WASHINGTON - Globalization isn't what it used to be. In its heyday, trade and international investment ("capital flows") boomed.
Consider. From 1980 to 2007, the value of global exports increased by nearly sevenfold, reports the World Trade Organization.
As for capital flows, the annual amounts rose from $500 billion to $11.8 trillion over the same period, estimates the McKinsey Global Institute. New middle classes emerged. Hundreds of millions of people escaped abject poverty.
All this seemed a real-world triumph of economic theory. Trade allowed countries to specialize in what they did best. Liberalized capital enabled investment to seek the highest returns.
Times have changed. Globalization hasn't been repealed, but it has entered a more cautious and regulated phase. We're creating a "gated globe," argues Greg Ip, the U.S. economics editor of the Economist, in a masterful analysis.
"Walls have been going up" to the free flow of trade and money, he writes. But the walls have "gates" that countries can open or close as they please.
"Governments increasingly pick and choose whom they trade with, what sort of capital they welcome and how much freedom they allow [firms] for doing business abroad."
The private sector also embraces restraint; multinational firms have become more selective in their global commitments.
This is most obvious in finance. According to McKinsey, international capital flows in 2012 were still only 60 percent of their 2007 peak. Much of the pullback occurred in Europe, where banks had dramatically increased cross-border loans.
Unfortunately, this contributed to Europe's economic crisis. Cheap credit enabled debtor countries - Greece, Spain, Portugal, Ireland - to underwrite housing booms and government deficits.
Chastened European banks are now shedding risky credits and rebuilding capital, which acts as a buffer against losses.
Global capital flows are recognized as a double-edged sword. "They can fuel borrowing booms, especially in countries with underdeveloped financial systems, leading to devastating busts when the money flows out," writes Ip.
Countries try to suppress surges of short-term "hot money," chasing higher interest rates or stock market returns.
Case in point: Brazil. In 2009, facing a flood of foreign money, it imposed a 2 percent tax on foreign purchases of its stocks and bonds. The rate was later raised to 6 percent and then suspended when foreign funds began leaving Brazil. The point was to smooth erratic flows in both directions.