Starting in the 1 st century BC, Silk Route was the world’s first international trade route connecting the European and Chinese which gave the first hints of globalisation.
By Rajesh Mehta and Uddeshya Goel,
As Muhammad Yunus said, “Globalization must not be allowed to become financial imperialism: Capitalism’s strongest-takes-all rule must give way to one that ensures that the poor have a place and a piece of the action”.
Starting in the 1 st century BC, Silk Route was the world’s first international trade route connecting the European and Chinese which gave the first hints of globalisation. When the Silk Road eventually closed, the fall of the empires had everything to do with it. It presented a pattern, which we saw throughout history: Trade route thrives when nations protect it, it falls when they don’t.
For a long time, the globalization in the modern history got accelerated by the conducive change in the inter-country relationship with the fall of the Berlin Wall in 1989 and with US & Soviet Union coming at a truce to mark the end of the Cold War in 1991. The economic expansion which followed was a broad period of worldwide economic prosperity. World exports rose from 8.5% in 1970 to 16.2% of world GDP in 2001. In fact, the European GDP tripled between the end of the war and the year 2000. America used its footing post-war to become a global superpower and China, after the liberalisation of 1979, established itself as the manufacturing hub of the world.
Over the years, globalization has led to duty-free trades, spurred innovation, international travel with easy or no visas, seamless channelization of capital flows, cross-border pipelines and energy grids, global communication in real-time and the rise of human rights and gender equality forums. Globalization acted as an insurance for world peace, wherein the multiple stakeholders maintained a Nash equilibrium in an enhanced democratic world.
Recently, globalisation has started to plateau due to multiple economic drag events. The United States’ sub-prime mortgage crisis of 2007-08, and its spill over to the Eurozone, exacerbated national sentiment in Europe, which had previously been a model of international integration. The assumption that China’s rise would result in similar development opportunities for others proved unfounded. It became increasingly apparent to the leaders that not all countries, societies, and people were benefitting equally from globalisation and income gap has enlarged multiple times. This gave rise to the economically nationalist impulses as different as the US (“America First”), India (“Make in India”) and UK (“Brexit”).
However, the ongoing Covid-19 pandemic has been the greatest peacetime disruptor of globalisation in the history of the modern world, presenting a threat to the international welfare. While globalization well integrated the world, in the process, it enhanced the vulnerability of nations by making them over-dependent on the global supply chain. The optimal just-in-time delivery turned to late deliveries, wherein even the developed countries were struggling to fulfil basic demands for essential medical equipment for their citizens to resist COVID-19. The recent chaos at the Suez Canal confirms the over dependency on the wedged supply chains.
The pandemic gave national governments the excuse to pull back from multilateralism and free trade, leaving them in an interesting position with voters, which are now calling for the re-nationalisation of manufacturing, particularly for essential goods. As a result, decisions about lowering barriers to international travel are facing greater scrutiny and information, which may continue to become more plentiful, are more jealously guarded.
Although voters may be against free trade in theory, they support it with their wallets when they shop. For instance, in India, cheap smartphones from China, which has a market share of 45%, have catalysed digitalization in the country.
The crisis and the aftermath short-term response from governments and companies are causing the largest and fastest decline in international flows in modern history. Whatever progress the world has made over the past decades can turn into a fiasco and we may be back to square one.
Foreign direct investment in emerging markets, the new bridges, roads, factories and ports that bring the developing world a chance for prosperity, is expected to plunge by about 20%, to levels not seen since 2006. Foreign direct investment as a share of GDP is expected to fall by 30-40% reaching the lowest level since the early 1990s. Up to 100mn people globally are poised to fall into extreme poverty, the first increase since the Asian and Latin American financial crises of the 1990s, and the biggest increase since the World Bank began tracking the number in 1990. As poor migrants languish in unemployment or return home, the World Bank expects remittances to low and middle-income countries to decline by almost 20 percent this year, the largest decline on record.
The collapse of travel endangers not only the airline and hospitality industry, it also threatens conservation efforts in places such as Namibia, for example, where tourist dollars allowed a poor nation to maintain vast natural preserves.
This is the darkest hour for the entire humanity, which has shattered the richest of the countries. While Covid has been a systemic global event, there is no global collaboration and no central authority in guidance. Instead, a strong blame game is in the play.
It’s the need of the hour, where the global leaders join hands towards a cohesive future and reverse the damage. This also makes sense for the global climate initiatives and world immunisation efforts to tackle the rising temperatures and future pandemics. Joe Biden, the much perceived humane face of global social conduct, has already taken the first steps in global patent waivers for vaccines and now it’s the turn of the rest of the world to give up crony capitalism.
Let’s once again believe in the idea of Vasudhaiv Kutumbkam, which elaborates as: “This is mine, that is his, says the small-minded, the wise believe that the entire world is a family”
(The authors – Rajesh Mehta is a leading consultant & columnist working on Market Entry, Innovation & Public Policy, and Uddeshya Goel is a financial researcher with specific interests in international business and capital markets. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)