Waking up to the downside of globalisation

In its half-yearly report released today, the Paris-based economic thinktank the OECD had to acknowledge the inflationary flipside of globalisation. The booming economies of India and China have pushed up oil and commodity prices to record levels in a less benign aspect of globalisation, although they are coming off their highs in the current market sell-off.

Most mainstream economists sing the praises of globalisation. As developing countries such as India and China are integrated into the global economy, they become a source of cheap goods, from toys to shirts to computers. That keeps prices low for western consumers and helps to maintain a lid on inflation.

Thus low-cost economies such as China have had a "welcome disinflationary influence", in the words of the OECD:

Indeed, experience over the past three years suggests that commodity price pressures may significantly outweigh the disinflationary influence of low-cost manufacturing imports. This may be even more so going forward if protectionist pressures were to intensify.

There are practical consequences to all this.

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