Margaret Thatcher was wrong, there is an alternative—Deglobalization, commodities, and the environment

Findings from a research rabbit hole

Good Morning, I’ve been working for a while on an academic article about structural change in the global economy and what it means for food and environmental policy and politics. I finished it earlier this month and, below, I share some of what I wrote. Some of the content will likely be familiar to regular readers of my Global News Roundups. The general architectures and structural schematics I use in the article are some of the same ones that I draw to help me categorize, connect, and organize current events and news reports.

This post is a long one. Thanks for taking a look.

____________

The following passage is excerpted from my recent draft article entitled “Accounting for structural change in food and environmental policy research: Lessons from global commodities markets”. Email anytime if you’d like to see my sources.

Commodities markets are a fitting entry point for analysis of food, agricultural and environmental policy, for the ways in which commodities are produced, traded and consumed have profound implications for human wellbeing and environmental health. What happens in commodities markets impacts the price of and patterns of access to food, housing, clothing, water, and energy, among other basic necessities. Primary commodities are critical inputs into all other production processes humans engage in. Commodities markets also represent an ecological interface where human economic activity directly and overtly influences the health of the land, air, water, and plant and animal species…

Along multiple dimensions—geographic/spatial, economic, political—global commodities markets are deglobalizing, shifting away from a global free market structure characterized by relatively noninterventionist government policy stances to a more geographically and politically fragmented system in which commodities trading increasingly occurs among allies and members of competing military-economic blocs across a conflict-ridden geopolitical landscape…

Neoliberal globalization in context

What Susan Strange (1995) originally called “casino capitalism”, other IPE scholars in the 1990s and 2000s came to call “neoliberal globalization” or simply “neoliberalism”, with the term “neoliberal” intended to differentiate the world economy that arose during the 1970s from other forms the global capitalist system had taken previously.

As with all complex structures, neoliberal globalization was partly an ideological process, a global reincarnation and dissemination of classical liberal ideas about how economies should be structured (via private property rights and free markets), and the proper role of the state in the economy (noninterventionist, laissez-faire) (Harvey 2005, DeMartino 2000). Beginning in the 1970s, neoliberal scholars and policy practitioners recommended policies that would support global free trade and capital mobility, exchange rate liberalization, fiscal austerity, labor flexibilization, industry deregulation, and the privatization of state-owned enterprises, drawing heavily on the academic work of scholars like Hayek (1944), Friedman (1966), McKinnon (1973), and Sachs (1993).

These policies—about which British Prime Minister Margaret Thatcher in 1980 famously said “there is no alternative”—became known in development circles as the “Washington Consensus”, for they originally gained traction in the US capitol Washington DC at the offices of the World Bank and the International Monetary Fund (IMF). For critics of structural adjustment, i.e., IMF and World Bank development programs that leveraged the 1980s debt crisis to impose neoliberal policies upon the global South, the name called attention to the outsized role of the US empire and its multilateral institutional tools in facilitating neoliberal policy transfer.

Empires, hegemons, and unipolarity

Across disparate IPE traditions, “hegemonic” and “imperial” global systems are closely associated with liberal and neoliberal global policy processes and structures. Over the past 500+ years of global capitalism, there have been only two, short time periods during which trade in goods, services, and factors of production were relatively “free” globally.

Economic historians Bairoch and Kozul-Wright (1996) identify the first period of liberal globalization roughly between 1840-1880, when the British Empire leveraged its power internationally to erect an open trading system that permitted primary commodities to flow cheaply and freely into the imperial core and manufactured goods to flow back out into colonized consumer markets (this general structural pattern is the “core-periphery” division of labor, discussed at more length below). The second period of liberal globalization—called “neoliberal” globalization owing to the fact that it looked and behaved like a new version of the 19^th century British free trade system—began in the early 1970s as the post-WWII Bretton Woods system and Soviet Union slowly collapsed and the US grew to have hegemonic, superpower status internationally.

Along these lines, realist IPE scholar Steven Krasner argued in his seminal article on state power and the structure of international trade (1973) that structural shifts in the international balance of power shape and constrain the policy choices available to governments over time. Among other findings, Krasner’s analysis indicates that periods of relative free trade globally are a function of a “unipolar” balance of power, a structural configuration that permits the lone superpower (or hegemon) to implement and enforce an international trading structure that maintains and promotes the economic dominance of the superpower.

In a similar vein to Krasner, empire-enthusiast and free trade proponent Deepak Lal explains how empires work as policy-transferring and policy-homogenizing devices: “[B]y integrating loosely linked or even autarkic countries and regions—through free flows of goods, capital, and people—into a common economic space, empires promote those gains from trade and specialization emphasized by Adam Smith, leading to what I label Smithian intensive growth” (Lal 2004, 4).

Many radical IPE traditions, most rooted in some way in Marxist and/or Leninist thought, roughly agree with Krasner and Lal, though with a highly critical perspective that focuses on imperial exploitation of colonies and former colonies. For example, Kwame Nkruma, the first president of independent Ghana, described in 1965 his understanding of “neoimperialism” and what it means for policy in allegedly “sovereign” states: “The essence of neo-colonialism is that the State which is subject to it is, in theory, independent and has all the outward trappings of international sovereignty. In reality its economic system and thus its political policy is directed from outside” (Nkrumah 1965)…

As the power of the hegemon wanes over time in relation to that of other states in the system, the international balance of power and global trading structure also shifts (with a bit of a lag), reflecting the changing capabilities, interests, and relative power of competing states at varying levels of economic development. Especially apt in the current geopolitical moment, one in which the US now faces fierce international competition from China, Russia and other rising powers, Krasner notes that “it is unlikely that very large states, particularly at unequal levels of development, would accept open trading relations” (1973, 323).

Indeed, the dangers of free trade for agriculturally-based and newly industrialized economies are a frequent theme across the IPE literature on globalization, including indictments of free trade from seminal mercantilist thinkers like Friedrich List (1997) and Alexander Hamilton (1827), as well as more modern critiques from development scholars and practitioners who call attention to free-trade related problems such as commodity-dependence (overreliance on a narrow range of primary product exports), import dependence and food insecurity (as domestic production collapses in the face of cheap food imports), declining terms of trade (as industrial import prices and volumes outstrip commodity export prices and volumes), and trade deficits and government debt (as export and tax revenues fail to keep up with import costs and government expenditures) (see, e.g., Chang 2003, Bello 2008, George 1988, Singer 1950, and Prebisch 1950).

To this point, commodity, agricultural, and food policies tend to look different during other historical periods, ones we might call periods of illiberal or mercantilist globalization so as to capture a global system in which markets are fragmented, governments intervene rather heavily in economies, and international trade and finance are rife with economic warfare and conflict…

Global markets, risk, and the global division of labor

The combination of global free trade with global capital mobility in the neoliberal period created an economic system characterized by a geographically fragmented and highly specialized global division of labor. Cross-border capital mobility meant that production could be physically located in those jurisdictions in which goods and their parts and components were cheapest to produce, with free trade permitting the cross-border shipping of these goods, parts, and components to other actors performing different specialized tasks in the production process. In other words, commodity chains grew much longer, more complex, and more geographically dispersed. These three features—global trade, global capital mobility, and globally fragmented production structures—created a fragile, risky, and crisis-prone system of complex interdependence…

Complex interdependence under neoliberal globalization generated risks, and, as always, risks hit the poor hardest. For commodity-dependent agricultural producers, globally fragmented production processes meant that farmers and governments alike were subject to the power and control of actors and entities abroad who siphoned income away and shifted risk toward them. For example, in their study of horticultural production in East Africa, Dolan and Humphrey use a chain/network approach to explain how mad cow disease outbreaks in the UK resulted in new phytosanitary regulations on vegetable imports. The policy change created a regulatory burden for UK supermarkets who had to enforce the new policies. The hierarchical, global division of labor that characterized the UK horticultural chain meant that the supermarkets had the structural power necessary to shift the risk and cost of compliance onto vegetable farmers, exporters, and government entities in Kenya and Zimbabwe (Dolan and Humphrey 2000).

This kind of commodity chain, referred to in governance terms as a “buyer-led” chain owing to the outsized power of large corporate consumers, has concrete implications for policy, including analysis of policy impact, policy feedback, and unintended policy consequences. In the African vegetable context, notice how policy change in the UK is transmitted along the chain such that it creates a policy, economic, and environmental burden borne by producers, exporters, and governments abroad:

[T]he quality requirements of the UK supermarkets necessitate close management of post-harvest activities. The product deteriorates rapidly, and the post-harvest climate from farm to supermarket shelf strongly governs product quality. Products must be placed in a cool environment shortly after harvest, transported in a refrigerated vehicle to packhouses, where product is cooled, graded and packed under temperature and humidity controlled conditions. Cold storage is now an integral part of the supply chain, and in both Kenya and Zimbabwe large exporters have invested in state of the art methods including chilled chlorinated water for washing (Dolan and Humphrey 2000, 162; see, e.g., Fan, Behdani, and Bloemhof-Ruwaard 2020 on the environmental costs of maintaining global cool chains, i.e., “reefer” chains).

Complex interdependence thus allows risks and costs, including environmental risks and costs, to be shifted between countries, communities, and geographic regions, with the structure provided by the global division of labor partly determining how and where they spread. As complex interdependence unwinds with deglobalization, it seems reasonable to expect that food and environmental risks and costs will gradually be redistributed as commodity market structures shift again.

The literature on commodity price crises provides similar insights, illustrating how open global market structures permit the broad geographic transmission of risks and shocks, as well as risk spillovers across market and policy arenas. Take, for example, the 2007-2008 global food crisis in which the price of food skyrocketed, partly owing to the speculative activities of large financial institutions using commodity index swaps (a kind of derivative security) to gamble on and profit from food markets.

As returns on US mortgage products dropped in the lead up to the 2008 US housing crisis and the US economy began to show signs of weakness, major institutional financial investors began switching their portfolio allocations away from the housing market and toward commodity derivatives markets, markets that had been deregulated in the US in the 1990s and early 2000s. Speculative financial activity in commodity derivatives markets grew so quickly from 2003 to 2008 that commodity index deals grew to nearly double the volume of all other market transactions. It is estimated that as much as 20 per cent of the increase in global food prices from 2007-2008 was caused by commodity index speculation by (mostly Western multinational) financial institutions (Masters and White 2008, Breger Bush 2015). The UN reported that this particular food crisis pushed 20 million people into poverty in the Caribbean, 21 million in Latin America, 5.7 million in the Philippines and 14.7 million in Pakistan. In Mexico, the food price shock caused the average poor household to effectively lose 18 per cent of its food budget (UN 2011, 63-65).

As this example illustrates, the form of interdependence facilitated by the global free market permitted the rapid global transmission of price shocks—called market “contagion” in the literature—and the deepening of vulnerability and food security especially among the world’s poorest people and nations. It further facilitated the entrance of major financial firms headquartered in the US into sectors of the economy that were previously safeguarded by the state from financial speculation (part of the process of “financialization” under global neoliberalism, which is itself the subject of a deep IPE literature; see, e.g., Russi 2013, Clapp 2015, Breger Bush 2012 on the financialization of food and commodities markets)…

Politics and policy

[O]ne of my most important empirical observations about contemporary deglobalization is that no one is really advocating for free trade policies in commodities markets anymore. Sometime between 2008 and 2024, the world appears to have changed direction on commodity policies, shifting en masse away from policies that facilitate global market integration, e.g., policies such as those that formed the Washington Consensus, towards policies that are aggregating towards market distintegration, e.g., tariffs, export and import bans, sanctions, buffer stock accumulation, expropriation, and nationalization, as well as increased reliance on and interest in regional trading organizations and arrangements.

In some cases, the policy shifts appear to be a response to recent commodity price crises. Since 2007, commodities markets have been roiled by a series of global shocks and crises: The 2007-8 food crisis was followed by another global food crisis in 2011-12, which was followed by the outbreak of the covid pandemic in 2020, which was followed closely by the onset of the Ukraine war in 2022. In different ways, each of these crises implicated “globalization”, as either as a cause of the crisis and/or as a mechanism for the transmission of economic contagion (in the pandemic, globalization’s transportation circuitry—planes, trains, ships and trucks—quite literally also facilitated the spread of biological contagion). As such, they worked to underscore for the world the dangers of complex economic interdependence, i.e., the risks and costs associated with relying on foreign entities to obtain goods necessary for human survival and wellbeing, social stability, and national defense...

Another important pattern pertains to the increasing use of export bans, export taxes, and export licenses to ensure adequate domestic food supplies during times of crisis. The International Food Policy Research Institute’s (IFPRI) Food and Fertilizer Export Restrictions Tracker records 89 instances in which roughly 40 national governments imposed food export restrictions between 2021-2024, 35 of which are still active. This is a longer lifespan for such restrictions than what was generally observed during the 2007-2008 crisis, where such restrictions came and went over the course of just a year or two (see Bouët and Debucquet 2010).

Among the data points are export bans by major market players whose actions influence prices and trade patterns more generally, including from India, the world’s largest grain exporter, where the government has banned exports of broken rice, non-basmati rice, wheat, sugar, and wheat flour and semolina. In the notes appended to data on each ban, the Indian government has declared its intention to ensure “social stability”, mitigate the impact of monsoons on food prices, and, with sugar, to “bring some relief to the people” amidst high inflation. Officials in smaller economies espoused similar rationales, for example, the government of Azerbaijan was looking to manage local “onion hysteria”, while the government of Kuwait suspended vegetable oil and grain exports “due to the shortage of supplies caused by the Ukrainian-Russian crisis” (IFPRI Food and Fertilizer Export Restrictions Tracker).

In some cases, there is an anti-imperial bent to new policies and official statements about food security and sovereignty, lending the impression that some of these policy shifts represent a form of international policy feedback, i.e., a rejection of historical US hegemony and Western imperialism and the coercive policy transfers these structures entailed. For example, the former French colony of Burkina Faso has recently suspended wheat imports in a bid to improve domestic agricultural production and reduce import dependence, following “similar measures by other African countries that are increasingly turning to local production to sustain their economies and secure food supplies” (Adeye 2024). Burkinabe leader Ibrahim Traore, who came to power last year in a Russian-supported military coup, noted in a speech in April 2024 that, “There is this war that we are certainly waging, but independence is also through what we consume. One of our struggles is food security.  That’s why last year, we didn’t want to come give speeches, we wanted to provide a solution…” (Abraza Africa 2024).

Iraq, too, has turned toward self-reliance in the wake of years of food insecurity associated with US occupation, ongoing US sanctions, and global price shocks. In March 2024, Iraqi officials noted that the country was now wheat self-sufficient for six months forward owing to the creation of a strategic wheat reserve, a new version of the old buffer stock programs popular in the 1930s-1960s in the wake of the Great Depression (Lee 2024).

In still other cases, the policy shifts are related to broader shifts in national security policies, with commodities trade increasingly regulated by national governments in mercantilist fashion, i.e. in the interests of advantaging themselves and disadvantaging enemies and rivals. Among other important policy changes in this context, the US’s prolific use of sanctions and other kinds of punitive economic measures against foreign economies in recent years stands out as especially important. In practice, because they ban trade with certain countries in certain product categories, sanctions against major commodity producers work to sever the market into unsanctioned/legal portions and sanctioned/illegal portions, facilitating the growth of new marketplaces that are distinct and separate…

Production, export, and import geographies: The balance of power and the division of labor

One of the most important new patterns is the formation of the BRICS as a competitor to Western-led groups like the G-7 and G-20. While many Western pundits have over the past decade downplayed the group’s significance, it is in commodities markets that this organization’s growing power is most striking and arguably most significant. The following data is drawn from Russia state media outlet Tass, which I cross checked for accuracy using other, less propagandistic sources. As of the early 2020s, the 5 original BRICS members represent: 30% of global land area, 40% of the world’s population, 33% of global GDP, 21% of global exports, 36% of global industrial production, 43% of global wheat harvests, 54% of global rice harvests, 77% of the world’s palladium production, 72% of the world’s aluminum production, and 30% of the world’s gold production (Tass 2023). With the recent addition of Saudi Arabia, Iran, and the UAE, the BRICS’s share in global oil production rose from 18% to 40% (Tass 2024)…

In strategic metals and minerals, demand for which has increased dramatically in recent years owing to rising demand from “green” manufacturing sectors as well as from military manufacturers struggling to keep up with demand stemming from the Ukraine War and Israel-Palestine conflict, the US today is far behind in terms of production, refining capacity, and stockpiles. For example, in lithium markets (lithium is widely used to manufacture batteries, including for electronic vehicles (EVs) and military applications), production is dominated by Australia (51%), Chile (26%), and China (15%); processing by China (65%), Chile (29%), and Argentina (5%); and the largest reserves are held by Chile (34%), Australia (22%), and Argentina (13%). China also enjoys the largest cobalt refining market share, has only limited competition in graphite production, refining, and reserves, and further accounts for 70% of the world’s rare earth production, 90% of the world’s rare earth refining capacity, and 38% of world reserves (Wendling 2024).

But demand for rare earths is mismatched geographically to supply. The International Energy Agency estimates that demand for critical minerals and metals is expected to rise 3 to 7 times by 2040, including in US and European economies that are working to reduce greenhouse gas emissions and shift to renewable energy sources: “Delivering on the 2016 Paris Agreement, under which signatory nations are obligated to reduce emissions to cap the global temperature increase, would require the global mineral supply to quadruple within the same time frame. At the current rate, supply is on track to merely double” (Fatunde 2024).

In a global political environment characterized by increasing competition and conflict between a fading hegemon (the US) and new powers (Russia, China, Iran, India, among others) this mismatch between supply and demand has become a source of strategic leverage for China, which has used its market power to impose costly sanctions on rare earth metals to the US in retaliation for US bans on semiconductor exports to China (including gallium and geranium, required in the manufacture of advanced semiconductors used in artificial intelligence and solar panels, among other uses)…

The mad global rush for metals and minerals, stoked by technological advancement and war and rising levels of geopolitical risk, has resulted in increased mining and refining activity globally, with significant likely environmental consequences. Ghana, Africa’s largest gold producer, just announced the opening of its first “monster” gold mine, as well as plans for new lithium mines (Adombila 2024). The Chilean government has just introduced a new “lithium strategy” in which the government will play a larger role in mine and refinery operation, and which is raising serious questions about environmental protection (Moerenhout and Jobet 2023).

And in the US and Europe, which have in recent years tended to rely on imports rather than domestic supplies partly for environmental reasons, new mines are opening up at a quickening pace (see, e.g., Sonner 2024a and 2024b on the new lithium mine opening on Nevada’s Thacker Pass, which will be the largest in North America once completed and has raised many environmental concerns, including over endangered species). In the EU, which currently relies on imports from China for 97% of its lithium consumption (Laursen 2024), the Critical Raw Materials Act, passed in May 2024, “aims to ensure secure and sustainable supply of critical raw materials for Europe’s industry and significantly lower the EU’s dependency on imports from single country suppliers” (European Commission 2024). In July 2024, the EU sealed a deal with Serbia to renew  Rio Tinto’s license to mine lithium in the Jadar Valley (Delauney 2024)…

Conclusions

Deglobalization in commodities markets has major implications for public policy, too many to fully appreciate at the present moment given that this complex process is playing out before us in real time. The implications also depend on where you live in the world and the role you play there; in other words, the consequences of commodities market deglobalization are different for Chinese policymakers than they are for their Burkinabe, German, Chilean, or American counterparts.  My concluding remarks are likely most useful to policy scholars and practitioners in the US and also to our counterparts in Western Europe, i.e., for those of us who live and work on policy in a fading empire/hegemon…

In general, from the US perspective, what I see in changing commodities market structures is a global context that is limiting food and environmental policy choices, imposing difficult policy tradeoffs, and contributing to substantial commodity price inflation and periodic shortages for Western economies.

US power in commodities markets is fading and US policy is subject to increasingly harsh international feedback and resistance, as well as accumulating policy reversals that are taking the global system in new structural directions. Relative to the system of neoliberal globalization, the US no longer enjoys open access to the world’s commodities markets, portending rising import bills, commodity price inflation, and shortages as international conflicts, tit-for-tat economic warfare, and new national and regional pushes for self-reliance interrupt, divert, and disrupt familiar trade patterns. The last several years since the pandemic and Ukraine War gave us a taste of what this looks like, and the tectonic shifts observable today in commodities markets strongly indicate that there is more to come. In the absence of adequate emergency food support and social welfare provisions, rising prices and shortages for basic goods will aggravate poverty, food insecurity, social inequality, and contribute more generally to social instability.

The US’s fading hegemonic/imperial status also means that American policymakers will in the coming years face increasingly difficult trade-offs between various policy goals. While in the past, environmental policy scholars and practitioners largely took for granted the availability of relatively cheap raw and refined metals and minerals necessary to manufacture green technologies, today such an assumption is costlier, for the countries we depend on for these materials are actively shifting their trade relationships elsewhere in response to sanctions, war, and other geopolitical risks, and as they try to capture new opportunities offered by rising non-Western institutional competitors (like the BRICS, ASEAN, and the African Union). The US will increasingly be put in a paradoxical position in which pursuing existing environmental goals will require the expansion of environmentally destructive activities at home, as is the case already with lithium mining in Nevada.

In a similar vein, national security goals will, more and more, come into conflict with food security and environmental goals. The US’s national security goals in Ukraine have already come into conflict with national food security goals (a protracted war in one of the world’s major breadbaskets pushed up food prices for US consumers, too). The US military’s need to stabilize and protect defense supply chains is also going to require more mining and environmental destruction at home owing to the insecurity of overseas supplies. Policy scholars and practitioners will increasingly need to account for the interactions between foreign and national security policies on the one hand, and food and environmental policies on the other, including the critical matters of policy resistance, policy backlash, and unintended policy consequences associated with US foreign and defense policies.

Overall, then, it seems that American policymakers and scholars need to adapt, quickly, forging new kinds of innovative policy ideas and new kinds of collaborations and partnerships and friendships, that can help the US thrive in a world in which we are no longer a superpower, but a mediocre one.