Globalisation Is Still Out There
The Brexit result won’t stop globalisation. There have been a multitude of factors that have caused this unstoppable force that was unavoidably, relentlessly making the world a flat landscape with no barriers, to retreat.
Trade growth has never recovered to the levels seen in the years and months running up to the 2008 financial crisis.
Donald Trump is powering his presidential campaign using fear of free trade and immigration. The economic problems of the U.S., as he stated in a speech last month, are “the consequence of a leadership class that worships globalism over Americanism.” Then came Brexit, the worst possible outcome for the European Union, causing massive setbacks for the most ambitious experiment in globalisation.
Money manager Bill Gross said Brexit marks “the end of globalisation as we’ve known it.”
In a unique way, Gross’s remarks can be seen as correct. The wealthy West launched the idea globalisation based on the hopes that nations bound together by pledges of trade, money, and culture are less likely to destroy one another.
However, those very same nations, who have been scorned due to the massive changes brought about due to globalisation, want to reverse it. Isolationism is being heralded as independence.
On the other hand, anyone who thinks globalisation is dead has completely misunderstood what’s really happening in the world.
Whilst there are small pockets of resistance against globalisation, much of the world is still building tighter links between countries, companies, and communities. Rather than retreating, globalisation is widening and throwing down deep roots into societies all around the globe, whether angry Trump supporters or British Leave voters like it or not.
This new, and perhaps even more exciting, phase of globalisation presents serious challenges for policymakers, especially in the U.S. and Europe. As working classes, currently suffering from stagnant incomes and joblessness, lash out at the free movement of money, goods, and people; their elected politicians face pressure to disengage from a progressively interconnected world.
However, in doing so, they may surrender the potential benefits these shiny new agreements will make to non-Western competitors. The fate of all nations could possibly depend on whether they continue to embrace globalisation or not.
This has been the case for decades. The first round of globalisation was a decision made by the West to grow and become more powerful than the rest.
As the open exchange of goods, services and people was encouraged by the U.S.-led global economic system, helped along by the advancement of technology, this paved the way for doing business on an international scale, finance and factories flowed from the richest countries to the poorest.
Developing countries reduced poverty on an unmatched level, while advanced nations gained greater economic efficiency. Countries that sat on the side-lines, namely Russia, much of the Middle East, and Africa, are still trying to make up for lost time.
The success of that early phase of globalisation has spawned another, a phase that moves in all directions.
Emerging economies are creating tighter bonds and pacts among themselves as China, India, and others gain in wealth, power, and confidence.
The World Trade Organisation states that 52% of developing countries’ exports went to other emerging economies in 2014, an increase from 38% in 1995.
Trade between China and India was $1.7 billion in 1997. However, by 2014 it had swollen to $72 billion. India’s total trade with Africa expanded more than 60% in only four years, to almost $48 billion in the country’s 2014-15 fiscal year.
Most of the world continues to pursue free trade, even as Trump ridicules the North American Free Trade Agreement, or Nafta, as a “disaster,” and Brexit removes Europe’s second-largest economy from the continent’s integrated market. China is pushing for a Pan-Asia free-trade zone; the 10-member Association of Southeast Asian Nations is forming a common market; and
African countries have started negotiating a continent-wide free-trade area.
Today’s globalisation is also drawing in countries whom were previously left out. Textile and apparel manufacturers from Bangladesh, China, and Turkey invested $2.2 billion in Ethiopia last year to open factories to export to the U.S. and Europe.
The Philippines, long a child in a region brimming with hyper connected economies, has become a major hub for call centres.
New institutions are being created to support these trends. In June the China-backed Asian Infrastructure Investment Bank, a development organisation similar to the World Bank, approved its first four loans, totalling $509 million, for projects in Bangladesh, Indonesia, Pakistan, and Tajikistan.
Two months earlier, the New Development Bank, founded by Brazil, Russia, India, China, and South Africa, and headquartered in Shanghai, announced its first loans. They totalled $811 million and will fund renewable energy projects in the BRICS countries, minus Russia.
On top of all this, companies from the developing world are becoming more important investors. According to the American Enterprise Institute, Chinese companies invested $111 billion around the world in 2015, more than 10 times the amount in 2005.
Indian companies invested a total of $139 billion abroad in 2015, a rise 43% in only five years, growing at a faster rate than the amount of foreign money invested into India.
During a June visit to China, Russian President Vladimir Putin said the two countries are jointly undertaking investment projects worth $50 billion.
Growing hostility toward immigrants hasn’t kept people staying out in their country of origin. The World Bank estimates that the number of international migrants rose to a record level of 251 million last year. More than 38% of them moved from one developing country to another developing country during 2013, compared with 34% moving to advanced economies.
Of course, this new globalisation may encounter its share of Brexit-like setbacks. Trade among emerging economies hasn’t escaped the global slowdown. The WTO estimates that the growth of exports among developing economies slumped to 1.3% in 2014, drastically down from about 33% only four years earlier.
In some cases, the ties between nations are in fact tightening less than they appear. Despite the high-level friendship between China and Russia, persistent mistrust has kept many of their promises of cooperation just that, promises. With politicians and policymakers’ determined on turning back globalism, it is causing progress to be slow and hampered for everyone.
Trump’s protectionism, if ever executed, could spark reciprocal measures capable of dragging down global growth. In Europe, German Chancellor Angela Merkel is talking tough on Brexit, saying the U.K. cannot go “cherry-picking” what it wants and doesn’t from EU membership. The suffering of the U.K.’s impending exit is not only expected to diminish growth in Europe, but conceivably around the world.
Yet the adversaries of globalisation won’t be able to stop it. Too many countries see their future as part of something bigger. India long harboured doubts about participating in globalisation, but after relaxing rules on foreign direct investment this June, Prime Minister Narendra Modi’s office tweeted that his country is the “most open economy in the world for FDI.”
Next door in Myanmar, military rulers gave in to democratic reform after realising their impoverished country could no longer remain isolated. They hope to gain from the opportunities embedded in this latest round of globalisation; new sources of growth, finance, and profits; new fountains of information and innovation; new job creators and consumers; and new ideas sprouting in a newly emerging global culture.
Those who blame globalisation for their problems think they’ll be better off watching from the side-lines. Trump and his supporters contend that erecting walls, literally and figuratively, will protect U.S. jobs and industry from an unfair global economy. However, early indications point to other realities.
The pound’s steep post-Brexit collapse is a signal that investors believe the U.K. is less competitive outside a unified Europe than within it.
In Paris and Frankfurt, bankers and politicians are eager to capitalize on Brexit to siphon off financial business from London.
Instead of pandering to isolationist forces, politicians would do better to address their very real concerns directly.
Workers displaced by free trade need more intensive training to prepare them for new jobs. University education must become less expensive, and vocational schools more available. Allowing labour a greater voice in corporate management will help wage earners share more equitably in the profits globalisation creates for big business.
As the world continues to shrink, opponents of that inevitable, inescapable change must mind the edge.