When inequalities globalise, how much can we keep to ourselves?

This is the year to start focusing on the next globalisation: the merging of inequalities within economies with the inequalities between economies. It’s been running a while already. It might make free trade arguments irrelevant.

There is a parallel globalisation, that of the physical environment and its resources. Growing recognition of the interdependencies embedded in this globalisation lay behind governments’ bother at Cancun last month to keep climate change negotiations alive.

New Zealand now has a high profile in keeping these talks alive in this year’s much more complex and challenging phase.

Adrian Macey, formerly our climate change ambassador (and whose professionalism contrasts with United States’ envoys’ amateurish reading of politics here, judging by Wikileaks), chairs the “Kyoto” track for countries with 2008-12 commitments.

Climate Change Negotiations Minister Tim Groser got some progress at Cancun on getting nations to make their commitments and actions on greenhouse gas emissions “measurable, reportable and verifiable” (MRV) — and on getting non-Kyoto nations to sign up to MRV, a quid-pro-quo Kyoto nations insist on. Groser’s extensive international trade experience, skills and personal connections made him uniquely acceptable to all the big players, Europe, the United States, China and India.

To this he added another important initiative he conceived four months ago and got endorsed at a meeting he called in Cancun: a push for cuts in national subsidies for fossil fuels. These subsidies total four to seven times the $US100 billion agreed at Cancun to help less-developed economies adapt and mitigate. They roughly equal total agricultural emissions. It is, Groser says, “ridiculous” and “incoherent” to negotiate cuts in emissions while also subsidising them. Eliminating the subsidies would be a major contribution to containing emissions. The surprise is that it was not on the table long ago.

Groser’s aim is a ginger group of around 10 developed and developing nations similar to the Cairns group which pushed agricultural subsidies reform in world trade talks. Officials met in Paris last month. Groser expects that if the group gets major nations to buy in, “reform will be gradual and progressive”, most likely over decades.

Add to the high Cancun profile the global research alliance for agriculture emissions, the most concrete outcome at Copenhagen in 2009: New Zealand’s role is miles out of proportion to its tiny size.

Reforming fossil fuel subsidies straddles the environment/resources globalisation and that of economic integration.

Trade deals are the visible policy dimension of economic integration. These excite passionate support and passionate opposition. But actually they may now be essentially formalising, and possibly providing tools to better manage, the integration, which is going on whether we like it or not, whether “right” or not. The post-1938 fortress-economy option is now a way to get poorer, not richer. It worked in its time because economies were organised nationally and we could symbiotically lock into Britain.

An illustration from research the Wall Street Journal reported last month: “The iPhone, designed and owned by a United States company, is a ‘Chinese export’ that added nearly $US2 billion to the United States’ trade deficit with China”. Many multinationals are global now, not simple exploiters of foreign resources or markets for home-country profits.

And, as the “middle” is hollowed out in the United States and elsewhere, wages are adjusting. The Financial Times reported in August that call centre wages in parts of the United States were close to those in India. Shanghai’s GDP per capita is closing in on that of southern Europe while China’s hinterland is still very poor.

That says inequalities within economies are starting to merge with inequalities between countries in this next phase of globalisation.

Add to that the globalisation of people as a result of mass migration from poor countries and the emergence of a global technical-managerial-financial elite. This looks like the early stages of a transition from distinct national economies to a global economy, much as industrial revolutions melded regional and local economies into national economies.

That will not make the world “flat”. Some cities or regions will be richer, as they are now in national economies. But they will be the product of innovation and specialisation. Generally, incomes will not easily be privileged by protective national policies. (Ask yourself where the Hobbit fits.) The lesson from climate change is that managing the inequalities will require global action, as managing inequalities within national economies required national action.

The good news for slow movers is that this next globalisation is a Groserian “gradual and progressive” event and wars and other shocks might interrupt it. There is time for global action. But that will need new thinking, not 1990s trade debates.