Globalisation: A World in Doubt

Globalisation, here defined as "the increasing connectedness and interdependence of world cultures and economies" (National Geographic Society, 2022) has been an irresistible force in the development of the modern world economy. Technological advances in the late 20th and early 21st century have served to hyper-accelerate a collective march toward global interdependence. Whether this has been a fundamental blessing or a curse is open to some debate. No doubt globalisation has had its benefits though with obvious drawbacks. For developed, and in particular Western countries, it has facilitated the omnipresence of low-price consumer goods, achieved in no small part through the meagre wages paid to workers in the developing countries in which they were produced. It has generated economic growth on a previously unforeseeable scale, but it has done so unevenly. It has made the world more cooperative and inter-reliant, and as a result all the more vulnerable to any break in the links of the global chain. Its supporters will argue that it has created jobs and granted developing nations access to technologies that could not possibly have been obtained through any other means. Its detractors will point to wage exploitation, unethical worker demands and its contribution to rising levels of global income inequality (Collins, 2015). There is no simple answer as to whether globalisation has been a force for good or for bad. It is a complicated and multi-faceted discussion, though one which may arguably not prove relevant for too much longer.

Figure 1: The impact of the Covid-19 Pandemic has raised serious questions as to the future of a globalised world

A White Paper recently published by the World Economic Forum (WEF) titled “Four Futures for Economic Globalization: Scenarios and Their Implications” has proven a major talking point in economic circles over the past few weeks. The aptly titled research paper paints an image of a world at a crossroads, suddenly unsure of its desired direction and which forward steps to take. Through a series of exploratory future scenarios, the authors actively ponder whether the driving force of globalisation has been suddenly brought to heel by a confluence of events simply too large to ignore. To quote the report directly; “An ongoing pandemic, the climate crisis, the war in Ukraine and related geopolitical realignments stand out among the many factors contributing to the current volatility and uncertainty.” (World Economic Forum, 2022, p 3). Each of the scenarios discussed offers diverging views with varying shades of optimism as to the possibility of a truly global future.

Longing for Stability

The first potential future scenario identified by the report and titled “Globalization 5.0: Reconnection” (World Economic Forum, 2022, p. 6) offers a largely positive spin on proceedings which is in truth loaded with contradictions. This imagining of events describes a world in which “recognition of the shared prosperity derived from a rules-based order has grown” (World Economic Forum, 2022, p. 6). An alleged direct response to the socio-economic turmoil manifest by the Covid-19 pandemic and what is euphemistically described as “major conflict in the early part of the decade” (World Economic Forum, 2022, p. 6). An assumed oblique reference to the ongoing Russian military conflict in Ukraine. The idea that one of the deadliest and widest-reaching pandemics of all time in combination with the largest scale military conflict seen in Europe since the end of World War Two has given people a sense of appreciation for a “rule-based order” may be true, if nothing else because in the context of such events it is difficult to feel that the normal rules still apply.

Scenario One goes onto describing a future wherein “Strategic competition for oil and gas has been partially offset by the diversification and greater adoption of renewable energy and by cooperation in the sourcing of green metals” (World Economic Forum, 2022, p. 6). This, in spite of the fact that renewable energy sources accounted for a mere 28 percent of global electricity production in 2021, and struggled massively to keep pace with significantly increased global energy demand. A state of the union address from the International Energy Agency (IEA) in January of this year demonstrates that for the year 2021 “CO2 emissions from electricity rose by close to 7%, taking them to a record high” (“Electricity Market Report”, 2022, p. 6). Additional concerns abound with regard to the world’s extraordinary dependence on China for the continued supply of vital renewable energy components and rare-earth elements of which China accounted for 60 percent of global production in 2019 (World Economic Forum, 2022).

Figure 2: The ongoing Russian military conflict in Ukraine has served as a majorly disruptive force for the global economy as a whole

Ongoing Disruption

While harking to a longing amongst the world’s citizens for a sense of stability amidst such prolonged uncertainty, Scenario One simultaneously acknowledges “a marked trend away from the globalization of the past, as local economic and social resilience become critical considerations.” (World Economic Forum, 2022, p. 6). The significant and ongoing disruption to the global supply chain throughout the course of the – lest it be forgotten – still ongoing Covid Pandemic makes obvious the attraction of a return to localised production chains and economic self-sufficiency amongst national governing bodies. One particularly poignant example has been the world’s almost total dependence on Chinese produced Personal Protective Equipment (PPE) throughout the Pandemic. As of May 2020 China was solely responsible for the supply of 83% of the PPE most commonly employed by medical professionals around the world (Hoyama & Hosokawa, 2020).

Allegations of hoarding by the Chinese Government of not just Chinese, but also foreign produced PPE (Politi, Williams & Cookson, 2020) at the Pandemic’s height and in the midst of global shortages in this area served to raise tensions further and drew pronounced attention to the fragility of the existing global supply chain. The collective global reliance on a single national supplier has prompted a “considerable rethinking of international cooperation for trade in such medical supplies” and direct calls from the combined G7 nations for “prioritizing PPE supply chain resilience as well as greater geographic diversification of production” (Bown, 2021, p. 19). Though this sentiment was pronounced in relation to a specific key medical commodity, it is one that has transmitted much more broadly amidst growing calls for the regional re-localisation of industrial capabilities.

Figure 3: The death of globalisation has long been rumoured, could it be real this time?

A New Trend?

Some parties, such as Bettina Büchel, Professor of Strategy and Organization at the IMD Business School in Lausanne Switzerland have theorised that a shift toward re-localisation of supply chains had already been underway prior to the outbreak of the Covid-19 virus. A trend she attributes to “creeping nationalism and anti-immigrant rhetoric in some countries, such as the US, Japan, Turkey and parts of Europe” (“The Localization of”, 2020). This movement itself “a response to falling income, increasing unemployment and inequality” in the aftermath of the 2009 Financial crisis (“The Localization of”, 2020). An event which served to exacerbate already existing global income inequalities, and from which many of the world’s nations were still recovering prior to the onset of the Covid Pandemic in 2020 (Chen, Mrkaic, & Nabar 2018).

The Pandemic, alongside the ongoing Russian military conflict in Ukraine has brought home to many the fragility of a hyper-connected global supply network upon which each and every citizen on earth is in at least some way dependent. A survey implemented by management consultancy firm McKinsey in 2020 of international senior supply chain executives found that an overwhelming 93 percent of respondents intended to make adjustments “to increase the level of resilience across their supply chain”, with 40 percent citing “near-shoring” – a relocation of key production stations to somewhere closer to a given firm’s country of origin – and an increasing of their existing supplier base as specific options under consideration (Alicke, Gupta & Trautwein 2020).

Figure 4: The world's hyper-connected Global Supply Chain has been under major duress over the past two and a half years

A Pyrrhic Pursuit

While the desire to protect production capabilities from future as well as ongoing economic and political shocks is entirely understandable, such a move is not without consequences. Not the least of which would be a likely significant rise in prices owing to the loss of the low labour and transportation costs the world’s predominantly Asian based supply network has benefitted from over the past now 30 years plus (Shih, 2022). With global inflation rates already at record highs the World Bank has warned of a further rise in global energy prices for the year 2022 anticipated to be in excess of 50 percent, alongside further increases in the costs of vital commodities such as grains, metals and minerals (World Bank Group, 2022). Amidst such challenging economic conditions there is a compelling argument that now is simply not the time to complicate matters further.

Though the debate on whether it is best to pursue a regionalised or global supply chain going forward is often framed as one of “efficiency versus security”, OECD research suggests that a global supply chain overhaul, and specifically a mass re-localisation of production capabilities may in fact “fail to achieve either”, “The localisation of production is costly for the most developed countries and virtually impossible for the less developed. At the same time, a localised regime provides less protection from the impact of shocks.” (Arriola, Kowalski & Van Tongeren 2020). Should geo-political relations between the world’s established economic superpowers continue to decline at the current rate however, such considerations may no longer carry sufficient weight to deter from such an outcome.

Figure 5: Scenarios 3 and 4 of the WEF's report ponder the potential futures of the Digital global economy

Living in a Digital World

The 2nd and 3rd scenarios of the WEF report have an explicit technological focus, and offer contrasting visions of the future of the global “digital economy”. Under Scenario Two, titled “Analogue Networks: Virtual Nationalism”, physical cooperation remains in place with world governing bodies taking the practical approach of retaining trade relations for essential commodities “such as food, energy and metals”. Simultaneously “there is a splintering of technology across borders” (World Economic Forum 2022, P. 7.). As protectionism rises and in spite of continued global interdependence in the trade of physical commodities, labour mobility is increasingly restricted and “virtual blocs” are formed in what effectively amounts to a new virtual cold war.

Scenario Three, titled “Virtual Integration, Physical Fragmentation” offers a directly contrasting vision whereby physical cooperation is heavily splintered along geo-political lines while much of the world’s digital policy frameworks have reached a point of harmonization. “Many major economies have aligned on digital services tax frameworks, cybersecurity and privacy regulations, and online labour laws, unleashing a wave of global activity in technology-enabled work, and data and research cooperation” (World Economic Forum 2022, P. 8.). The net impact is a world which heavily favours digitally oriented workers who enjoy a greater level of freedom and economic opportunity by virtue of their ability to work remotely. Those classified by the report as “Lower-skilled workers in more in-person work sectors” are seen to suffer more, with significant cross-border movement restrictions and reduced earnings a likely by-product of this “inward-looking scenario” (World Economic Forum 2022, P. 8.).

Figure 6: Western Leaders have begun to muse on fears of a growing "Alliance of Autocracies"

Lines of Fragmentation

Scenario Four takes on a more complete perspective than those offered by scenarios two and three in particular, and serves as a direct mirror image to the purported optimism of Scenario One. Titled “Autarkic World: Systemic Fragmentation”, it offers a bleak representation of an economic future in which national security concerns become paramount, leading to increasingly fraught political and trade relations and the fragmentation of the global knowledge based economy. The existential threat of climate change becomes overwhelming in the face of “fragmented (and in some cases redundant) industrial production, the abandonment of global standards, the reversion to carbon fuels for production and the prolonged crisis of multilateralism” (World Economic Forum 2022, p. 9). These backward leaps are registered alongside massive and ongoing reductions in living standards and rising political instability across developed and developing nations alike.

A less extreme, and perhaps more likely future economic scenario is presented by Willy C. Shih on behalf of the Harvard Business Review. Shih suggests the possibility of localised “geographical trade blocs” emerging which encompass the same combination of low-cost and high-income regions that have defined modern global supply chain operations to date. By means of example Shih cites the prospect of a Pan-American industrial trade Bloc comprising of “the U.S., Canada, Mexico, and parts of Central America that can together offer large markets, skilled as well as low-cost labor, and relatively lower transport distances and costs”, with a “European bloc that draws on Eastern Europe and North Africa for low-cost labor” developing simultaneously (Shih, 2022). Such blocs would in theory serve as a counter-sphere of political and economic influence to a newly established Eastern Bloc dominated by the joint economic superpowers of China and Russia. An event many believe to already be firmly underway amidst growing Western fears of an “Alliance of Autocracies” between both nations (Myers, 2021).

The Future Is Always Uncertain

Figure 7: a failure of globalisation would lead to an increasingly fractured world, with potentially devastating consequences for the Planet as a whole

In light of the events of the past few years and with a seemingly ever increasing number of fresh moving parts in play, when predicting the future of the globalised world the only thing that is certain is more uncertainty. While it is safe to say that the idealised version of globalisation wherein a rising tide serves to lift all boats and all parties are benefitted equally has yet to be realised, it is difficult to argue that a shattering of the collective global economy is an optimal solution to the array of crises facing the planet moving forward. The world has never been so inter-reliant in terms of its economic dependency and with the existential threat of climate change plainly visible on the horizon, a

coherent unified front is more paramount than ever. Now is not the time that anybody would reasonably choose for globalisation to fail, but if history and our continued deferment of meaningful action on climate change has taught us anything, just because something shouldn’t happen doesn’t mean that it won’t. Hope lives on nonetheless that the powers of the world will get their act together and find peaceable solutions to moving forward as one, because what’s the alternative?

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