Death of globalisation is overhyped and distracts from its real problem – inequality
- Professor Mzukisi Qobo
The inequitable distribution of the benefits of globalisation and the emergence of new technologies that reproduce global disparities should worry us.
Much has been made of the threat of deglobalisation, fuelled by geopolitical tensions between major powers Russia’s war on Ukraine, fragmentation of supply chains and macroeconomic strains. Anxieties about deglobalisation are intensifying amid tensions that are increasingly taking on a prickly tone.
Despite global fractures and growing economic risks, fears about deglobalisation are exaggerated and based on mischaracterisations of what is at play. Deglobalisation implies a sustained unravelling of global commercial flows in the form of cross-border trade and investment. This is far from the reality.
Whenever major powers tussle, international relations become strained, generating risks to global growth and prosperity. Geo-economic frictions between China and the United States over trade and technology supremacy have been most remarkable in their threat to global stability. The effects of global instability are more menacing for African countries.
The World Economic Forum’s Global Risks Report 2023 shows that the world faces multiple crises. While the economic risks are real, the world is not about to be fragmented into hermetically sealed national economic systems.
Concerns over deglobalisation often take for granted that globalisation benefits all countries equitably when, in reality, inequalities have long formed its backdrop.
According to the World Inequality Report 2022, inequalities today are about the same as in the 1980s. The report states that “the richest 10 per cent of the global population currently takes 52 per cent of global income, whereas the poorest half earns 8.5 per cent of it”.
While countries such as China and India might have benefited from globalisation – with China lifting millions of people out of poverty in four decades, according to the World Bank – poorer regions of the world such as Africa have experienced further marginalisation and with a constrained voice in multilateral institutions.
In some instances, globalisation has amplified socioeconomic tensions within countries. The inclination to populist nationalism and self-determination is partly explained by the propensity of globalisation to redistribute gains to elites in society.
Deglobalisation is not the most crucial challenge of our age. There is no sign that global trade and finance are in a sustained recession to suggest the world has entered a mode of deglobalisation.
Without a doubt, geopolitics, risks of military conflict and pandemics shock global investment flows and disrupt trade. The effects of geopolitics on investment flows were apparent in 2017 when a 23 per cent decline in global foreign direct investment flows coincided with the escalation of trade tensions between China and the US.
For example, decreased rates of return because of a slump in commodity prices and tax reforms in the US during this period contributed to dampening investment activity. In turn, a fall in investment spending decelerated international trade flows. These disruptions are temporary and contained.
None of this is to say all is well in the global economic system. At the height of 网易体育 and the beginning of Russia’s war in Ukraine, the world experienced a severe economic slowdown from bottlenecks in supply chains and spikes in energy prices.
Further, China’s implementation of the zero-Covid policy disrupted global commerce. The global economy might have slowed, but it is not experiencing deglobalisation.
US-China relations will no doubt come under strain for many years and be aggravated by their increasingly belligerent posture. However, these economies will not decouple as deep economic and financial ties intricately bind them.
The US might, in the near future, impose further restrictions on China’s access to US-originating technologies, more so in light of the Chinese spy balloon incident, to thwart the Chinese government’s use of such technologies to bolster its civilian-military complex.
We should remember that historically the US has imposed restrictive measures on foreign trade and investment. These measures have entailed a combination of tariffs, imposition of voluntary export restraints, entity list categorisation and restrictions on investment through the Committee on Foreign Investment in the United States that can veto certain categories of investments on national security grounds.
The US forced Japan to implement voluntary export restraints in 1955, when it was acceding to the General Agreement on Trade and Tariffs. The action was aimed at undercutting the competitiveness of Japanese clothing and textiles in the US. In the mid-1970s, the US extended similar measures to South Korea and Taiwan, targeting their footwear exports.
Responding to political pressure at home and Japan’s growing current-account surplus, the Reagan administration in the 1980s forced Japan to implement voluntary export restraints to curb its sale of cars in the US market. None of these activities halted the march of globalisation. Today’s geopolitical tensions will not yield a reversal of globalisation, either, because of deep and interconnecting networks of finance, technology and trade.
What should worry us more is the divergence in living standards and sustained patterns of inequality within and between countries because of the inequitable distribution of the benefits of globalisation and the emergence of new technologies that reproduce global disparities. Deglobalisation is the wrong target.
This article was first published in the South China Morning Post