Implicit in both the pro- and anti-globalization positions is the assumption that unless globalization is stopped either by a world war, as happened in 1914, or by a conscious political decision, as anti-globalizationists advocate, it will continue until the world has become a seamless, frictionless marketplace.
Pro-globalizationists argue that such a world will be far more prosperous and peaceful than today's; the antis predict a world of universalized poverty and terrorism. On the balance, I agree with the globalizers. However, there are some limits to the process.
To date, they have been largely theoretical; sheer protectionist obstruction by entrenched interests has been so powerful that the other issues have been barely worth considering. However, enough progress has been made on lowering barriers that they have begun to be significant, and should be considered.
The world has benefited immensely from the general liberalization of trade that began after World War II, and most particularly in the past two decades. Entire regions, such as East Asia, have been lifted out of the most wretched poverty into a comfortable standard of living. Country after country has succumbed to pressures to lower trade barriers and permit the free flow of capital, labor and products. Those that remain closed are for the most part the poorest and least free, and certainly are not shining enticements for other countries to follow the anti-globalization path.
From this, however, we should not extrapolate that globalization along current lines can expand until the world is a single uniform economic space. Limiting factors difficult to overcome might well emerge to establish the limits of the process. It's worth thinking about what a few such limits might be.
One is public health. The epidemic of severe acute respiratory syndrome, SARS, serves as a timely reminder that medicine has not brought immunity from disease but only better tools for fighting it. It is likely no accident that Canada, with its higher immigration rates and looser border practices than the United States, was the center of SARS outbreaks in North America.
History has seen repeated cycles of expansion of trade suddenly cut off because of plague. Now cheap air travel, crowded megalopolises and mass movement of populations, have created the potential for very rapid spread of lethal diseases on a global basis. Several rounds of such outbreaks could create a set of quarantine and inspection processes for movement of goods and people that could substantially raise the cost of international trade.
Additionally, SARS is teaching us yet again that strong civil society is essential to fighting disease effectively. Without a tradition of honest public service, and without a tradition of independent entities in society to watch and report on administrative bodies, from media to legislatures, it is too easy for bureaucracies to hide bad news and their own inefficiencies.
By covering up SARS in its early stages, China reminds us that its ambition to be a first-class player in world trade and affairs still runs ahead of its development of civil society, and that a strong civil society is and must be the entry ticket to first-class status.
Security issues in their own way also act as a permanent barrier to full globalization, and one that cannot merely be wished away. The war in Iraq reminded us that substantial sectors of the economy, particularly in transportation and communications, are intimately tied in to national security. Mobilization of the Civil Reserve Air Fleet, which calls civilian airliners into military service, reminded us that who owns and controls airlines is a national security issue. Thus barriers such as the current limits on foreign ownership and control of U.S. airlines and certain communications facilities are unlikely to go away any time soon.
At the same time, the burden of SARS, on top of the burdens of war and terrorism, have demonstrated the airlines' critical need for capital. Free international flow of capital into the U.S. airline industry, both via international investment and merger, would be a significant boost at a critical time. Yet it is hard to imagine the Pentagon being happy at the prospect of one of the major airlines coming under the wing of, say, Air France.
Finally, continuing terrorism and fear of terrorism will continue to have a dampening effect on international travel and trade. At worst, fear of terrorist use of cargo containers to carry nuclear, biological or chemical weapons into target nations could substantially increase inspection costs for such trade.
At a minimum, fear of terrorist activities will reduce the willingness of business people to travel to and do business in "soft target" nations, those too poor to effectively screen out and fight international terrorists. The October 2002 bombings on Bali may be a better example of future attacks than the World Trade Center assault; as the United States and other rich, strong nations improve security, the natural tendency will be to move terrorist activities to poor nations with less effective security.
Barring a runaway episode of epidemic disease, war or terrorist phenomena, it is likely that these factors will merely remain constraints on globalization, and not showstoppers. However, as experience grows with both the continued deepening of globalization, and the continued emergence of long-term limiting factors, we will begin to have a better feel for the texture and contours of a globalizing world.
Rather than happening at a constant pace in all directions, globalization is more likely to continue to happen unevenly and along certain lines and vectors. Certain links will be most likely to happen between equally strong civil societies; others will happen along geographically regional lines; still others will happen along lines of shared language and culture.
These realities also suggest that the institutions of globalization should be somewhat rethought. Global institutions such as the World Trade Organization, and global, universally targeted trade initiatives may have picked most of the low-hanging fruit available to them. From here on, it may be that merely lowering tariff barriers further and eliminating obvious discriminatory rules may be close to its useful limits, while other concerns, particularly in public health and national security, may just not be addressable through universal rules.
Much beneficial work on globalization remains to be done, but it may be that attention will now shift to examining ways of linking particular sets of nations and economies that can be integrated without the problems that would stem from a universal application of such rules. Economists have tended to dislike such particularist solutions, and always tend toward the universal.
But the world has more factors than their models can incorporate, and it may be that the costs such factors impose can no longer be kept in the margins.
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