Today's economic slowdown will leave as its legacy the worst deglobalisation in modern history, a period of shutting down international lending, government protectionism, failed free trade deals, and the renewed power of state capitalists
The financial crash will not bring about 'globalisation on steroids'
In the wake of Barack Obama's re-election and the leadership change in China, many economists, businesspeople and leaders have assumed that, with internationalists at the helm of the world's two largest economies, the world will see a new period of greater economic integration.
Optimists hope that this integration eventually will pull the globe out of its prolonged economic malaise. Indeed, many struggling economies, such as Greece, already are seeking closer economic integration with China; Chinese aid and investment has helped revitalise Greece's most important ports.
And as developing nations such as China take the lead on trade deals, they also are gaining a bigger role in international financial organisations, which thus supposedly also are becoming more integrated. The future, as one American columnist wrote, is "globalisation on steroids".
Yet in reality today's economic slowdown, over the long term, is likely to have just the opposite effect. The slowdown will leave as its legacy the worst deglobalisation in modern history, a period of shutting down international lending, government protectionism, failed free trade deals, and the renewed power of state capitalists. Even if the slowdown soon ends - if Xi Jinping in China and Barack Obama in the US can use their mandates to push for freer trade and global integration - the long-term effects of this deglobalisation will last decades, putting a ceiling on how much the world economy can ever rebound.
For at least a century, the world economy has run in cycles, in which integration, in the form of closer trade and financial ties, cross-border bank lending, and rising trade and migration, has been followed by short periods of slowdown and deglobalisation, periods in which the world economy became less linked together.
At times, the slowdown and de-globalisation was precipitated by world wars, as in the 1910s. At other times, it was precipitated by major energy shocks, such as in the early 1970s.
Yet after each period of deglobalisation, the world economy quickly bounced back, with banks soon seeing new opportunities to lend abroad, new trade rounds launching, new companies springing up to increase global exports, and new financial services products emerging to tie markets together.
Not so this time. This de-globalisation is so severe that its effects will not be easily reversed. In nearly every leading nation, not only politicians on the left - the opponents of globalisation in earlier periods - but also on the right have come to a consensus sceptical of greater economic integration.
In the 2012 US presidential campaign, Mitt Romney attacked trade with China even more than Barack Obama, while both Democrats and Republicans almost unanimously supported new measures to block Chinese telecommunications firm Huawei from investing in 4G phone networks in the US - and received no opposition even from the most pro-business Republicans.
Meanwhile in France the right-leaning Gaullist parties, under Nicolas Sarkozy and his heirs, have become as supportive of greater protectionism as the Socialist Party, which under the current president, Francois Hollande, has enacted new import restrictions on major trading partners like South Korea and pushed French supermarkets to sell only French products.
Meanwhile, leaders of many developing nations have become nearly as sceptical of globalisation as their western peers.
In the past year, major coalition partners of the Indian Congress government have left the coalition to block the prime minister's efforts to open up India to foreign retail.
In Brazil, the president, Dilma Rousseff, has increasingly pushed for greater protection of strategic Brazilian industries, telling the UN: "We cannot accept that legitimate initiatives of commercial defence by developing countries can be classified as protectionist."
Politicians, at least, often exit the scene without having lasting effects. But more frightening, the financial institutions that once propelled globalisation have retrenched so badly that their shift will last for years.
Today, as crisis-hit European nations have passed legislation forcing banks to maintain higher capital requirements and to invest more within their own borders, these European institutions, which had been the major sources of emerging world investments, have started a process of massive deleveraging.
Until two years ago, European banks accounted for about 90 per cent of all foreign bank lending in Africa, eastern Europe, and the Middle East. That figure is dropping rapidly.
Although some European leaders at first thought this contraction in European banks' balance sheets would only last through 2011 and 2012, now they - and the world - are starting to realise that the deleveraging is a much longer-term problem. Credit Suisse estimates that European banks' returning to lending in their home markets will strip as much as $1 trillion in funding from emerging markets and even developed markets over the coming decades. In other words, expect to see a credit crunch for decades.
Trade, one of the other pillars of globalisation, also will take decades to recover. The World Trade Organisation's current round of negotiations, known as the Doha Round, has been stalled for years, and the regional free trade agreements enacted by Asian nations in part to replace Doha contain far less liberalisation than meets the eye.
A third major pillar of the globalisation of the 1990s and 2000s was increased migration.
But as the economic slowdown has morphed into a longer-term period of stagnation, the tolerance of wealthier nations for migration has ebbed.
In the US, the Republican Party's 2012 platform called for "self-deportation" of illegal migrants in the US.
This tough stance is being echoed in many other wealthy nations, where the level of anti-immigrant sentiment is high.
In austerity-wracked southern European nations, rabidly anti-immigrant parties already have become mainstream political power players. Greece's anti-immigrant party, Golden Dawn, already has established a fearsome reputation for rounding up and beating immigrants. It now holds the fourth-largest number of seats in parliament.
Even tiny Singapore, a country that despite the global slowdown has maintained a GDP per capita of $61,000 at purchasing power parity and which depends on trade and foreign workers to prosper, has seen its public turn sour on migration. Anti-foreign worker sentiment helped propel the Singaporean opposition, dormant for decades, to its strongest showing ever in last year's elections, as it criticised the ruling party for being too lenient in allowing migration.
As trade flows, financial globalisation, and cross-border migration recede, the state has returned to power around the world, turning back the gains made by free markets in the 1990s and early 2000s.
While state-owned enterprises only controlled six times as much of China's industrial output as private firms in 2004, today they control 11 times as much. And they are hardly unique. In the years 2004-2009, while 120 state-owned companies made their debut on the Forbes list of the world's largest corporations, more than 250 Western private companies fell off that list.
Since this round of deglobalisation involves a longer period of protectionism and worse damage to banks, it is likely to be longer and deeper than previous periods.
For the global economy, this probably will mean a dearth of new entrepreneurial companies, particularly in developing nations.
In addition, it will mean that trade wars probably will only escalate, since these regional trade deals do not hold world leaders to the tough standards that previous WTO rounds did; in the long run, this could lead to an overall decline in trade, which would make the entire international economy far less dynamic, and could even lead to greater political tensions between big trading powers such as the US and China.
Joshua Kurlantzick is Fellow for South-east Asia at the Council on Foreign Relations