These days are the anniversary of the protests against the WTO summit in Seattle, which took place in December 1999. It was a sign of the malaise in Western societies, that the globalization that was prevailing was not a panacea. Today, almost 25 years later, there is talk of deglobalization.
The growth rate of international trade has halved since the Great Recession of 2008. After the covid and the war in Ukraine, there are no signs that it will be able to recover those rates. Between 2008 and 2019, the volume of world trade over GDP has fallen by about five points. Foreign direct investment flows in the world reached their peak in 2016, with more than three trillion dollars. In 2020 they barely exceed one trillion, according to the World Bank.
Slowdown is a given. According to the estimates of Marc Levinson, author of a book on globalization, "if exports of manufactured goods had represented the same proportion of total world production in 2019 as in 2008, international trade would have been almost two trillion dollars higher." . If foreign direct investment had been as important in 2019 as it was in 2007, an additional three trillion dollars would have been injected into companies abroad. Likewise, the increase in the age of the population means that there is now less demand for consumer goods –having reached a certain degree of satisfaction– and more for services and intangible assets (for example, leisure and tourism).
“In 1999 I believed that globalization in principle would last forever. But then I understood that there is an optimal level, from which you go backwards”, admits the Dutch professor at the Erasmus University of Rotterdam Peter A.G. van Bergeijk, author of the book Deglobalization 2.0. “I often say that globalization carries the seeds of its own destruction. In the initial phase it is easy to improve the economy. The costs are low and the returns are great. But when the intensity of globalization increases, the benefits are more difficult to obtain because, somehow, the fruit [productivity, savings] has already been reaped, while the costs [of redistribution of the welfare state] are made larger and more obvious. It then happens that the hegemonic power withdraws [in this case, the US], because for it, too, the costs of hegemony outweigh the benefits of defending it”.
Even so, recent research suggests that globalization is still alive and well. Somehow, it is necessary and inevitable. “No region of the planet is self-sufficient on its own,” they state in the latest McKinsey study, Global flows: The ties that bind in an interconnected world. Each economic block has to import a minimum of 25% (in terms of added value) of a type of resource or good that it needs (this is the case of energy, but not only). In addition, in all sectors there are products that are concentrated in a single geographical area (it occurs, for example, with mining or electronics). So in the end you have to continue to matter. Yes or yes.
“Value chains are more stable than you think. In the last 25 years, no country gained or lost more than 2% in global market share for supplies. In addition, the figures show that between 2010 and 2019 the flows of services (professional, technology, telecommunications), international students and intellectual property grew almost twice as much as the flow of goods”, they maintain at McKinsey.
"The globalization process is not going to be reversed," says Esade professor Xavier Ferrás. “But those relocations based only on cost savings are going to end. The misunderstanding was to consider that the world was flat, that mathematical logic ruled. That if one company left, another would come. Now the strategy will be different: the best price will be sought, even in terms of security, instead of the lowest price”.
Uri Dadush, a researcher at Bruegel, has just published a paper in which they deny several topics. “My calculations hold that, contrary to what is usually said, protectionism has not stopped globalization. True, subsidies and tariffs have increased, particularly on aluminum and steel. But the reality is that trade agreements between countries or blocs are growing, ”he comments from Washington. And he recalls that the value of trade in intermediate goods was 25% higher in the second quarter of 2022 than in the same period of 2019.
Marc Levinson argues in his work that "we will move from the globalization of containers to that of ideas, skills and bytes". A thesis in which Dadush agrees. “The number of immigrants is growing non-stop, as is the amount of international remittances. Many advanced countries are understaffed and need more open labor policies to satisfy their labor markets. There is an indisputable fact: only 60% of the population is connected to the internet. There is still a lot of room for growth in terms of connections and the increase in data traffic.”
Is the current rise of populism a consequence of the imbalances of globalization? "Yes. I would say that it has awakened a certain desire for protection. But increased trade has not been the only factor: automation has caused job losses. It is the change in the economic structure that has produced the greatest imbalances”, says Dadush. In any case, we are going to enter a new phase, because society no longer digests the unwanted effects of the old model.
“Gone are those days when everyone seemed to be working for a world without borders; suddenly everyone recognizes that at least some national borders are essential for economic development and security. The economics of waste, the argument that enriching the rich would automatically favor everyone, was a scam,” wrote Nobel Prize winner in Economics Joseph Stiglitz recently. Larry Fink, CEO of the powerful BlackRock fund, warned a few days ago that “the war in Ukraine has put an end to the globalization of the last three decades. Despite connectivity, many communities and people feel isolated and look inward. And this is exacerbating polarization and extremist behavior."
"From now on I foresee a phase of reindustrialization in the West, to produce closer to or even in the same country, with the aim of not only protecting oneself, but also generating a competitive advantage based on innovation and sustainability", predicts Xavier Ferrás. “And this policy will also be the best antidote to the growing rise of extremism, because the industry allows social stabilization.”
