What the next era of globalization will look like

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There is an ongoing shift in the global economy as a result of Covid-19 and in response to heightened geopolitical tensions. Supply chains are reorganizing, slowly but surely, as companies reassess their sourcing practices and aim for greater resilience. But how far will these changes go and what will the new system look like?

Rana Foroohar, columnist at FinancialTimesshe tackles these questions in her new book Homecoming: The Path to Prosperity in a Post-Global World. She argues that the past decades of globalization have been a failure and that a new, more localized economy can provide both resilience and sustainability. HBR asked him to explain what the next era of globalization might look like.

HBR: How is it that, as you write, “globalization has failed”? And who were the winners?

Rana Foroohar: Well, I would say neoliberal globalization has failed. I define neoliberal globalization as the idea that capital goods and people would travel seamlessly across borders and lands to where it was most productive for them to do so. This is the idea that has been championed by the IMF and by the Washington Consensus — that’s what we understand when we think of the last half-century of globalisation. And it has created more global wealth than ever before. If you look at the years between 2003 and 2007, that was really the height of global growth. Not by chance, right in the middle of the time when New York Times columnist Tom Friedman wrote, The world is flat. We thought all the boats were going up.

Well, global wealth was growing, but in almost every country, inequality was also growing. And that has led not only to major economic problems, but also to the kind of populist politics that we have seen develop in the United States and Europe. I have just returned from Italy where a far-right leader was elected. We saw war in Ukraine, we saw nationalism in China. There have just been a lot of negative political consequences associated with this kind of unbalanced growth.


There is also some very interesting research that I cite in my book, from the United Nations Trade and Development Agency, which has found that the real winners of this kind of hyper-financialised, unfettered globalization have been mainly large multinational corporations and the Chinese state.

So I have to say that, given all of this, I think conventional globalization has failed. And I think the pendulum is now swinging towards something else.

You talk in the book about the fragility of many global supply chains. Why would a less globalized and more localized supply chain tend to be more resilient?

Well, for starters, you have proximity. One of the messages from my book that I’m really trying to get across is that place matters: the world isn’t flat; the world is bumpy. We had these “efficient” just-in-time, quote-finish-quote supply chains that were built, moving products around the world, often through geopolitically very challenging areas like the South China Sea. This saves large companies a lot of money as long as nothing goes wrong in the world. But when something goes wrong, whether it’s a tsunami, whether it’s a geopolitical event, whether it’s a war, a trade war, a cold war, a hot war, you’re in trouble. Whereas when you have more localized systems, you just don’t have those kinds of problems of transporting things halfway around the world and running into all kinds of obstacles.

Also, I would say that when I think of resilience, I think of sustainability. And long before the pandemic or the war in Ukraine, companies were actually already starting to think about more regional and local hubs for all sorts of reasons. One of them is that the type of cheap capital for the cheap labor model between the United States and Asia was somehow exploited – the wage productivity trade-off was losing its attraction. Wages were rising enough in the East that arbitration no longer made as much sense as before.

Finally, you begin to have environmental concerns where companies are asked to ask, “Okay, how many units of carbon are you spending to transport X product to Y location?” All of that kind of pushed this notion of location for resilience.

You write that monopoly is a source of fragility because it means that businesses and consumers depend on a single source. Why not use antitrust to encourage more competition, but keep supply chains globalized?

I don’t see them as an either-or proposition; I see them as ideas that work hand in hand. Let me give you an example: right after the outbreak of the pandemic, everyone is confined, suddenly, no one is eating in restaurants. Restaurants are closed, grocery stores have huge lines in front of them. And yet, there are no products on the shelves. You can’t find tomato sauce, you can’t find juice. There are all these weird discrepancies that are starting to show up. And you might say, “Well, why is that?”

An effective market theory would say that there is demand here and supply there, this should quickly compensate. Well no. You had two totally separate hyper-globalized supply chains. One goes to restaurants, the other to grocery stores, all owned by about four companies. In markets where you had more localized farming or greater use of community agricultural programs or farmers’ markets, you didn’t have that problem. This shows that monopoly power matters.

But the answer goes beyond antitrust. As we enter a world that certainly seems more turbulent right now, many countries are considering redundancy as part of the resilience formula. My friend Barry Lynn, who runs the Open Markets Institute, put forward this idea in his book end of line, which is a great read on supply chains. He calls it the rule of four, which states that you should never have fewer than four vendors for critical goods. You just don’t want, say, 98% of vitamin C stabilizers to come from China or 92% of high-end semiconductor chips to come from Taiwan, which, other than Ukraine, is probably the most geopolitically controversial in the world.

How localized should supply chains be? are we talking about doing nations more independent? Regions? Towns?

There isn’t just one answer. It depends a lot on the country, it depends on the supply chain you’re talking about. My book examines this question through the lens of three different industries: food, textiles and apparel, and technology. In food, I would like to see a lot more localization for many reasons, one of which is climate change. We can do a lot more to support small local producers using traditional methods, but we can also support community supported agriculture more, especially through high-tech methods like vertical farming.

I will give you another example in the textile industry. There, I see regionalization as being a really interesting model. One of the truly amazing pandemic stories that I think has been understated is how the South American textile industry came together and filled the void when Chinese masks were cut. China was naturally keeping its own masks closer to home amid the pandemic. The textile and apparel supply chain stepped in and within 48 hours they stopped making t-shirts and started making masks. It’s because you have a group of medium-sized, often privately owned, often family-owned businesses within a group of states that really understand and know each other and their own ecosystem.

And then finally, let’s take technology. I’ll just use semiconductors as the obvious example here. I don’t think anyone – even if you’re a big fan of neoliberal globalization – can argue that it was never a good idea to have 92% of the world’s most important tech hardware in a small country (Taiwan) which is being fought at the moment, between China and the United States Why no one woke up earlier, I will never understand.

How does remote work fit into your thesis? On the one hand, it facilitates the creation of more jobs outside the “superstar cities”, which can potentially spread economic activity. On the other hand, it makes it less likely that an entrepreneur from location A will also hire workers who live in location A.

It’s a double-edged sword. We’ve all seen in the pandemic that, wow, I don’t have to be in New York to do this financial work, I can do it in Charlotte. This has already started to have some interesting ripple effects.

But one CEO in the middle of the pandemic told me, “Remote workers don’t realize that if you can do it in Tahoe, you can do it in Bangalore. This begs the question: Are we about to see a major type of white-collar outsourcing of the kind we did in the 90s and 00s, with blue-collar work? The differentiator is going to be education and how we look at actually investing in a workforce.

However, one sector of the economy that is poised to grow involves very localized work. This is care economy: Teachers, nurses, caregivers. And so that really argues for the trend of de-globalization and localization.

Globalization implies the free movement of goods, people and capital. Should we do less of the three?

When we assumed that capital, goods and labor were all going to move very freely, the truth is that capital moved extremely freely. Goods a little less, and labor really not much at all. That’s why you ended up with a handful of large global multinationals reaping most of the benefits of conventional globalization. I would like to see ideas, people and data cross borders. Capital, of course to some extent, but I would like to see a little more control over the financial system

If you were to sum it up, you could look at the last 50 years and say that globalization as we know it has been fueled by three things: cheap capital, cheap energy and cheap labor. . They all end: interest rates are rising, the invasion of Ukraine has made energy more expensive, and wages in Asia are rising. Economic pendulums are always shifting, and ours is shifting from unfettered globalization to more regionalization and localization.

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