Brendan Shaw
“The failures of globalisation are not inevitable”
- Joseph Stiglitz, Globalization and its Discontents Revisited, 2017
“This new kind of globalisation is about security, not efficiency: it prioritises doing business with people you can rely on, in countries your government is friendly with.”
- The Economist, 16 June 2022
I was shocked the other day when I went to buy a lettuce at my local supermarket, and it was priced at $12.
Twelve dollars is a lot for something that’s 96% water.
This sad looking lettuce that had survived climate change-induced floods, supply chain bottlenecks and the effects of war in Ukraine, now symbolised in front of me the dark side of the breakdown of globalisation.
Globalisation disrupted - labour shortages and higher prices
The textbooks define globalisation as the freer movement around the world of goods, services, finance, ideas, technology and people.
Globalisation is the process of encouraging things like:
open borders to allow more goods to be shipped around the world
the provision of services to people all over the world
open investment regimes where companies and people can invest in markets easily
open immigration with people moving to other countries for new jobs and opportunities
sharing cultural things like music, food, movies and art between different countries, and
the exchange of ideas around the world.
Globalisation – the breaking down of different barriers between economies and people around the world – has been credited with the growth of the global economy.
Source: World Bank. 2018. Piecing together the poverty puzzle, p. 2, https://openknowledge.worldbank.org/bitstream/handle/10986/30418/9781464813306.pdf, accessed 18/6/2022.
While the global economy has serious problems, over a billion people around the world have escaped poverty as scale has increased, costs have fallen, and incomes have grown.
For decades, one of the benefits of doing things on a global scale was that it increased efficiency and reduced prices.
And now, that's being dismantled. Junked, even.
Just the last few years have seen the fraying of this global tapestry of supply chains, international exchange and global interaction.
We’ve had trade wars between the United States and China, the two largest economies in the world, with their respective governments driving a de‑coupling of their economies and the segmentation of the global economy.
We have witnessed the Brexit-voting British, the Trump-supporting Americans, the Chinese refocussing on their own economy, various governments championing nationalism, export controls imposed by various countries, and the rise of local populism ahead of globalism.
A common thread running through all of this has been the reassertion of local or national control over the forces shaping economies and societies.
And then, just as we were struggling out of our lockdowns and staggering back into the sunlight, Vladimir Putin’s invasion of Ukraine exemplified that post-war aspirations of respecting national borders, international laws and global norms are at risk of being a thing of the past.
Today we are seeing the decoupling of economies, nations and societies.
New trade blocs and alliances are forming, countries are turning inwards to their domestic economies, domestic production and ‘re-shoring’ are becoming common policy goals, and the free movement of people has been constrained in ways we haven’t seen in a long time.
Post-pandemic labour shortages have been a ‘puzzle’ – no one’s sure exactly where all the world’s truck drivers have gone. The pandemic has triggered labour shortages in a range of sectors from airlines to fruit pickers to health care workers.
Source: Citi. 2022. Global supply chains: the complexities multiply, June, p. 13, https://www.citivelocity.com/citigps/global-supply-chains-2-2/, accessed 18/6/2022.
Anti-globalists, be careful what you wish for
At the political level, this deglobalisation and decoupling has been driven by various political movements and actions around the world.
In many countries a major political fault line is emerging between the ‘anywheres’ – those who are open to globalisation - and the ‘somewheres’ – those who place more faith in their local values, cultures and economies and want to protect those from the outside world.
Most commentators would agree that right now the populists, the anti-globalists and the ‘somewheres’ have the upper hand in the political debate.
The problem, of course, is that this has led to the perhaps obvious outcome.
Where, for all of its many faults, globalisation once contributed to free and open exchange, now the world is struggling without it.
Today, we see everything from disrupted supply chains, global food shortages, trade wars, the invasion of Ukraine, global skill shortages and a lack of staff, the energy crisis, rising inflation and rising interest rates due to a lack of risk capital.
These have all been caused by shortages and barriers that have prevented the free movement of goods, services, money, ideas, technology and people.
The result is higher prices, limited supply and people not being able to get what they need.
Anyone who has recently tried to book a flight, call an ambulance, pay the gas bill or buy food will know what I mean.
Where the ‘discontents’ of globalisation, as Joseph Stiglitz has called them, have put up barriers to exchange and trade of everything from American baby forumula, Ukrainian wheat, Russian gas, British doctors to Australian lettuces, the result has been that people around the world have become worse off.
The irony is that after years of campaigning, anti-globalisation populists have got what they want.
And it’s a mess.
This is not to say that the old model of globalisation was perfect – maybe it didn’t even really work in its old form. Environmental destruction, climate change, growing inequality between rich and poor, forgotten regions of the world and the economic dislocation show that what we had wasn’t perfect.
Where do we go from here?
At last week’s World Trade Organization meeting in Geneva, we saw the Director-General of the WTO, Ngozi Okonjo-Iweala’s ‘lonely struggle’ to defend global trade and with it globalisation as a concept.
Perhaps what’s needed is not abandoning globalisation, but starting the process of recrafting it for the 21st century.
Whether it’s the lack of comprehensive action on climate change or a failure to adopt a global response to the COVID pandemic, we’ve seen in recent times that we are still learning how we manage this thing called globalisation.
Re-shoring production to diversify our sources, geo-political realignments, changing population dynamics, the lessons learned from the pandemic, ‘just in case’ versus ‘just in time’ economics, and the growing tide of environmental challenges may mean we have to rethink things.
The globalisation we need in the future may not be the same as the globalisation of the past.
Getting this right will be important.
One of the great challenges going forward will be balancing the tension between solidarity and diversity in the world. Balancing the choice, openness and benefits of open globalisation with security and advantages from local custom and needs.
Getting it wrong could lead to excessive protectionism, worsening inflation, trade blocs, poorer people worldwide and even more conflict.
Getting it right might lead to a better global economy with greater openness, more sustainability and resilience and a preparedness for the future where different cultures and countries work together to solve common global problems.
In the meantime, I’ve switched from lettuce to cabbage. At least it’s a start.
# economics #globalisation #trade #politics #pandemic