The whole of the global economy is based on supplying the cravings of two percent of the world’s population
- Bill Bryson
The roots of both globalization and deglobalization trace back to times when these concepts were not even coined. From Hitler promoting Nazism to the popularization of the Italian cocoa spread Nutella, all have some level of interference with international interdependence.
According to popular opinion, 2016 has been called the worst year to go down in history. Donald Trump coming to power in the USA, and Britain voting itself out of the European Union are two of the so-called adverse events of 2016. The current state of affairs can be compared to those of the 1930s: Trump’s ban on immigration from primarily Muslim populated countries is an act of showing apathy towards a particular religion. Syrian refugees not getting entry into certain countries in the Europe just shows the altering sentiments of citizens from the world’s most globalized nations. Moreover, human trafficking, illegal-drug industry, and terrorism have all fostered due to the overwhelming penetration of globalization as a process.
Is deglobalization really happening?
Foreign direct investment flows by corporates is down by $700 billion in seven years - around $1.2 trillion in 2014. The middle and the working class in the U.S., not to mention, most of Europe, have barely seen wage increase in 20 years. Moreover, China is losing its competitive advantage.
The Sub-Prime Crisis of 2007-08 was the worst economic disaster since the great depression. It brought acute financial imbalances among some of the world’s major economic powers and led to questions that posed a threat to the very existence of globalization. It’s surprising how a crisis in one country shook the entire world. India, being a relatively closed economy, did not get affected to the extent that other countries did. Globalization mitigates the efficient funnelling of risks which lead to more openness of financial markets around the world, and unfortunately, makes them riskier. Since then, countries have started looking inwards and therefore, fostering deglobalization.
The global economic growth is stalling at around 3.1 percent. If it continues like this, the IMF suggests that it will propel anti-trade sentiments among nations and would probably muzzle growth. The chief economist at IMF, Maurice Obstfeld, says, “Taken as a whole, the world economy has moved sideways.” Additionally, growth prospects for advanced economies are less than 2 percent. The propellers of globalization are in reverse gear.
One of the key deliverables by Donald Trump in his campaign was abandoning the Trans-Pacific Trade Partnershi, which was formulated by Barack Obama in February 2016 along with 12 countries that border the Pacific Ocean. This deal was conceptualized for member countries to attain a novel status of a single market, similar to the EU. These member countries account for 40 percent of the world’s economic output. Trump termed this deal ‘a horrible deal’ arguing that it contradicts American sovereignty and abates the number of accessible jobs in the country.
In a different world, the holistic idea of the European Union was to collectively act as a strong anchor in terms of economic integration for collective development that individual nations fail to attain. Basically, it transcends from a single market to having a single currency, to a single banking system, and eventually, a single political economy. But the occurrence of Brexit was one of an ideological disintegration. Differences in ideologies led to the national borders becoming more prominent than ever in the European Union. In fact, the series of trade negotiations carried out between the EU and the US called TTIP ( Transatlantic Trade and Investment Partnership) appears to be dead too.
Poor countries are becoming poorer
Think about the last time the US and the UK tried prioritizing their economic progress. What was the result? Poor countries were rendered even poorer. World War II was all about power. Big countries winning and poor countries losing. Doesn’t this justify what the socialists have to say about capitalism? Why are we letting such a scenario to take place again? The world has reached a stagnation level, as pointed out before. Trade is more interdependent than ever. Humanity Divided, a report by the UNDP, estimated that 75 percent of the population lives in societies where income distribution is less equal than it was in the 1990s, although global GDP has increased from $22 trillion to $72 trillion.
The centre-periphery model of development economics talks about how advanced countries (placed) at the center authorize the less developed countries (placed) at the periphery. It basically propagates the idea that power is concentrated in the hands of the countries at the center which is a minute representation of the periphery countries. Borrowing concepts from this model, globalization has resulted in depleting bargaining power and capital flows for these poor countries, making them exposed to instances of financial crisis. The trade liberalization process, over dependence and inappropriate financial regulation, contributed to the downfall of these countries in terms of wages, environmental degradation, and overconsumption of resources. Thus, there is a prevalence of unequal distribution of perks that globalization has to offer.
Then, why deglobalization?
The term deglobalisation was coined by Walden Bello in response to the Asian financial crisis in 1997. Perhaps, the world has reached the maximum possible level of globalization compatible with the current level of economic integration. It may well be the time to reverse the gear and experiment. Deglobalisation does not necessarily imply that nations should become aloof to one another. One of the shades of deglobalisation would be, for instance, to provide protectionism for the local industries. Can deglobalization prune inequality, though? We need to modify the definition of growth and measure it in terms of equity in the distribution of resources. That’s where de-globalisation will play a prime role. Rather than importing and exporting products, countries can focus on self-production and sustenance. Countries can prioritize research and development to make their processes more efficient rather than capturing international markets. Migration at both the country and city level will mitigate which will lead to a reallocation of resources. Embracing deglobalization trends and altering policies to accommodate it could help us to remove any hindrances in our growth profile.
By Aditi Sinha and Prateek Behera