Does the coronavirus represent the death knell of the era of freewheeling globalisation? Is the closing of national borders, the interruption of air travel and tourism, the disruption of global trade and global supply chains, the decline in foreign investment and the ban on the export of vital products a preview of things to come in a post-Covid-19 world?
Global trends preceding the current pandemic seem to point in this direction. Rising nationalism and protectionism and decreased global integration and cooperation were already underway before this pandemic. Thus, the world post-Covid 19 is likely to be characterised by greater restrictions on the flow of goods, people and information. This is unfortunate given that some of the most pressing challenges of the 21st century such as pandemics and climate change require the exact opposite: increased global governance and cooperation.
SLOWBALISATION SINCE 2008
Deglobalisation or “slowbalisation,” as some have called it, was already in progress before the advent of Covid-19. The Sino-American trade war, Brexit, the rise of Trumpism and nationalist populist leaders across the world were all manifestations of this growing trend towards deglobalisation.
In fact, as the graph illustrates, for the first time since World War II, and after a period of heightened liberalisation and globalisation or hyper-globalisation from the 1990s to 2008 as measured by the trade-openness index, a shift towards deglobalisation or slowbalisation began in the wake of the global financial crisis in 2008, only to be given increased momentum by the Covid-19 pandemic.
According to the UK Economist magazine, out of a dozen measures of global integration, eight began retreating or stagnating starting in 2008. The magazine reports that “trade has fallen from 61 per cent of world GDP in 2008 to 58 per cent in 2018. The capacity of supply chains that ship half-finished goods across borders has shrunk. Intermediate imports rose fast in the 20 years to 2008, but since then have dropped from 19 per cent of world GDP to 17 per cent. The march of multinational firms has halted. Their share of global profits of all listed firms has dropped from 33 per cent in 2008 to 31 per cent.”
“Long-term cross-border investment by all firms, known as foreign direct investment (FDI), has tumbled from 3.5 per cent of world GDP in 2007 to 1.3 per cent in 2018. As cross-border trade and companies have stagnated relative to the economy, so too has the intensity of financial links. Cross-border bank loans have collapsed from 60 per cent of GDP in 2006 to about 36 per cent. Gross capital flows have fallen from a peak of seven per cent in early 2007 to 1.5 per cent. When globalisation boomed, emerging economies found it easy to catch up with the rich world in terms of output per person. Since 2008, the share of economies converging in this way has fallen from 88 per cent to 50 per cent (using purchasing-power parity),” the Economist said.
HYPERGLOBALISATION AND BACKLASH
With the end of the Cold War and the triumph of the Western liberal model, there emerged a global consensus that came to be known as the Washington Consensus around the soundness of state deregulation, market liberalisation and free trade.
Countries across the world began to cut government spending and subsidies, to reduce trade barriers, to provide incentives to foreign investors and multi-national corporations and to open their markets to foreign trade and investments.
As a result, the 1990s and 2000s were an era of what economics commentators Arvind Subramanian and Martin Kessler have called “hyper-globalisation,” when “technological advances, the container revolution, the fall in information and communication costs, and the dismantling of trade barriers sustained widespread economic exuberance. Among other things, hyper-globalisation drove the global export-to-GDP ratio from 15 per cent to 25 per cent over the two decades leading up to the 2008 global financial crisis, and this export boom fuelled rapid growth in developing countries.”
Though globalisation has led to unprecedented global growth and cross-national convergence and has lifted millions of people out of poverty, especially in South and Southeast Asia, a number of developments have highlighted the negative consequences of globalisation and provoked a backlash against it.
The global financial crisis highlighted many of the vulnerabilities of globalisation. The rising influence and deregulation of the financial sector has meant that misguided investment decisions by the banking sector in one country could have a devastating effect on the global economy and that capital flight and hot money were destabilising factors that lay beyond the control of national governments.
Moreover, the wholesale migration of manufacturing to a handful of countries, with cheap labour and low environmental protections, such as China, which effectively became the world’s factory, has led to de-industrialisation across the developed and developing worlds. This had had devastating effects on whole countries and communities.
Moreover, the concentration of manufacturing in China and Southeast Asia has created long global supply chains. The coronavirus pandemic, and previous crises such as the Fukushima earthquake in Japan, have highlighted the dangers of hyper-specialisation, full dependence on single manufacturers, and on long global supply chains. National governments are increasingly cognisant of the need to diversify manufacturing and to bring supply chains closer to home. There is also a growing trend among governments to ensure less dependence on imports in some strategic or vital sectors such as pharmaceuticals, energy and food supplies.
Furthermore, though countries across the world may have benefited from globalisation in terms of their overall GDP growth, the principal beneficiaries of globalisation were in the final analysis of the multi-national companies, foreign investors and shareholders. Across the world, working and middle-class wages have stagnated, and taxation revenues have tapered off. The much-vaunted trickle-down effects of globalisation never materialised for the vast majority of people in both the developed and the developing worlds. Inequality between countries and within countries reached unprecedented levels, with wealth becoming increasingly concentrated within a smaller percentile of the population.
Moreover, the deregulation and deterritorialisation of corporations and financial markets meant that much of the profits derived from globalisation were beyond the control of national governments in terms of regulation and taxation. Tax havens and offshore companies became vehicles for widespread legal and illegal tax evasion.
More dangerously, unprecedented economic growth associated with the globalisation of production and consumption, widespread use of fossil fuels and the exponential increase of shipping and air travel have had a heavy environmental cost. Pollution, environmental degradation, climate change, disease, food and water shortages have become a serious danger to the long-term survival of humanity.
Finally, in addition to the movement of goods and capital, globalisation has also been associated with the unprecedented movement of people. Large scale migration and population displacement due to conflict, poverty and environmental degradation have changed the social composition of societies across the world causing a rise in nationalism and xenophobia and reinforcing the ascendance of right-wing nationalist populist movements and leaders across the developed and developing worlds.
In recent years, national populist parties and leaders have made unprecedented political gains. They embrace a political agenda that promotes deglobalisation, economic protectionism, social conservatism and nativism. Trumpism, Brexit and the Sino-American trade war are manifestations of rising anti-globalisation sentiments in the UK and Britain.
ALTERNATIVES TO GLOBALISATION
Some optimists and committed liberals still believe that though globalisation is in retreat, it cannot be fully stopped or reversed. They view the current trend towards deglobalisation as a glitch that will soon be reversed.
As one commentator has written “Globalisation is dead! Long live globalisation!” Proponents of this view believe that globalisation is in trouble because it needs to be further deepened and reformed by cutting government regulation, subsidies and barriers to trade even further. Government intervention and manipulation in support of national industries or companies, and subsidies to protect important economic sectors such as agriculture, are responsible for the current troubles of globalisation.
They maintain that without globalisation there can be no growth, development or innovation. However, the inevitability of such a scenario is far from a foregone conclusion. The political winds in much of the world are heading in the direction of deglobalisation and deliberalisation, as responses to the vulnerabilities created by globalisation.
Other analysts predict a shift away from globalisation towards segmentation and regionalisation. Multipolarity will lead to the creation of regional economic blocks, most likely three competing trading blocs, the first centred around the United States and Latin America, the second centred around Europe, and the third in Asia centred around China. These regional blocks will segment in terms of currencies, capital markets, production and supply chains. Thus, while economic interaction is likely to increase within these blocks, it is likely to decrease between them.
Regionalism is also not a foregone conclusion either, and might give way to a much more sinister reality. Trumpism directed much of its wrath against Latino immigrants in the US and the NAFTA free-trade agreement. Similarly, in the UK anti-globalisation sentiment assumed the form of an anti-EU movement, culminating in the Brexit referendum. Most populist nationalist movements in Europe have an anti-EU agenda. In Asia, there is a lot of pushback against Chinese hegemony, with countries such as Japan, Australia, and India pushing for decreased dependence on China-centred supply chains.
Thus, another alternative to globalisation could very well be the continued ascendance of right-wing nationalist populist movements leading to a rise in trade wars, economic protectionism, closed borders, isolationism and nativism.
IRONY OF DEGLOBALISATION
The backlash against globalisation, and the turn towards economic protectionism and nativism, while understandable, also comes at a most inopportune moment.
The challenges that confront the world in the 21st century, such as pandemics, climate change, cyber-terrorism and the regulation of financial markets and multi-national corporations and tax evasion, all require increased global governance and cooperation.
As one commentator has noted, deglobalisation is perhaps the worst answer to the problems of the 21st century. How this divide between the need for increased global governance and cooperation, on the one hand, and rising nationalism and anti-globalisation sentiment on the other, will be bridged is likely to determine the fate of humanity in the 21st century.
*The writer is a senior researcher at the Al-Ahram Centre for Political and Strategic Studies.
*A version of this article appears in print in the 7 January, 2021 edition of Al-Ahram Weekly.