The third wave of globalisation has started (1)
Globalisation is slowing, owing to several constraints, from America’s trade war with China, the Covid-19 pandemic, to the ongoing Russia-Ukraine conflict. A “slowbalisation” is afoot, according to The Economist.
In his 2022 letter to shareholders of $10 trillion asset management firm BlackRock, chairman and chief executive Larry Fink suggests the Russia-Ukraine war “has put an end to the globalisation we have experienced over the last three decades,” predicting “companies and governments will also be looking more broadly at their dependencies on other nations” which “may lead companies to onshore or nearshore more of their operations resulting in a faster pullback from some countries”; points the Financial Times notes in an article in about late March 2022.
I do not totally agree with Mr Fink. In fact, the emergency measures that has now been forced on firms and economies, the onshoring and nearshoring that Mr Fink refers to, for instance, are not dissimilar to the protectionism that was triggered during the two world wars from 1914 to 1945, as a presage of the second wave of globalisation that some insist still subsists.
The first wave hitherto, by many credible accounts, endured from 1870 till then. I will argue that what is ending is the second wave of globalisation and the beginning of the third wave
The first wave hitherto, by many credible accounts, endured from 1870 till then. I will argue that what is ending is the second wave of globalisation and the beginning of the third wave. Still, the currently volatile circumstances owing to the Covid-19 pandemic and the barbarous Russian military aggression towards Ukraine call for certain imperatives. Economies must have fallback options, firms must incorporate redundancies into their processes, and individuals must be able to get by when states fail.
In their 2021 book “Six faces of globalization: Who wins, who loses, and why it matters”, academics Anthea Roberts and Nicolas Lamp assess what they consider to be the six dominant narratives of globalisation viz. (1) An establishment narrative that is largely positive about the economic benefits of globalised trade and production, (2) a left-wing populist narrative about the vast inequalities that globalisation is engendering, (3) a right-wing populist narrative that wants firms to be mindful of the victims of their globalised profit-making, (4) the corporate power narrative that is seeing the transfer of hitherto exclusively state domains into private hands, (5) a geoeconomics narrative that sees globalisation as ultimately a battle for supremacy between China and America, and (6) a global threats narrative that highlights how, for instance, climate change is being exacerbated owing to globalisation.
Roberts & Lamp’s (2021) six faces of globalisation is a robust framework with which to assess the ongoing disequilibrium in the global economy and its implication for globalisation.
The Covid-19 pandemic forced economies to wall themselves as a precaution against the spread of the coronavirus. Those which proved resilient were the ones with in-built self-sufficiency, a lesson not lost on those that faltered. China got by, despite being one of the main beneficiaries of globalisation in the two decades since it officially joined the World Trade Organization (WTO) in late 2001.
Firms mostly hurt by the current “slowbalisaton” are those in western economies, so are those in poor import-dependent ones. The dependence of American firms on global supply chains proved ill-advised, as they unravelled very quickly when the globalised economy underpinning their operations shrunk itself to fend off a ravaging pandemic. Developing economies, especially African ones, also found themselves at the short end of the stick of a closed global economy during the early days of the Covid-19 pandemic.
Though resource-rich, many African countries continue to depend on imports for their basic requirements. Even South Africa, which owing to apartheid was forced to build domestic capacity for most of its local needs over time, has now become more import-dependent. The import bill of Africa’s biggest economy and crude oil producer, Nigeria, consists predominantly of fuel and wheat.
A global economy in dire straits owing to a virulent pandemic, put countries like Nigeria and the like in a bind. Even as Nigeria is a major crude oil producer, its refineries have long been moribund. A tough business environment over time made imports more profitable, with cartels for goods ranging from food, fuel, pharmaceuticals to standby-generators ensuring that domestic capacity for the production of such goods or sustainable and cheaper alternatives like stable power supply in place of standby generators remain continually constrained. The Covid-19 pandemic has shown how quickly import-dependent economies could easily unravel when key global economies shun globalisation.
The Russia-Ukraine war has yet again brought the vulnerabilities of globalisation to the fore. While Russian aggression towards Ukraine has been globally deplored, the ease with which Russia has been “cancelled” from the global economy via western sanctions is ringing alarm bells in many country capitals. Take the case of hard currency reserves. These were hitherto out of bounds. Not anymore, as the Russian case has shown.
Governments are now beginning to feel the need to diversify their risk mitigants away from the western-based order. This trend will weigh on globalisation as we know it. So to that extent, Mr Fink is right. Global commerce requires a global currency. The US dollar has performed that role with near perfection thus far. A bifurcated globalised economy, where the east has one system and the west another, defeats the purpose of globalisation. And yet that is the direction globalisation is headed.