Even before Covid struck the world, the idea was gaining ground that the phase of ‘hyper-globalisation’ (roughly the period starting in 1990 and ending with the onset of the Great Recession in 2008-09) was coming to an end. According to an oft-quoted article in The Economist in January 2019, in the subsequent period, “cross-border investment, trade, bank loans and supply chains have all been shrinking or stagnating relative to world GDP.”

Several factors — technological, economic and political — can be held responsible for this outcome.

The huge impact of the transport and communication revolution (in particular, the sharp decline in the cost of air and sea transport as a result of the advent of wide-bodied jets and container ships and the cost-less global flow of information due to Internet and IT revolution) is petering out. The scope for further tariff cuts, after many rounds of successful multilateral talks under the auspices of GATT/WTO, is getting narrower. Multinational companies spreading their operations by building an intricate web of global supply chains spread over distant parts of the globe are finding it harder to compete with quick-learning local competitors often enjoying state patronage in various forms. 

Growing dissatisfaction

The risks of financial globalisation have come to the surface in the form of periodic bouts of financial crises in many countries. After two decades of globalisation at bread-neck speed, the feeling was getting stronger in different parts of the world — even if analysts may hold technological changes, rather than trade, to be the major culprit here — that globalisation was causing loss of jobs, especially low-skill jobs, and contributing to sharply increasing inequality of income distribution in many countries.

The popular dissatisfaction with globalisation was further fuelled by the growth of international tax havens enabling the super-rich to evade taxes. Though low-skilled labour remained trapped behind national boundaries, globalisation was allowing capital to flee to countries in search of higher profits and lower taxes. Populist political leaders (like Trump in the US and pro-Brexit leaders in the UK) increasingly played on the theme of globalisation (including foreign workers) causing misery of the national working class and won elections.

The fear in the western world of the rising economic power of China (first taking away manufacturing jobs and then increasingly treading into high-tech strategic areas) and of Russia (specially as a competing exporter of sophisticated military hardware and a major supplier of natural gas to Western Europe) further strengthened the forces of anti-globalisation in the developed world.

All these were happening, despite China keeping global inflation low for decades by supplying mass consumer goods at low cost to the rest of the world and lending to US (and other countries) the foreign exchange earned through huge trade surpluses to help them maintain an artificially high standard of living with borrowed money.

Apart from the allegation of taking away jobs, the increasing focus by politicians on national (often religious and ethnic) identity and culture being diluted by ‘foreigners’ is a contributory force against international migration of people and ideas. Global warming at an alarming pace is further discouraging long-distance transportation of goods by burning fossil fuels.

Regional agreements

The heightening of the ‘new Cold War’ between US, Japan and Western powers on one side and China and Russia on the other are contributing to forming blocs along political/national security lines. The breakdown of WTO talks is leading to new bilateral and plurilateral FTAs replacing multilateral globalisation. At the same time, regional arrangements are making possible deeper economic integration covering new areas like investment, labour and environment standards while involving shorter regional supply chains. 

So, despite Brexit, new regional formations are taking place like RCEP in the Asia-Pacific region which is an extension of ASEAN, but encompassing a lot more countries. China, using its huge stock of national savings, foreign exchange reserves and surplus production capacity, is spreading its economic and strategic influence in many countries in Asia and Africa under the so-called ‘Belt and Road’ initiative.

Despite the increasing importance of international e-commerce, considerations like cybercrime and data privacy are working against unregulated international transmission of data and information. Whether all these developments would be considered a part of ‘slobalisation’, or the emergence of a new form of globalisation, is largely a matter of semantics.

Labour-saving technological advances (like use of robotic arms in cutting and sewing, 3-D manufacturing) are making it possible to ‘re-shore’ or ‘near-shore’ some of the traditional labour-intensive industries like garments and footwear to the higher-wage industrially advanced countries. Though it has its limits, the (associated) diminishing importance of labour cost advantage would be working against the benefits of globalisation flowing towards the relatively poor low-wage countries of the world and would be further eroding the economic and political attraction of globalisation in such countries.

There is nothing inexorable about the forces of globalisation. The earlier waves of globalisation were halted by political rivalries like world wars or economic events like the Great Depression or the emergence of new ‘ideas’ like the benefits of import-substituting industrialisation for the newly independent less developed countries.

Similarly, globalisation got a boost from technological factors reducing costs of movement of goods, services, capital and technology; political developments like the formation of NAFTA, EU, the breakdown of USSR and the opening of China to the outside world; policy factors like reduction in tariffs and other trade barriers under GATT/WTO; and the advent of newer (replacing the older) ideas like the benefits of export-led economic strategy which drew on the success stories of the ‘East and South-east Asian tigers’ (Japan, South Korea, Taiwan, Singapore, Hong Kong and finally mainland China).

The ongoing Covid pandemic is making the world realise the risks of over-specialisation and the benefits of diversifying away from a single country (read: China) centric global supply chains. Alongside, international specialisation and cooperation have made possible the development of Covid vaccines in record time. Thus, the future course and forms of globalisation would depend on such diverse and conflicting forces as they unfold over time.

The writer is a former Professor of Economics, IIM, Calcutta, and Cornell University, US

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