This year has been full of news about the slowing or perhaps even the end of globalisation. The evidence is global trade volumes appear to have stopped rising, something that hardly ever happens outside of a recession.
Still, if you step back a little, you can make a case that the globalisation train is still chugging along, albeit slowly.
This can be drawn from the latest edition of the DHL Global Connectedness Index, prepared every two years by Pankaj Ghemawat and Steven Altman of the Centre for the Globalisation of Education and Management at New York University’s Stern School of Business.
Ghemawat’s a global guy, but for the past decade (since Thomas Friedman’s The World Is Flat in 2005), he has been making the case that the world isn’t nearly as interconnected as globalisation’s prophets make it out to be, and it isn’t increasing its inter-connectedness all that rapidly.
The scale of interconnectedness — measured by flows of trade, capital, people and information by depth (volume, basically) and breadth (how widely distributed around the world the flows are) — and the overall connectedness have both more than recovered from the sharp downturn of 2008, but the breadth hasn’t changed much at all.
Information flows (internet traffic and phone calls, mainly) have exploded but trade and capital flows are still below their prerecession peaks.
In February, the McKinsey Global Institute put out a report on this rise of “digital globalisation” and declared flows of physical goods and finance were the hallmarks of the 20th-century global economy but today those flows have flattened or declined. Twenty-first-century globalisation is increasingly defined by flows of data and information.
But Ghemawat is dubious about this digital takeover. “If you looked back to the 1930s, information flows probably kept rising then, too,” he said. His take was that, although things have slowed down since the 1990s and early 2000s, global integration is still fitfully increasing.
“We’re neither inevitably headed for a great reversal or a renaissance,” he said. “Times were bad then, and they’re bad now. But if we hadn’t done dumb stuff like Smoot-Hawley …”
Smoot-Hawley was the Tariff Act passed in 1930 by the United States Congress that some economists blame for turning a recession into the Great Depression. Now the US has elected a president who has said some pretty Smooty things about trade.
“I wasn’t quite as worried before the election because … I couldn’t see a trigger equivalent to the Smoot-Hawley Tariff Act,” Ghemawat said in reply to questions about the implications of Donald Trump’s presidential victory. “Now I can.”
What Ghemawat fears is a global trade war. As he wrote last week in the Harvard Business Review: “Trump has effectively tapped into a vein of US anger, and his actions are likely to stir up anger overseas as well. US exporters in particular have to watch out for retaliation by other countries.
“By gumming up the global economy so much that they throw growth into reverse, these kinds of actions risk making everybody poorer.
“That said, there are other potential responses to anxieties about trade that wouldn’t necessarily be so bad. Pressuring trading partners to buy US products and pressuring companies to demonstrate that they’re creating jobs in the US could actually be healthy.”
Treating globalisation as an all-consuming, unstoppable force hasn’t worked out very well for political elites in the US and Europe. Trying to roll it back is a risky, possibly economy-killing strategy. Working harder to manage globalisation with domestic political considerations in mind, though, could actually save it. — Bloomberg View