One of the positive effects of hyper-globalization was the rise of a global middle class. Millions of people were raised out of poverty as they found a place within the global economy. During hyper-globalization, there were winners and losers; and, the losers finally began fighting back. As a result, many economists insist the era of hyper-globalization has ended. Although hyper-globalization may be over, globalization is not dead. Award-winning economics journalist Martin Wolf insists that integration still characterizes the global economy. He also explains why hyper-globalization finally lost its momentum. He writes, “All the main drivers weakened or went into reverse. The opportunity for further trade increases through exploitation of differences in labor costs diminished, as those costs converged. As China’s economy grew, its dependence on trade naturally declined. Shocks caused by the pandemic and wars also underlined the risks associated with extensive reliance on trade for essential supplies. At least as important have been ideological changes, among them the rise in protectionism and nationalism, notably in the US, triggered by the economic rise of China and the ‘China shock’ to industrial employment. Parallel changes have occurred in Xi Jinping’s China. There, too, policy has shifted from reliance on the free market and private business towards greater government control.”[1]
What Comes Next?
Academic and journalist Gillian Tett writes, “The chilling question we face is whether we are about to see … an era when globalization suddenly goes into reverse, as geopolitical conflict rears its head again. So far, the answer is ‘not entirely.’ For, while the political rhetoric in many countries has become lamentably populist, protectionist and nationalist, globalization is far from dead.”[2] What’s replacing hyper-globalization? Some experts label this new era “localization” or “glocalization.” Other people, including me, prefer the term “regionalization.” I started writing about the movement towards regionalization back in 2008. In one of those early articles, I wrote, “Globalization integrates trade by disintegrating production chains and dispersing them across economies. But as the costs of transportation increase, the length of supply lines is beginning to decrease. As a result, globalization is beginning to look more like regionalization.”[2] For myriad reasons, the movement towards regionalization has accelerated. Driving factors include rising labor costs, geopolitical considerations, rising transportation costs, and increased risks of supply chain disruptions.
Economic journalist Larry Elliott reports, “Global capitalism is morphing into something different. … Some call it de-globalization, others call it — perhaps more accurately — ‘glocalization’. An ugly term, glocalization is not the global free market, and it is not autarky (a nation that operates in a state of self-reliance), but something in between. It involves shorter supply chains, an emphasis on building back domestic manufacturing capacity, and a more strategic role for government. As with any form of mixed economy, the degree of glocalization varies from country to country.”[4] Although we are seeing more regionalization, Tett reports that an annual survey from the DHL shipping group and NYU Stern School of Business found that a fair share of commerce and trade remains global. She writes, “Although US-China trade has declined, there is ‘no broad fracturing of the world economy into rival blocs’ and ‘most [trade] flows contradict predictions of a shift from globalization to regionalization’ — not least since supply chains have become more complex. … The report admits this picture might be temporary because ‘the public policy climate has become less favorable for globalization.'”
Gilles Paché, a Professor of Supply Chain Management at Aix-Marseille University, writes, “Building regional supply chains should help reduce the vulnerability of economies and increase resilience.” Like Tett, however, he doesn’t believe regionalization will be as easy as most people think. He believes the dominant model will involve friend-shoring. He explains, “Friend-shoring corresponds to a new geopolitical vision of the world: the implementation of privileged and close partnerships between countries sharing the same humanistic values. Unlike traditional re-shoring to the country of origin of an industrial company, friend-shoring implies the concentration of trade between trusted commercial partners who are culturally close, which should reinforce the robustness of supply chains by integrating the criterion of geopolitical convergence.”[5] He adds, “Unfortunately, we should not believe that the paradigm shift will be easy to achieve. Shortening supply chains, especially when they are configured regionally, will be costly in financial terms and will probably require considerable time to adapt. That will be especially so for supply chains with a high level of operational complexity. It will be imperative to define the specific conditions for achieving friend-shoring for each link in a supply chain, and this can only be done if there is a political will in the coming years.”
Rise of Emerging Markets
As I noted at the beginning of this article, one of the greatest benefits of hyper-globalization was the expansion of the global middle class. Some economists worry that de-globalization or regionalization could have a negative impact on the global middle class. Fortunately, there are some promising signs that won’t happen. Shekhar Aiyar, a Visiting Scholar at Johns Hopkins School of Advanced International Studies (SAIS), writes, “Imagine that across the length and breadth of America, working-class wages grew much faster than the incomes of millionaires. Rustbelt states started catching up with their more prosperous coastal counterparts. … Something analogous to this happy fiction has been happening at a worldwide level over roughly the past half century. While the public discourse focuses overwhelmingly on rising domestic inequality in western countries, global inequality has fallen sharply, primarily due to the rise of two Asian giants, China and India. In 1980, the two countries accounted for almost 40 per cent of the world population but only 5 per cent of world income. Today they still make up roughly the same share of global population, but account for a much larger 25 per cent of global income. The global income distribution remains unequal, but not nearly as unequal as it used to be.”[6]
Clearly, the impact of bringing millions of people out of poverty in the world’s two most populous countries is enormous. But other emerging economies are also witnessing growth. Ruchir Sharma, Chairman of Rockefeller International, reports, “Now a similarly encouraging story is unfolding in the emerging world, but few observers have noticed and still fewer foreign investors have acted on this momentous shift. A major comeback is under way. After weakening sharply in the past decade, emerging economies are rebuilding their growth lead over developed economies, including even the strongest one, the US, to levels not seen in 15 years. The proportion of emerging economies in which per capita GDP is likely to grow faster than the US is on course to surge from 48 per cent over the past five years to 88 per cent in the next five.”[7] He goes on to note, “The fate of emerging nations no longer depends so completely on the largest one. The current revival is driven by nations other than China, whose difficulties (from a shrinking population to heavy debts) obscure the strengths of its emerging world rivals.”
Concluding Thoughts
Sharma insists, “As an overstimulated superpower, relying on record deficits to power growth, America is on an unsustainable path.” Most everyone agrees that the U.S. needs to address its federal deficit issue. By 2027, federal debt as a share of the U.S. economy is tracking to exceed the Second World War record, with the U.S. spending more on interest payments than defense for the foreseeable future. Although there is much to be concerned about in the west, Elliott writes, “Globalization is not dead, nor even on its last legs. The same goes for the demise of western liberal democracy. To be sure, productivity has been weak and living standards have been squeezed in recent years. Germany’s finance minister, Christian Lindner, raised eyebrows when he said his country was the tired man of Europe. But there are good reasons why there are no TV pictures of asylum seekers trying to get into Russia or China.” There are win-win solutions for global trade; however, it will take both leadership and political will to put those solutions in place.
Footnotes
[1] Martin Wolf, “World economy — the story remains one of integration,” Financial Times, 18 January 2024.
[2] Gillian Tett, “Take a look back to assess the chances of a global future,” Financial Times, 16 January 2024.
[3] Stephen DeAngelis, “Changing Supply Lines,” Enterra Insights, 12 August 2008.
[4] Larry Elliott, “Globalisation is not dead, but it is fading: ‘glocalisation’ is becoming the new mantra,” The Guardian, 21 January 2024.
[5] Gilles Paché, “With a little help from friends: Towards regional supply chains,” Supply Chain Management Review, 22 December 2022.
[6] Shekhar Aiyar, “Global inequality is narrowing — and that is cause for celebration,” Financial Times, 12 August 2024.
[7] Ruchir Sharma, “The world should take notice — the rest are rising again,” Financial Times, 26 August 2024.
