Globalisation, Is This The End?


Chancellor of the Exchequer Rishi Sunak, was in Washington for the spring meeting of the IMF (International Monetary Fund) to meet with other finance ministers to discuss the state of the global economy. But he clearly prefers to listen to some of them more than others. If the chancellor hadn’t been on a plane flying across the Atlantic, he would have joined the UK delegation – led by Bank of England governor Andrew Bailey – in walking out when Russia’s representative began speaking at a G20 meeting. The British protest, along with those of the United States and Canada, at a forum attended by the world’s leading developed and developing economies will, unfortunately, make no difference to the Kremlin. Despite this, it is a symbolic gesture that is important. The International Monetary Fund (IMF) issued a warning this week about the risk of the war hastening the world’s fragmentation into competing economies. China, like the country currently in the G20 chair (Indonesia), stated unequivocally that Russia should not be barred from G20 meetings.

The IMF is concerned about the possibility of a return to the 1930s. It is concerned that the current trend toward deglobalisation will result in higher trade barriers, countries adopting their own technological standards and formats, and rival reserve currencies emerging to challenge the US dollar’s dominance. More complex challenges for our leaders in these volatile times. To be sure, more international cooperation is a positive thing, as the IMF’s managing director, Kristalina Georgieva, correctly pointed out at a news conference last week, there are global challenges that require global solutions.

However, there is no indication that the current globalisation paradigm is very effective at resolving these challenges. The debt-relief process is unfit for purpose, as the IMF points out in its most recent world economic outlook. Instead of vaccine apartheid, a fully functioning globalisation would have resulted in a more equitable distribution of Covid-19 doses.

The error is to conflate globalisation with multilateralism rather than the specific kind of international capitalism that has arisen in the three decades following communism’s demise. Surprisingly, countries managed to find ways to trade with one another in the years leading up to the fall of the Berlin Wall.

China, the big winner over the last 30 years, has seen a significant reduction in poverty, but only by maintaining tight control over its economic policy and capital movements. Beijing has liberalised its economy in its own time and at its own pace, wary of the kind of shock treatment given to Russia in the early 1990s. India has been cautious in its liberalisation.

Globalisation rhetoric emphasises smooth-running and efficient supply systems. Because of the international division of labour and the lack of capital regulations, production is moved to areas with cheaper labour costs, which helps keep retail prices low.

However, as we are now seeing, long and intricate supply chains are not an impenetrable defence against inflation. Cost of living pressures emerges when global manufacturing lines become clogged, whether as a result of a post-pandemic rise in demand or the shockwaves of conflict. The benefits of self-sufficiency have been brought home to governments in recent years, whether in terms of food, fuel, personal protection equipment, or Covid-19 medications. Furthermore, despite all the hype, globalisation has not resulted in faster growth or higher living standards for the majority of people in the UK and other developed countries. Of course, it’s been a different tale for the wealthy. They snatched up the benefits of global expansion and stashed them away in tax havens overseas or, in the case of Russian Oligarchs, in the London property market.

The tone has shifted in recent days, Labour and Conservative lawmakers battled it out to oppose P&O’s move to fire British seamen in favour of cheaper immigrant workers. Workers in the ‘gig’ economy (zero or short-term employee contracts) require more protection from the ‘flexible’ labour market, according to the courts. The prudence of relying on foreign energy and enabling China to gain holdings in strategically crucial sectors has been questioned. Proclaiming the need for a larger manufacturing base is no longer considered antiquated.

Let’s be clear – deglobalisation does not imply a relapse into North Korean-style authoritarianism. It also does not imply that globalisation is dead because countries will always collaborate when it is in their best interests. There is, however, a realisation that pre-globalisation, countries were better able to control their own economic destiny and were less prone to financial crises. Transporting goods halfway around the world is costly and unsustainable when energy prices are high. Long before Vladimir Putin launched his troops into Ukraine, the process of re-shoring production was already underway.

However, the primary motivation for rethinking globalisation is political. The age of insecurity has arrived, bringing with it an expected response from voters dissatisfied with growing living costs, diminishing living standards, and rising inequality.

Calculated policy decisions have shaped the existing globalisation paradigm, and calculated policy decisions will influence what comes afterwards. If governments are empowered to reclaim control of their economy and better protect their populations then this paradigm shifts away from globalisation should be welcomed.

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