- Globalization entails the spreading of new forms of risk, just as it brings benefits.
- Given mishandlings of the pandemic, the decline of Atlantic trade relative to the rise in Pacific and Indian Ocean trade will be more rapid than foreseen.
- The current inability of politicians to manage global threats and build a more inclusive world is a sign of too little globalization, not too much.
Globalization is the most progressive force in the history of humankind. It has heralded more rapid improvements to more people than any other human intervention. While COVID-19 has temporarily disrupted some cogs in the chains of moving goods, services, people and – to a lesser extent ideas – that constitutes globalization, it has accelerated others.
The pandemic offers a once-in-a-lifetime opportunity to reset globalization to ensure that the benefits are more widely shared and the threats it compounds – pandemics, climate change, inequality and so on – are greatly reduced.
Unless globalization's dark side is tackled head on, the rise in systemic risk and increasing political pushback will lead to deglobalization. This would mean less multilateral cooperation to address critical global challenges and a poorer, less inclusive and more unsustainable world.
Globalization accelerated in the late 1980s and early '90s with the collapse of the Soviet bloc, the opening up of China, the integration of Europe and NAFTA in North America, and the Uruguay Round trade negotiations which halved tariffs globally.
At the same time, the development of the World Wide Web was ushering in the digital age. The extent of our connectivity is reflected in this image from our recent book Terra Incognita: 100 Maps to Survive the Next 100 Years.
Globalization isn't perfect
One of the results over the past three decades was a doubling in the average per-capita income. In addition, 1.3 billion people have escaped desperate poverty, the average life expectancy globally has increased by about 10 years, and over 50 countries became democratic.
And yet, globalization appears more unpopular than ever. We think that the principle reason is the butterfly defect of globalization: the hyper-connectivity of increasingly complex systems leads to the spreading of new forms of risk as well as benefits.
Major financial centres generate financial opportunities, but networks of financial centres are also the source of financial contagion. Servers, fibre and cloud systems drive the digital economy, but also hasten the spread of digital viruses, fake news and misinformation.
While major airport hubs facilitate travel and logistics, they also encourage the flow of illicit goods and the spread of pandemics. Meanwhile, the success of globalization also spawns new risks: more access to electricity and transport help carbon emissions soar; increased use of antibiotics improves health outcomes but simultaneously creates antibiotic resistance; and increasing consumption of plastics threatens the oceans.
How COVID-19 disrupted globalization: the busts and the booms
COVID-19 has not derailed globalization. On the contrary: it has accelerated its transformation. Some features of globalization, such as scientific collaboration and digital connectivity, have increased dramatically since the pandemic began. The pandemic will also ultimately lead to a sharp increase in cross-border flows of capital, as over 100 countries seek financial support from international institutions and creditors.
We should expect, too, that the dramatic changes in the fortunes of different sectors and countries will precipitate a new wave of mergers and acquisitions.
The fragmentation of supply chains had already started peaking back in 2019, and COVID-19 has accelerated the trend.
Likewise, automation was busy shifting its comparative advantage away from low-cost, low-skilled locations towards major markets, where skills and machines are available.
And yet, it is not only manufacturing which is being automated; services are too, with digital payments and administrative processes now being located on cloud computers, negating any need for outsourcing to low-cost locations.
All of this is being reinforced by customers demanding quick delivery, which is easy to achieve from nearby production centres but less so from distant factories. Meanwhile, politicians are reinforcing the call to bring production back home, but it is automated processes and skilled jobs – and not work in factories or service centres – that are setting up shop near the major markets.
This restructuring of supply chains and reshoring of services and manufacturing will not reverse globalization. However, it will transform it. So too will the permanently lower growth of business travel as the efficiency, cost- and carbon-saving benefits of remote meetings mean digital flows will replace physical travel.
Foreign travel for leisure and tourism purposes will, however, rebound once vaccines are widely distributed, as authentic experiences become a more significant part of consumer spending and incomes increase, especially in Asia.
The globalization of the future will centre on East Asia, which accounts for half of the world’s population and is the fastest-growing economic region. The rapid recovery of this region from the COVID-19 crisis and the November 2020 Regional Comprehensive Economic Partnership of 14 Asia-Pacific economies will reinforce its rising economic and political power.
Global trade in manufactured goods
Our drastically changing political and economic landscape has led to a transitional period in which there is no effective global, much less multilateral, leadership. International institutions are being starved of the resources, legitimacy and mandates for reform that they urgently require.
The lack of political will to manage global threats and build a more inclusive world is the greatest challenge facing globalization, a point frequently made by the UN Secretary General António Guterres. In this respect, there is too little globalization, not too much.
International firms operate seamlessly across national borders but are becoming the victims of increasingly nationalist politics. This threatens to undermine investment and the shared understanding that is vital to address our shared threats.
Ultimately, globalization needs better management, and the failure to manage increased flows across national borders is what gave rise to the financial crisis, climate change and COVID-19.
Turning our back on globalization is not the answer. Nor should we wish to bounce back to the pre-pandemic ways of doing things, as it is that type of business as usual that brought us the pandemic and much more dangerous threats such as climate change. It is unsustainable.
There is no wall high enough to keep out climate change, pandemics, nuclear Armageddon or any of the other grave threats we face. But high walls also keep out the investments, trade, people, technologies and building blocks of cooperation that are urgently needed to address threats, stimulate job creation and fuel growth.
COVID-19 has taught us that we need to redouble our efforts to create a more inclusive, more sustainable and healthier world in which globalization serves to overcome risks and social divides, and is a tool for achieving shared and sustainable prosperity for all of humanity.