You have certainly heard of globalization. But what about de-globalization?
Supply chain disruptions, rising costs, shortages – these everyday realities could all be linked to a process known as de-globalization.
Some experts even see the war in Ukraine, combined with the pandemic, as a turning point towards a de-globalised era.
But what form would this new world take?
A brief introduction to globalization
Experts generally describe three types of globalization: economic, social and political globalization.
Economic globalization is the integration of the world economy in terms of trade.
This process certainly has its share of defenders and critics. Globalization is lifting people out of poverty and raising their standard of living, its proponents claim.
Extreme poverty declined from 1995 to 2020, but rebounded after the pandemic began
Yet the fruits of economic globalization are not shared equitably.
“At the international level as in industrialized societies, inequalities have increased”, confirms Andreas Wirsching, professor of history at the LMU in Munich. Economic globalization has produced “a lot of winners, but also a lot of losers, that’s undeniable”.
The downsides of globalization also include social and ecological consequences, points out Cora Jungbluth, an economist and senior expert at Bertelsmann Stiftung, an institute in Germany.
Workers in high-income countries have seen their jobs move to lower-cost countries, while “multinationals have outsourced dirtier stages of production to developing and emerging countries, contributing to environmental problems there” .
Critics of globalization warn of ecological impacts, labor rights and growing gap between rich and poor
Globalization in decline since the Great Recession
Just as globalization reflects a process of growing economic interdependence, so de-globalization marks a step backwards from global economic integration. And there are indications that this has been happening for some time now.
A key measure of globalization — the share of trade in global GDP — peaked in 2008 at the start of the Great Recession.
“The ratio of exports to GDP around the world increased quite significantly in the 1990s and 2000s. But since the financial crisis of 2008 and 2009, these measures have remained stable or declining,” says Douglas Irwin, professor of economics at Dartmouth College in the United States. .
Irwin and other experts also note that it has been linked to populism and protectionist economic policies. But other major factors are holding back globalization.
Then came the pandemic
Economically, the coronavirus crisis has been infamous for supply chain disruptions. Who could forget the resulting shortages, price increases, hoarding – that moment when you’ve come down to your last roll of toilet paper?
Such disruption has caused a fundamental change in the design of these supply chains, says Megan Greene, an economist and senior fellow at the Harvard Kennedy School.
“The pandemic has shifted a trend from just-in-time manufacturing to holding inventory,” Greene said. She describes this new contingency system as a “global supply chain plus contingency plans”, so that companies are not left behind in the event of a global supply chain disruption.
In this “plus supply chain” model, Jungbluth adds that countries and companies have considered shortening supply chains: “Maybe bring them home, keep production of key inputs and technologies longer. near their production sites”.
This translates into greater resilience on the supply side, which essentially means moving away from globalization, which emphasizes efficiency and cost-effectiveness.
And now the war in Ukraine
Consumers felt the effects of Russia’s invasion of Ukraine and subsequent sanctions, especially in the energy and agricultural sectors.
“We lack necessary energy imports, because Europe needs fossil energy from Russia,” says Thiess Petersen, an economist and Jungbluth colleague at Bertelsmann Stiftung. “And the whole world needs agricultural products from Russia and Ukraine.”
Russia and Ukraine are very important world exporters of wheat and sunflower oil.
Irwin confirms that the disruption of exports due to war and sanctions leads to price increases. “We saw commodity prices go up a bit as a result of the war: wheat prices, oil prices (at least initially).” This drives up prices for consumers, which fuels inflation.
On the other hand, the sanctions against Russia isolate this great economy from the rest of the world.
Russians flocked to the first McDonald’s restaurant in 1990 – now the US chain has closed hundreds of outlets there
Economists see it not only as a disintegration of interconnected markets, but also as an unwinding of the progress that globalization has brought with it.
The shortages and high prices of basic foodstuffs resulting from the Russian invasion of Ukraine will be felt not only in high-income countries, but also in developing and emerging countries. For countries heavily dependent on these imports of cheap flour and oil, it “may even lead to starvation,” adds Jungbluth.
End of the era of globalization?
The Great Recession, which followed tariff protectionism, supply chain restructuring due to the pandemic, the disintegration of interconnected commodity markets due to the war in Ukraine — Petersen concludes: “Perhaps we are us now at the beginning of a kind of de-globalization.
The economist Greene points out that there is no index to measure globalization. It challenges the dominant narrative, promoted at the start of the pandemic, of increased reshoring, offshoring and regionalization of global supply chains. This narrative is not supported by many indicators of globalization, for example survey data.
“In the latest survey conducted by the Shanghai Chamber of Commerce, no American company said it was going to go ashore, that is, leave China and come back to the United States,” points out Greene.
Globalization has made China the factory of the world – and companies are in no rush to pull out
She adds that although long-term investment in China continued at a healthy pace, short-term investment began to be withdrawn once Russia invaded Ukraine, as an indication of a possible turnaround.
But even Greene concedes: “The peak of globalization is well behind us – I would say we are seeing globalization progress much more slowly than before, but we are not yet in de-globalisation territory.”
Brave New Blocks
Western sanctions against Russia and capital flight from China point to a general trend, Jungbluth said. “In recent years, countries have tried to reduce so-called critical dependencies, which can also lead to de-globalization.”
Irwin draws parallels to the Cold War era, when “some countries that were politically aligned also became more aligned economically, and not as integrated with others”.
Jungbluth, Petersen and other economists believe that the world is currently heading towards two distinct geopolitical economic blocs: one made up of democratic market-economy countries (United States, European Union, Japan, South Korea, Oceania, America North and South) and another block of autocratic states (China, Russia and their main trading partners).
“What we’ve seen is a return of geopolitics, and those trends are also leading to de-globalisation – trying to reduce economic dependencies on less like-minded countries,” Jungbluth said.
So far, only ‘hot money’, or short-term investments, have reversed in China since Russia invaded Ukraine
So, are we at the dawn of a new era?
It is a popular discussion, concludes historian Andreas Wirsching.
“You can almost think of these two times together: the pandemic of 2020, and now this war of aggression in 2022. We feel, we feel as cohabitants here and now, that something is happening to fundamentally change.”
“But how the different factors can be seen together will only become apparent later.”
Edited by: Stephanie Burnett, Andreas Illmer