The end of globalism?

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Sue U
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The end of globalism?

Post by Sue U »

Interesting and insightful opinion piece from Bloomberg a couple of weeks ago. I don't necessarily agree with all their free-marketeer recommendations, but their perspective on "de-coupling" international markets and what it may portend for geopolitics is worth some serious thought.

Edited to add some color
Putin and Xi Exposed the Great Illusion of Capitalism
Unless the U.S. and its allies mobilize to save it, the second great age of globalization is coming to a catastrophic close.

By John Micklethwait and Adrian Wooldridge
March 24, 2022, 12:01 AM EDT

[Editing note: Intro is good reading and a nice set-up, but I'm trying to cut to the chase here]

***

Norman Angell’s “The Great Illusion,” the Edwardian bestseller published in 1909, argued that war was impossible given the interconnectedness of the world. The great businesses of Europe and the U.S. operated on the same assumption. The first great age of globalization, which started in the 1860s and was underpinned by British power and coordinated by British statecraft, had left the commercial classes free to make money — businesspeople then faced far fewer barriers than their modern equivalents when it came to moving money, goods or people around the world.

It’s easy to mock the shortsightedness of the West’s ruling class in 1913 — for not seeing how the rise of Germany and the complex web of alliances between the Great Powers could turn an assassination in Sarajevo into a global conflict. Clio, the muse of history, is always wise after the event, but future generations could well ask the same question about us: How could they not know?

Keynes’s Londoner, lounging in his bed, had at least this excuse: The end of his age of globalization came with little warning. In our case, globalization has been under sustained attack for two decades, with serious assaults in 2001 (when two planes, hitherto symbols of modernity, slammed into the World Trade Center); 2008 (when Lehman Brothers collapsed and the global financial system went into cardiac arrest); and 2016 (when the British voted to leave the world’s largest free-trade zone and Americans elected a nativist TV personality as president). The “decoupling” of the global economy into Chinese and Western portions has been gathering pace for some time. And the biggest drama before Ukraine was a virus that froze supply chains and forced the world into hibernation.

And yet, at the beginning of 2022, many of us shared the assumptions of Keynes’s Londoner. We ordered exotic goods in the confident expectation that Amazon would deliver them to our doors the next day. We invested in emerging-market stocks, purchased Bitcoin, and chatted with people on the other side of the world via Zoom. Many of us dismissed Covid-19 as a temporary suspension of our global lifestyle. Vladimir Putin’s “projects and politics of militarism” seemed like diversions in the loonier regions of the Twittersphere.

Now that we have been shaken awake, most of our attention is on the bloodshed in Ukraine, and rightly so. But just as World War I mattered for reasons beyond the slaughter of millions of human beings, this conflict could mark a lasting change in the way the world economy works — and the way we all live our lives, however far we are from the carnage in Eastern Europe. The “inevitable” integration of the world economy has slowed, and the various serpents in our paradise — from ethnic rivalries to angry autocracies to a generalized fury with the rich — are slithering where they will.

That doesn’t mean that globalization is an unalloyed good. By its nature, economic liberalism exaggerates the downsides of capitalism as well as the upsides: Inequality increases, companies sever their local roots, losers fall further behind, and — without global regulations — environmental problems multiply. Yet liberalism has also dragged more than a billion people out of poverty in the past three decades and, in many cases, promoted political freedom along with economic freedom. The alternatives, historically speaking, have been wretched. Right now, the outcome that we have been sliding toward seems one in which an autocratic East gradually divides from — and then potentially accelerates past — a democratic but divided West.

***

The changes in geopolitics come down to one word: China, whose rapid and seemingly inexorable rise is the central geopolitical fact of our time.

The immediate question with China is how far it will support Putin in Ukraine. On the sidelines of the Winter Olympics in February, Xi and Putin signed a statement rejecting NATO expansion in Europe and American alliance-building in Asia and agreed that the promotion of democracy was a Western plot. China has still notably failed to participate in Western sanctions. But now that Putin’s triumph looks less assured, China’s support for him looks more conditional. A week ago, the mere rumor that Russia had asked for military assistance — a rumor that Beijing immediately denied — sparked the biggest drop in China’s stock market since 2008. On the same day, a Chinese think tanker, Hu Wei, posted a fascinating memorandum warning his country that the invasion of Ukraine is revitalizing the West, and that China needs to dump the burden that is Russia.

Regardless of whether China’s leader decides to ditch Putin, the invasion has surely sped up Xi’s medium-term imperative of “decoupling” — insulating his country from dependence on the West. Xi has spent much of his rule building a Sinocentric economic order through the Belt and Road Initiative. China has joined the 15-member Regional Comprehensive Economic Partnership (RCEP) and applied to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free-trade bloc that the U.S. first invented, then foolishly abandoned.

***

Just as important as this geopolitical shift is the change in the capitalist mindset. If the current age of globalization was facilitated by politicians, it has been driven by businesspeople. Ronald Reagan and Margaret Thatcher didn’t decide that the components of an iPhone should come from 40 countries. Facebook wasn’t created by senior politicians — not even by Al Gore. Uber wasn’t an arm of the Department of Transportation.

From a CEO’s viewpoint, Putin’s invasion of Ukraine has done more than unleash Western embargoes and boost inflation. It is burying most of the basic assumptions that have underlain business thinking about the world for the past 40 years.

In the great intellectual battle of the 1990s between Francis Fukuyama, who wrote “The End of History and the Last Man” (1992), and his Harvard teacher Samuel Huntington, who wrote “The Clash of Civilizations” (1996), CEOs have generally sided with Fukuyama. The view from the boardroom has been straightforward: Democracy won’t always win (China taught capitalists that quickly), but sensible economics usually will. Businesses could rely on a world in which countries would specialize in their comparative advantage. Commerce and free trade would bring people closer, as Fukuyama argued, rather than divide them, as Huntington warned — and businesses that ran themselves globally and wove the most cost-effective supply chains would prosper.

Commercially speaking, this bet paid off spectacularly. Over the past 50 years multinationals have turned themselves from federations of national companies into truly integrated organizations that could take full advantage of global economies of scale and scope (and, of course, global loopholes in taxes and regulations). World trade in manufactured goods doubled in the 1990s and doubled again in the 2000s. Inflationary pressures have been kept low despite loose monetary policies. Even with a barrage of political disruptions — Trump’s tariffs, Brexit and so on — profits have remained high, as the cost of inputs (such as energy and labor) have been kept low.

Now what might be called the Capitalist Grand Illusion is under assault in Kyiv — just as Norman Angell’s version was machine-gunned on the Western Front. All the dangers that used to appear at the bottom of a CEO’s morning briefing are slithering to the top. Militarism and cultural rivalries keep trumping economic logic. Putin invading Ukraine is merely one in a long list of economically self-harming decisions that vary from dynastic thuggishness (Saudi Arabia bombing Yemen and murdering journalists) to knee-jerk isolationism (Brexit). And these stupidities reinforce each other: Thus, the French are responding to Britain’s act of self-harm in leaving the EU by cutting their companies off from the continent’s main source of cheap capital in the City of London.

Against such persistent irrationalism, CEOs who used to build empires based on just-in-time production are now looking at just-in-case: adding inefficient production closer to home in case their foreign plants are cut off. The head of one of the world’s most powerful investment firms, with shares in almost every significant Western company, talked privately about “a tsunami of recalculations” on the weekend after Putin invaded Ukraine. The CEO of one of America’s most iconic multinationals admits that he is reexamining production across China. Every Western company is now wondering how exposed it is to political risk. Capitalists are all Huntingtonians now.

***

So the second age of globalization is fading fast. Unless something is done quickly and decisively, the world will divide into hostile camps, regardless of what happens in Ukraine. And this divided world will not suit the West. Look at the resolution passed by the United Nations General Assembly to condemn Russia’s invasion of Ukraine. The most trumpeted figure is that only 40 countries did not vote for this (35 abstained, and five voted against it), compared with 141 countries who voted in favor. But those 40 countries, which include India and China, account for the majority of the world’s population.

These deeper changes in capitalism and geopolitics increase the stakes this week. Joe Biden and his European interlocutors have a lot on their plate with Putin’s escalating terror and nuclear-tinged threats, but they also need to address the wider economic ramifications of the war sooner rather than later. Do nothing and the drift toward protectionism will inevitably accelerate. The Chinese, for one, seem pretty sure that the West lacks the collective character to keep up its current stance as energy prices soar and compassion fatigue sets in.

***
GAH!

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