Globalisation in doldrums due to Covid-19 | By Rashid A Mughal, US


Globalisation in doldrums due to Covid-19

GLOBALISATION is part of that shrinking world which brought and is bringing people together for common — or competitive — goals.

It refers to interconnectedness among countries through various relationships – from business, geopolitics and technology to travel, culture and the media.

It’s true that the world is getting smaller. You can use a phone to reach someone instantly, no matter how far across the globe that person is.

You can Skype, text or use WhatsApp. You can get on a plane and in a matter of hours show up halfway around the world.

Following centuries of European colonization and trade activity, that first “wave” of globalization was propelled by steamships, railroads, the telegraph, and other breakthroughs, and also by increasing economic cooperation among countries.

Globalization has transformed the modern world. It shaped, and will continue to shape, the way people do business, travel and connect.

It provides a wealth of benefits, but it also comes with economic and cultural consequences that can be difficult to navigate.

As globalization continues to shape worldwide interactions in commerce, technology and more, people and companies will need to understand both its benefits and challenges.

Globalization is an historical process that began with the first movement of people out of Africa into other parts of the world.

Travelling short or long distances, migrants, merchants and others have delivered their ideas, customs and products to new lands.

But “Globalization” received a major setback which no one could think of prior to November 2019, when the killer virus Covid-19 surfaced in China and within three months engulfed the entire world, halting the movement of human beings on mother earth.

No one thought the process which took decades in transforming and bringing people so near and trade/commerce so easy to conduct, would change the entire landscape within less than 90 days.

The 2010s were also not a happy years for proponents of global trade. Though fears of an increase in protectionism following the financial crisis of 2007-09 did not materialize, nor did the growth of the 1990s and 2000s re-establish itself.

Finance was tamer; China was richer and developing its internal market; transport was no longer getting cheaper.

As a share of global GDP, neither global trade, foreign direct investment nor stocks of cross-border bank lending returned to their 2000s peak.

EVEN before the pandemic, globalization was in trouble. The open system of trade that had dominated the world economy for decades had been damaged by the financial crash and the Sino-American trade war.

Now it is reeling from its third body-blow in a dozen years as lockdowns have sealed borders and disrupted commerce.

The number of passengers at Heathrow dropped by 97% year-on-year; Mexican car exports fell by 90% in April; 21% of transpacific container-sailings in May were cancelled.

As economies reopen, activity recovered albeit at an extremely slow pace and did not quickly return to a carefree world of unfettered movement and free trade.

The pandemic politicized travel and migration and entrenched a bias towards self-reliance. This inward-looking lurch has enfeebled the recovery, leaving the global economy vulnerable and spreading geopolitical instability.

Much of the economic damage is due to crashing demand, not new barriers to trade. Nevertheless, trade has and will suffer as countries abandon the idea that firms and goods are treated equally regardless of where they come from.

Governments and central banks are asking taxpayers to underwrite national firms through their stimulus packages, creating a huge and ongoing incentive to favour them.

And the push to bring supply chains back home in the name of resilience is accelerating. The pandemic had an impact not only in the industrial sector— 30% of global GDP— but also in the larger and faster growing service sector— 63% of global GDP.

Services are 80% of GDP in the U.S. , 69% in Germany, 52% in China, 62% in India, and 73% in Brazil.

Most everyone expects is that the pandemic will accelerate the rate and pace of digitization, adoption and automation.

Consequently, over the next few years companies may well choose to shift to “automation” an increasing number of their service jobs rather than continuing to “offshore” them to lower cost countries.

Re-shoring such jobs may not help national economies if they’re destined to be automated out of existence altogether.

But, it is also quite possible that if companies get used to supervising employees remotely, they will also get used to doing so overseas, driven less by costs than by the availability of precious skills and talent.

Longer term, what’s the likely impact of Covid-19 on “Globalization”? According to “The Economist”, as the defenders of the status quo try to explain, that strength lies in openness, and critics crow about Globalization going too far.

The reality is that both will probably get their way. The medical and pharmaceutical sectors should expect pressure to localize more of their production in those countries that have enough clout to apply it.

Chinese companies hoping to take advantage of the global market in ideas will find it harder to access.

Foreign acquisitions will be treated with suspicion. American scrutiny of their suppliers will make international commerce harder.

But once companies can start investing again many will continue to set up their supply chains in such a way as to chase the next source of growth — mindful, of course, of governments prone to placing obstacles between them and their favoured suppliers.

“Don’t expect a trading system, with an unstable web of national controls, will be more humane or safer”, writes “The Economist”.

“Poorer countries will find it harder to catch up and in the rich world; life will be more expensive and less free.

The way to make supply chains more resilient is not to domesticate them, which concentrates risk and forfeits economies of scale, but to diversify them.

Moreover, a fractured world will make solving global problems harder and securing an economic recovery”, it concludes.

—The writer is former Civil Servant & Consultant: ILO and IOM.