Thoughts on ‘Aftershock : Reshaping the world economy after the crisis’ by Philippe Legrain

2nd June, 2010

Globalisation once appeared inevitable and irreversible. The ability of capital, labour and information to flow instantly around the world made national borders appear irrelevant.


History shows that the same expectations have not stopped the demise of previous eras of economic integration. The first World War was also preceded by deepening trade links.

This time, however, would be different. The forces pushing the integration of business and economic life were many and powerful.

However as the Greek and banking crises have shown the global flow of business and money can be stopped. There are many books available on why these crises have occurred. However the polemical weight is towards fierce criticism of the global openness created by the freedom of movement of people and capital.

Philippe Legrain is an exception to this view. His previous books ‘Open World: The Truth about Globalisation’ and ‘Immigrants: Your Country Needs Them’ championed the ability of free trade and movement as a force for good.

‘Aftershock: Reshaping the world economy after the crisis’ shows no dimming of this belief despite the huge damage caused by the collapse of global banks and trade. If anything, the faith burns brighter.

This world view is particularly relevant to Ireland. Our export performance, particularly in services, has remained strong despite the difficulties in our domestic economy.

It begins by acknowledging that “Globalisation is neither uniform nor universal and will always be incomplete. Clearly, then, it is also reversible. Politicians have put an end to globalisation before and they could do so again”.

The author analyses how economies are bubble prone and how currency swings can severely distort the business and economic life of countries. It repeats again the fact that $4 trillion is traded each day on the currency markets, yet world trade in 2008 was only $17.7 trillion in the full year.

The focus of the book then moves to reviewing the three main forces that will shape the global economy. They are the recovery from the current crisis, adjusting to the rise of emerging economies and coping with climate change.

Much of this analysis already exists. However what infuses this work is a commitment to the liberal principles of free trade and free movement. The author argues that the only way of realising opportunities for those at home is to grasp the opportunities abroad.

The role of government and regulation is seen as critical. The book rebuts the consensus that the state shrank under the pressure of rampaging free markets. The world did not converge to a single ‘Anglo Saxon’ model of low government markets with a retreating role for governments.

It notes that George Bush oversaw the biggest expansion of government spending since the 1960s. In Britain, at the height of the boom, the state still absorbed nearly 40% of national income and spent more than that. Ireland is an outlier to this trend where government spending as a share of national income shrunk during a period of exceptional economic performance.

The book argues for a stronger state influence in areas that can drive sustainable economic performance. For example, tougher regulations to prevent or deflate the economic bubbles that wrecked jobs and welfare policies that protect people rather than specific jobs.

The author argues that this should be funded by increasing the tax on the least mobile of assets such as land, while reducing tax on labour.

The commitment to an ‘open society’ is a guiding light in this book. The book concludes that “Openness not only reduces the chasm between the opportunities available to rich and poor, it erodes the gap between prosperous places and poor ones”.

The pressures on the eurozone have never been greater. Countries have now discovered that while the success of their banks may be global the cost is local. World trade has contracted and national barriers are rising again.

But we must re-affirm our commitment to trade, entrepreneurship and a vision of seeing the world as an opportunity not a threat. The tone of this book, and the brisk sweep through a huge range of topics, supports a world view that is essential to our recovery.