The End of Globalization, Myth or Reality? 6 Questions to Understand Everything.

You will see that nothing is all black and white.

A surprising scene was seen last week on the first day of the World Economic Forum (WEF) in Davos. A question was asked in a conference room:

“Who thinks that globalization is on the decline?”

Except for three or four people, all hands go up.

Besides a possible recession at the end of 2022, the theme was omnipresent during the four days of the WEF. It has to be said that the event that has been bringing together the world's political and economic elite in Davos for the past fifty years has been seen as the symbol of a controversial move for the past thirty years. In the early 2000s, it was the object of a strong anti-globalization movement, putting the Swiss police on the alert.

But is the boom in this globalized economy over? An analysis of the indicators reveals a much more nuanced picture. Here are 6 questions to help you understand and make up your mind if it is a myth or a reality.

What do the numbers say about globalization?

For economists, globalization is defined as the proportion of world trade to world gross product. In other words, it is the contribution of international trade to world output. According to these data, published by the World Bank, the peak of globalization was reached in 2008, at 51.2%. In 1986, it was only 26.8%.

In 2021, it was 42.5%. For Pamela Coke-Hamilton, executive director of the International Trade Center (ITC), “this figure represents a small decline and is in line with the level of 2016”. However, she does not believe in deglobalization. Despite the war in Ukraine, the climate, COVID-19, and the changes related to these crises, “the facts do not support the narrative,” she says.

Pamela Coke-Hamilton then clarifies:

“The narrative is based on a misconception of reality: we focus on goods, cargo ships stuck on the oceans, shortages, while trade in intermediate goods has actually increased in all regions of the world in 2021 according to the WTO, with a 50% growth in Africa.”

As evidence, in nominal terms, trade last year was $28.5 trillion, which is a record. The United Nations Conference on Trade and Development, which produced these statistics, however, expects a decline this year, as last year was marked by a very strong post-pandemic rebound.

In addition, the digital economy has been “on steroids, it has radically changed the way we look at goods. Education, telemedicine and other virtual consumption: digital services have exploded”. Another example is tourism. This industry has suffered but is now experiencing a marked return to growth. “Florida has achieved its 2025 target. Maldives or Barbados: remote work is exploding”, illustrates the economist.

Are we heading towards the regionalization of value chains?

If the figures show that globalization has already run out of steam in 2017, the mess sown by the appearance of the new coronavirus has helped to show its limits or weaknesses. Shortage of masks, electronic chips, logistical problems ...

States and companies became aware of their vulnerability when the borders closed. “Before, a company like ours considered three factors: the free movement of capital, respect for intellectual property, and the reliability of means of transport,” explained Loïc Tassel, President of Procter & Gamble for the European market.

“The first two elements are still in order. But the reliability of value chains has been completely destroyed in recent years”. As a result, “We are now bringing into the equation the cost and resilience of supply chains. The price to pay or the time to wait to get products from China to Europe is no longer compatible with our industry. We are looking at building these value chains more regionally”.

The businessman estimates that more than 90% of what will be marketed in Europe will be produced in Europe, pointing out in passing that this is also an advantage for the climate and the labor market of the Old Continent.

However, this movement will not happen in a snap of the fingers, warns Tarek Sultan, managing director of the logistics company Agility, active in the Middle East. According to him, Apple does not produce in China because of the costs, “which are probably higher than elsewhere”, but because of the ecosystem, it finds there. “Moving that ecosystem is something that takes time, effort and requires a strategy”.

In the same vein, many WEF participants noted that governments are much more sensitive to the strategic nature of certain activities, such as telecommunications infrastructure. However, this does not necessarily imply a retreat from globalization. For example, a few weeks ago the American company Intel announced a massive investment in eastern Germany to develop a semiconductor factory. Multinationals are now incorporating this change into their strategy because certain key sectors require know-how that is not necessarily available locally.

What about financial flows?

The money continues to flow from one country or continent to another. “Last year, direct investment in China reached a record level. There is a difference between political narratives and reality,” insisted Nicolas Aguzin, director of the Hong Kong stock exchange. In 2021, global foreign direct investment (FDI) flows have rebounded strongly.

According to UNCTAD's Investment Trends Monitor published on 19 January 2022, they exceeded in 2021 their pre-COVID-19 level to reach some 1,650 billion dollars. The UN Conference, however, points to wide disparities, with a recovery in investment flows to developing countries, but the stagnation of new investment in the least developed countries.

During the panel on the global economic outlook, David Rubin Stein, director of the private equity firm Carlyle, pointed out that the sanctions against Russia have three international financial consequences:

• The ability to so easily eject someone from the banking system and have their financial assets frozen or even confiscated. “No one had thought of that before”.

• For him, it is clear that China, with its 3.2 trillion foreign currency reserves, is pondering this paradigm shift.

• Just as the status of the dollar as a reference currency, if not immediately threatened, should give some countries food for thought.

What about human beings?

There is another kind of globalization, described by author and New York Times columnist Thomas Friedman: the one that connects people to each other. And on this side, the movement seems inexorable: “Human beings want to be connected, it's an integral part of our nature”. And technology is satisfying this need ever more easily. The different digital platforms give a very big and new power to each person, says the author.

For the first time, the individual (as opposed to states or companies) can act globally. Never before in history has it been possible to act so quickly, for so little money, in such a broadway.

Recent examples from Ukraine support this demonstration. Initiatives such as the transfer of individual payments via Paypal, bookings on Airbnb to donate to civilians, or other individual steps that have sometimes mobilized large sums of money in a very short time illustrate this ultra-connected world.

“For me, globalization is not over,” Friedman says. The stakes of a fragmented world remain high, however, as Pierre Lance, the director of LONG Nethope, points out. “Many countries reduce Internet access during elections, or in general. And access to the Web remains limited or non-existent for nearly half the world's population”.

What do the demographic trends say?

The world population has grown from 1 billion in 1800 to 1.65 billion in 1900, 6 billion in 2000, and 7.5 in 2017. This growth is not due to fertility but to the sharp decline in mortality. Africa, which represented 9% of the world's population in 1950, rose to 16% in 2017 and, according to a United Nations projection, could represent a quarter of humanity in 2050. And the African continent is young: 60% of its inhabitants are under 25 years old.

The development of the middle class in some large emerging countries in Asia and Africa will have a significant impact on the demand for goods and services. For example, 90 million people do not have access to banking services out of 270 million in Indonesia.

According to Tarek Sultan, “the positive forces driving globalization remain essential. The changing structure of demographics and the way technology is evolving are far more important than the current geopolitical elements we are focused on. Maybe this globalization will happen in a different way or at a different speed, but it will continue”.

What has been the impact of globalization on poverty?

The facts show that poverty in the world has decreased over the last thirty years, while trade has grown strongly: according to the World Bank, one billion people have been lifted out of extreme poverty during this period. 10% of the world's population now lives on less than $1.90 a day, compared to 39% in 1984, i.e. four times less.

But the pandemic has led to a historic worsening of the situation, increasing inequalities in all regions of the world, including in developed countries, and throwing nearly 100 million people into extreme poverty. The war in Ukraine adds to this situation an alarming global food crisis.

As WTO Director-General Ngozi Okonjo-Iweala reminded us, a fragmented world in which rules are no longer respected is costly, and even more so for poor countries:

“We need multilateralism. We can't solve a pandemic alone, nor the food crisis. We need to strengthen international organizations like the WTO.”

This call by Ngozi Okonjo-Iweala will be put to the test at the WTO ministerial meeting on June 12 and 16, 2022.

Until then, you can make up your mind about the situation regarding a possible end to globalization. As you may have understood, nothing is all black and white. A different kind of globalization seems likely to emerge in the future. Hybrid globalization with a stronger regionalization for strategic products, and globalization that will intensify for human beings.

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