x Abu Dhabi, UAEFriday 21 July 2017

Completion of globalisation leaves World Economic Forum searching for a new talisman

For the two decades before the financial crisis of 2008, globalisation was the buzzword in business. Now, you don't even hear it at the World Economic Forum summit.

One word you do not hear very often at the World Economic Forum these days is “globalisation”. It used to be an almost-talismanic phrase for the global thinkers who gather at Davos and the other satellite forums round the world.

But at this week’s Abu Dhabi summit, the word was barely used. I paid particular attention to the speeches of the opening plenary session, and I do not believe it was uttered once.

Maybe that’s a good thing, because the phrase was certainly in danger of being overused. For the two decades before the financial crisis of 2008, it was the buzzword in business, defining and describing the strategy of almost every big company, especially in Europe and America.

The urge to “globalise” – which in effect meant mainly doing deals or opening productive capacity, or simply just trading with any country to the East – was the corporate imperative of the era.

Despite the reservations of a few critics, who regarded it as a form of neo-colonialism, it was generally regarded as a good thing. A free exchange of ideas, people, goods and commodities was held to be a desirable thing in itself, which could only benefit mankind as a whole.

Advances in transportation and communications technology were thought to be the cause of the phenomenon, which spread through business and economics to the socio-cultural field and the environment. The Earth was flat, in Thomas Friedman’s memorable phrase, and we were glad of it.

How odd then that now it is so far out of fashion. All the factors responsible for its growth – like evolution in trade, telecommunications and air travel – are still going strong, but the concept has become passé.

What changed in 2008, of course, was that the globalised world of finance spawned its own crisis, one of epic proportions that affected virtually everybody in the world. From a little problem with some rather dodgy mortgages in a small town in Arkansas, a full-blown financial catastrophe crashed across the world.

You could argue that the unstoppable spread of the crisis in fact proved the fact of globalisation, but if it was such a real force of nature how come now it appears to be slowing down, even reversing, as the driving force of the world economy?

Why, as the world economy recovers, does globalisation appear to be on the wane? Despite world trade recovering almost to pre-Lehman levels, foreign direct investment – one of the key measurements of global capital flows – has barely recovered at all.

Some experts detect a “new protectionism” by governments around the world, reacting to the crisis and subsequent recession by quietly erecting barriers to protect their economies.

But it seems likely that the slowdown of globalisation is more likely down to some fundamental structural changes in the world economy. First and perhaps most significant is that the main opportunity for western companies in the East – cheapness of labour – has been reduced.

Wages in China and other emerging economies have improved, while those in the West have at best stagnated. The incentive to outsource manufacturing is reduced.

And you can take globalisation only so far. China is now set to overtake the US in a few years’ time as the world’s biggest economy, so it seems illogical to think of it as an “emerging market” economy at all.

Twenty years of globalisation has done the trick for the economy of China, and the same is true – although perhaps to a lesser degree – for the other globalisation favourites: India, Brazil, much of eastern Europe.

There seems little scope for reducing trade barriers further via the World Trade Organisation (WTO) rounds of liberalisation talks. All the big emerging nations are in the WTO in some form and adhere, to varying degrees, with its standards.

So perhaps the real reason for the decline of globalisation is that its job is done. The great strides in cross-border investments and foreign direct investment of the 1990s has lifted the global economy to new levels. The financial crisis showed that there are risks, as well as opportunities, from globalisation.

The WEF and other international talking shops will have to find a new talisman. The Earth, it turns out, is still full of hills, mountains and valleys after all.