By Stephen DeAngelis
There continues to be myriad articles published about globalization. Article topics range from globalization’s demise to globalization’s shifting flows to glocalization. Russia’s invasion of Ukraine and China’s increasingly authoritarian policies have only added a shrill edge to commentators’ predictions about the future of globalization. Most analysts agree the golden age of globalization has passed. Back in 2016, economics journalist Martin Wolf asked, “Has the tide of globalization turned?”[1] He added, “This is a vitally important question. The answer is closely connected to the state of the world economy and the west’s politics.” If the tide has turned against globalization, the next questions needing an answer are: Why? And, what comes next?
Back when Wolf asked his question, America was embroiled in bitter presidential election in which the negative effects of globalization played a significant role. At the time, Joseph E. Stiglitz, a Nobel laureate and a professor at Columbia Business School, reported, “Globalization’s opponents in the emerging markets and developing countries have been joined by tens of millions in the advanced countries. Opinion polls, including a careful study by Stanley Greenberg and his associates for the Roosevelt Institute, show that trade is among the major sources of discontent for a large share of Americans. Similar views are apparent in Europe. How can something that our political leaders — and many an economist — said would make everyone better off be so reviled?”[2] Stagnant wages and economic dislocation provided part of the answer; however, other factors, like the Ukraine War and China policies mentioned above, have added new dimensions to the debate.
Globalization’s Changing Flows
Globalization is all about flows. The flow of people. The flow of capital. The flow of resources. The flow of goods and services. The flow of data. And the flow of ideas. Most of these flows face challenges. Take for example the flow of people. Political unrest, wars, and climate change have resulted in massive dislocations of people — and more dislocations are on the way. Wolf noted, “Migration raises quite specific issues. The era of globalization was not accompanied by a general commitment to liberalizing flows of people.” Since many of the unlucky refugees come from areas exporting terrorism, xenophobia is on the rise. In a perfect world, there would be few economic refugees because potential refugees would be gainfully employed in their native lands — this, however, is not a perfect world. Refugees are scrambling to breach borders around the globe — and the flow of goods and resources is also in trouble. As a result, Wolf concluded, “Globalization is no longer driving world growth.”
Even if Wolf is correct, it doesn’t mean that globalization’s flows have stopped. McKinsey & Company analysts note, “Ours is an interdependent world, connected by global flows of goods, services, capital, people, data, and ideas. Global value chains have been built on these flows, creating a more prosperous world. However, in light of the pandemic, Russia’s invasion of Ukraine, and years of rising tensions between the United States and China, some have speculated that the world is already deglobalizing.”[3] They go on to explain, “New [McKinsey Global Institute] analysis finds a more nuanced reality. The world remains deeply interconnected, and flows have proved remarkably resilient during the most recent turbulence. Furthermore, no region is self-sufficient. The challenge therefore is to harness the benefits of interconnection while managing the risks and downsides of dependency — particularly where products are concentrated in their places of origin.”
Any discussion about how globalization is realigning must be based on how globalization’s flows are changing. According to McKinsey analysts, “Growth in global flows is now being driven by intangibles, services, and talent. They have picked up the baton from goods trade, whose growth as a share of the global economy stabilized around 2008 after 30 years of rapid expansion. Flows of services, international students, and intellectual property grew about twice as fast as goods flows in 2010–19. Within services, flows of knowledge-intensive services — including professional services, government services, IT services, and telecommunications — are growing the fastest. Data flows grew at nearly 50 percent annually.”
In the coming years, some of the most significant changes in globalization’s flows will likely involve Russia and China. The U.S. and other western nations have already moved to restrict certain technologies flowing to China — and Russia’s invasion of Ukraine is changing the world’s flow of oil. As the McKinsey analysts noted, changes in globalization’s flows will also result as countries try to manage the risks and downsides of dependency. This will likely come in the form of regionalization, sometimes called “glocalization” or “friend-shoring.” Global business columnist Rana Foroohar explains, “Emerging markets in Latin America, Africa, and Asia … are building regional production networks for crucial goods. Ultimately, this could create more resilient trade pathways and new development models that aren’t entirely pinned to exporting cheap goods to a handful of rich nations across long transport routes that are becoming more expensive and politically contentious. Nearly everywhere, decentralized technologies and big data are allowing more ‘local for local’ production, something that may also end up being good for the planet.”[4]
Concluding Thoughts
In a recent article, Wolf insists globalization is not dead — although he does admit trouble is afoot. He writes, “Some would argue [global capitalism] is dead. [At the latest World Economic Forum event held in Davos, Switzerland,] Russian oligarchs [were] absent. Although some Chinese business leaders [were] there, their wings are clipped at home and abroad. The global financial crisis, Covid, resurgent nationalism, deteriorating relations between the US and China, and war in Ukraine have transformed the global business environment for the worse.”[5] Yet, Wolf insists, there are reasons to be optimistic. He explains, “Ultimately, capitalism is global, because opportunities are global. Beyond national borders lie markets to serve and resources to exploit. Today’s multinational companies and cross-border flows of goods, services, knowledge, finance, people, data and ideas are products of these opportunities. Yet, whether they are exploited, and by whom, is also determined by the risks and the constraints.”
McKinsey analysts agree with Wolf’s assessment. They conclude, “To negotiate an era that may be more complex and challenging requires a deeper understanding of the full picture of global flows, their networks and evolution, and potential scenarios for the future. Looking at the entire range of global flows, it is clear that the world is not defaulting to deglobalization, but that global connections are reconfiguring. Firms that reimagine rather than retreat from interconnection can reshape value chains in ways that contribute to both growth and resilience.” Artificial intelligence systems, like the Enterra Global Insights and Decision Superiority System™ (EGIDS™) can help organizations examine potential future scenarios and help them adapt to a changing world environment.
Footnotes
[1] Martin Wolf, “The tide of globalisation is turning,” Financial Times, 6 September 2016.
[2] Joseph E. Stiglitz, “Globalization and Its New Discontents,” Columbia Business School, 5 August 2016.
[3] Jeongmin Seong, Olivia White, Jonathan Woetzel, Sven Smit, Tiago Devesa, Michael Birshan, and Hamid Samandari, “Global flows: The ties that bind in an interconnected world,” McKinsey & Company, 15 November 2022.
[4] Rana Foroohar, “Davos and the new era of deglobalisation,” Financial Times, 22 May 2022.
[5] Martin Wolf, “Davos: There’s life in global capitalism yet,” Financial Times, 18 January 2023.
