The Fading Consensus

At the end of World War II, the movers and shakers established a new economic order. They called it "The Washington Consensus." Glen Pearson writes:

The economic agreement of recent decades is fading.   It was termed the “Washington Consensus,” and it was strong and adept enough to draw in the predominant economies of the West.  Biden was part of the Washington establishment that helped build that consensus.  Now, like Trump before him, he’s made the political and economic calculation that putting American interests above all those of its partners is the only way to get out of the financial hole in which America has mired itself.

As noted this week in the Atlantic:  “Ever-greater  global interdependence is no longer desirable.”  When fully carried out, this new policy approach will have challenging implications for America’s trading partners, including its neighbour to the north.

Many economists feel the global financial system is now in free motion, no longer tethered to the shared belief that capitalism and the free market, for all of their inequities, are nevertheless the best approach to take into the future.  Covid revealed the weakened underbelly of the global system, but it has been primarily the Chinese belief in pulling away from the global consensus and establishing its own markets and partnerships that has forced the rest of the world to readjust.

Biden’s key interest has been industrial strategy and how its renewal could help reshape the economic future of the nation he leads.  China believes the same thing, as do certain elements in France, Germany, the UK, and India.  It’s “looking out for Number One” time, and for a soft power nation like Canada that largely depends on global trade to leverage its economy, the hurdles ahead are bound to reshape the politics of today.

What does that really mean?

Ultimately, all this is bringing on a new age of economic nationalism.  Citizens and institutions that feel they are losing out to the world system now want to control their own.  They believe that shipping jobs and investments overseas only hollowed out local economies and they want their prosperity back.  The wealth generated in the last few decades appears to millions to have been sequestered by the great and mighty and they want more of it for themselves.  It’s a highly toxic and simple message.  It’s also a highly dangerous one unless managed properly.  In a world of “all against all,” there can only be a few winners.

Like politics and respectful negotiations, Main Street and Wall Street parted company years ago.  We are now divided in a world, and in such a setting, national governments have to find a way to feather their own nest while still participating in the world economy.  It will be a task fraught with risk but will likely grow in popularity with voters.  There is no certainty that this new approach will bring the wealth and peace that so empowered the earlier days of globalization.  No “sure thing” exists in economics.  Everyone has their own opinion or policy.  But if the politics guarding over economies turns on itself and ruins both our common purpose and historical partnerships, then all this new economic nationalism will be for naught.  It’s a treacherous road we are entering and only a common accord can guide us forward.  Splitting us increasingly into camps – political, economic, social, ideological – will ruin much of what is good in our Canadian consensus.

Buckle your seat belts. It could be a rough ride.

Image: slate.com