Managing diverging forces: integration versus fragmentation

Jean-Pierre Lehmann, Fung Global Institute, 9 January 2012

In the closing days of 2011 Russia, Montenegro and Samoa became the latest full members of the World Trade Organisation (WTO). The number of member states now stands at 157; in 1991, the year the Soviet Union imploded, the GATT (the WTO’s predecessor organisation) counted 90 member states. Not only is the quantity of membership highly impressive; but also, with Russia now having formally joined the global market economy club, all the big powers are in. With the end of the Cold War, we have gone from a divided to an integrated world economic order.

There are an additional 27 states that are not full members of the WTO, but they have observer status. They include countries at war (Afghanistan, Iraq) or undergoing political transitions (Ethiopia, Lebanon, Bosnia-Herzegovina, Sudan, Syria) or are being ostracised by the “international community” (Iran), or too small, or too poor. It would be reasonable to assume that within the next decade half of the observers will become full members, which would bring the total WTO membership to 180.

There are another couple of dozen states that are neither members nor observers, hence with no intention to seek accession, but the vast majority are tiny: eg San Marino, Niue, Curaçao, etc. The only sizeable nation in that category is North Korea. And who knows, maybe it too will be seeking accession in a decade or so? As implausible as it may sound, it would have sounded even more implausible two decades ago that the WTO would become such a big global club, especially when bearing in mind the stringent requirements for accession.

At the time of its founding, in 1995, the WTO was described as the first truly institutional innovation of the new era of globalisation. In terms of membership, it has been an outstanding success. Globalisation in the late 20th/early 21st centuries has been driven by a number of convergent forces: the abandonment of anti-market economic theories and policies virtually everywhere, the development of new technologies, the integrative dynamic of new production processes, especially the development of the global supply chain, the opening up of markets to cross-border flows of goods, capital and technology, and the institutional framework of a rules-based multilateral system.

One of the many paradoxes of this age of globalisation, however, is that in spite (or because of?) its extensive global membership, the WTO has made no progress on its agenda and consequently has lost momentum, prestige, credibility and authority. In addition to the forces of integration there have been rising strong forces of fragmentation; a quick Google search reveals how the term “de-globalisation” has rapidly gained currency – including an article of mine that calls on “reversing the tides of de-globalisation” – especially since the onset of the great 2008 financial crisis. In opposition to the forces of globalisation, the huge proliferation of bilateral and regional preferential agreements displays the rising forces of fragmentation. In a thoughtful and important piece, “A Dangerous game? Trends towards the fragmentation of the global international trading system”, the Argentine scholar Felix Peña expresses the view that “the main problem could derive from the fact that the relevant players of the world political scenario eventually perceive that some of these agreements pursue geopolitical objectives that go far beyond trade and investment flows. This could imply the beginning of a dangerous game that may contribute to a greater fragmentation of the international political system”.

It is these kinds of scenarios that give observers such as Felix Peña and a growing number of others – including this author – an eerie sense of 1930s déjà-vu. Trade agreements can become trade blocs, which in turn can result in conflict with other blocs, and which transcend the economic into the geopolitical. As Peña writes: “the epicentre of such a game could result from an eventual competition between great powers – both longstanding and emerging – in geopolitical spaces with a high potential for conflict”.

To answer the question posed in the title of Peña’s piece, yes, it is a very dangerous game. In the polarised confrontation between fragmentation and integration, one has to win. This is not only a dangerous game; it is a zero-sum game.

That at least is how it appears to the Western binary and Cartesian mind. In a truly fascinating article on the Fung Global Institute website, Beyond Contradiction - Appreciating the Chinese Art of Maodun, literati Eugene Eoyang provides an alternative paradigm based on the Chinese concept of maodun 矛盾, which goes beyond the Western (including Marxist) concepts of contradiction and polarisation and instead integrates and accommodates apparent differences. Thus, whereas, for example, “market socialism” may appear to the Western mind as an evident oxymoron, the Chinese have been living with it quite successfully for three decades; there is no sign at present that it will be abandoned or that China will become a complete market economy or revert to socialism.

The “globalisation” of the concept of maodun could provide a means to managing the very turbulent cross-streams of integration and fragmentation the world will be traversing in 2012 and probably beyond. This is one of the many reasons why more active Chinese (and other Asian) intellectual and conceptual inputs into global economic governance would be most welcome. Rather than integration versus fragmentation, perhaps the world of the 21st century will become one of fragmented integration or integrated fragmentation!