brought on by AI? [31:02–33:32]

“So my expectation is that AI is going to make life better for all of us, but it's going to cause winners and losers, to go back to that formulation. And we need to be thinking today about those “losers,” who they might be, both in demographic terms and in geographic terms. […]

If you and I are going to be losers somehow from AI, what would we want the government to be doing to help us 5 years from now, 10 years from now? And we should apply that framework to developing policies to have support in place for the people who will be disadvantaged by these changes.”