Is globalisation nearing its death?

The world we live in post-Brexit and the US elections appears different to many. Post the second world war, western economies were leading industrialisation and globalisation. For rest of the century, forces of liberalism, industrialisation, and globalisation kept growing. Thus, a lion’s share of 5000 global companies had a significant revenue from exports by the end of 20th century. In fact, several companies entered and continued to sustain in the list because they achieved scale and growth because of globalisation. For these companies, it was difficult to remain on the list unless they globalised.

Globalisation meant increasing revenue by selling all over the world. It also meant lowering their cost of goods – getting raw materials, labour, and related inputs wherever they could get it cheaper. No one complained because most got to see the generally good side of globalisation. Throughout the world, consumers enjoyed fruits of globalisation. The western world exported French cheese, Californian almonds and McDonald’s burgers. Along with them high-tech Boeings and Airbuses spread its wings across the rest of the world. Meanwhile, they imported textiles, spices, grains, pulses, steel and low-tech manufactured goods.

Surrogate parents

[su_pullquote align=”right”]Late 19th century saw tremendous growth in prosperity and standards of living in the United States and Europe. [/su_pullquote]

Historically, Britain and America were the two leading economies which propagated free markets and capitalism. British Empire reigned supreme over several countries like those in Asia, Africa and North America. The British ruled with economic interests of the British companies and the Empire. “Sun never set in the British empire.”-  reflected dominating global presence of the Empire.In the 19th century, America grew its economic and military muscle power. Globalisation was helping most of the world. Industrial economies looked at the whole world as a market. Ergo, they kept exporting goods and services to the world. No one was complaining.

This map shows the evolution of major economies over two millennia, in terms of percent GDP contribution by each major economy over history | Photo Courtesy: Oxford University Press

Mid-life crisis

China and India kickstarted their economic reforms in the seventies and nineties, respectively. Communist China experimented with hybrid market reforms while still carrying single party rule. It appeared to be a dichotomy to many. Even so, China became one of the fastest growing markets. For over 30 years, it became defacto manufacturing factory to the world.

Manufacturing jobs disappeared from western economies at the cost of China and other Asian countries. These economies were able to move many of their jobs into service sectors. Services and knowledge industries kept the growth engine going. However, in the nineties, service jobs also started to move out to cheaper locations. For the global corporations, leveraging best possible manufacturing locations, labour and raw material were the drivers. They also started booking revenues from subsidiaries in tax heavens.

While wages kept rising, the rate of wage growth had started tapering.

Apparent death?

The 21st century presented a unique jobless growth. It was one where growth appeared to help corporations. Another phenomenon that had been growing in developed countries was an increase in immigration. Workers migrating to developed countries for better wages, jobs and life and changed the demographics of countries. The West already faced sluggish job growth and declining standards of living. Thus, having to compete with migrants for a lesser number of jobs sowed seeds of backlash against globalisation – liberalism. The blue collar, less educated, the middle-class constituency has been the most affected. They are having their voices heard in far right wing parties which detest globalisation.

[su_pullquote align=”left”]2016 presented Brexit and the US elections which signalled to many the fall of liberalism and globalisation. [/su_pullquote]

The countries that carried the baton of globalisation and free markets now breed a growing constituency that has started detesting globalisation.Has globalisation taken a U-turn? Are neo-liberalism and globalisation – forces which became an economic engine in the 20th century, dead? Or is this a temporary blip for the globalisation graph. Globalisation has survived for several thousand years of human history. China and India, countries which enjoyed over 50% of the World GDP saw historic lows in the 18th-19th centuries. Every rise has a fall and fallen rise again.