Can we Have Another Wave of Globalization Despite Ongoing Disruption?
Fifty years ago, very few people talked about globalization. Cross-border travel was both difficult and expensive. Communication requires human translators. Transporting goods and services across borders and oceans was complex and uncertain.
The Internet helped change our feelings about globalization because it put diverse cultures and customs in front of our eyes and vast amounts of international commercial information at our fingertips.
Businesses and individuals responded accordingly, forging relationships and genuine interest with institutions and people outside our borders. Thanks to information and transportation technology, companies could outsource jobs and develop new sources of supply that helped their bottom lines.
We seemed willing to accept the tradeoffs that came with commercial globalization. For every job that went overseas, a local person lost their livelihood. When a manufacturer taps an overseas supplier for raw materials, components, or services, a local company loses an opportunity.
Additionally, commercial globalization required relatively open borders and seamless movements of capital goods and human resources – an ideal state that we have taken for granted in recent decades.
Globalization Comes Tumbling Down
In reality, commercial globalization is a high-stakes, tenuous balancing act at the micro (company) level and the macro (nation-state) level. Disruptions can topple things in either case. And macro/global disruptions hit with a vengeance in the last three years with the conflict in Ukraine, concern about China’s global intentions, and, of course, COVID-19.
Suddenly globalization was a liability. Global supply chains snapped due to shipping snafus and overseas company closures. Collaboration and commerce with Chinese companies raised concerns about trade secrets and national security.
The New Trend Toward Localization
At this time, companies are trying to develop and maintain shorter domestic supply lines. Governments are incentivizing companies to source domestically rather than rely on high-tech components suppliers in a country that may be a potential adversary and could turn the spigot off.
Are we merely seeing a short-term pendulum swing toward localization? That would mean we either expect the current global situations to disappear or that we’ve chosen to live with them. And even if we magically were to go back to something that resembled the days of wine and roses (i.e., circa 2018), would governments and business leaders put their blinders back on, revert to their generous risk tolerances, and ignore the possibility of future disruptions?
I hope not, and I don’t think we’ll need to worry about that. Disruption will be a way of life in the future, and with it, we’ll all maintain our current tendency to protect and isolate national and local economies.
These disruptions will come in all varieties, some in the form of increasingly ominous trends and others arriving overnight. Here are four future disruptions I see that will keep globalization at arm’s length:
- Militarist regimes are in ascendancy, and the resultant conflicts in important regions of the world will cut off commerce and markets.
- Worker shortages and political alliances will enhance labor’s clout. That’s not necessarily a bad thing, but labor actions are designed to cause pain and disruption, and this will be the case in essential industries ranging from agriculture to transportation.
- We’ll likely (over)react to the next perceived pandemic, erring on the side of safety, isolation … and disruption.
- Climate change activism will give companies another reason to source locally and reduce their reported carbon footprint related to shipping.
The Inevitable Conclusion – Less Globalization
Commerce’s natural tendency is toward economic globalization, thanks to the cost reductions and efficiencies it offers. Humankind’s recent natural tendency is toward mistrust and pessimism because human beings tend to be crisis-oriented – cognizant of calamity but less aware of positive trends and events. That tendency will be reflected in our policymakers, who will adopt “hunker down” policies to keep globalization at bay. dddd
This tug of war will continue to play out. To the extent they can, companies will look for globalization opportunities, but a disruption or policy action will pull the rug out from under them. Over time, disruptions, perceived or real, will come with increasing frequency until business leaders resign themselves to localization for the long term.
What Will Localization Look Like?
How will that shift play out in certain aspects of our lives and the world?
- The U.S. will be constrained from serving as the global police force and the on-the-ground deterrent of bad national actors. Other countries will continue to ramp up their own security capabilities. This doesn’t preclude collective action through NATO or other alliances, but each country will be sufficiently armed and empowered, and they’ll be more circumspect regarding the extent of their engagement.
- We’ll have tighter labor markets and better job opportunities at home. The primary benefit of sourcing functions to workers in other countries has been to take advantage of lower labor costs. Those differentials have been diminishing and will even more so as labor’s clout ascends worldwide. That clout will be employed to encourage policymakers to incentivize companies to bring/keep those jobs at home.
- With less international collaboration of the best minds, technology breakthroughs will slow. The future we’ve been exploring for many years in this space will slip a bit further into the future.
- Inflationary pressure will increase. The watchword for business owners will be “redundancy” for every one of their key inputs, from raw materials and components to labor and service providers. Redundancy increases costs, and those higher costs will be passed on to customers.
While we tend to think about globalization mainly in a commercial sense, on another level, the concept is also about personal and cultural interconnectedness. Here, too, I see us becoming more localized, but this time just for the short term.
Yes, thanks to technology and transportation, “it’s a small, small world,” but the phrase presently lacks the warm and fuzzy feelings the Richard Sherman song elicited when it was introduced at the New York World’s Fair in 1964. Terrorism. Tribalism. Takeovers. It’s a little scary out/over there, and we have enough of that to deal with at home, it seems.
I also sense that citizens of most countries currently feel on the spot to have to defend, explain, or bemoan their national identities to people in foreign countries who only have a caricatured view of their country and its citizens.
I believe this personal localization is short-term, a reflection of the most significant current disruptions and historical events in our nations and our world. We’re amid a unique but short era. European wars and pandemics don’t last forever, and we’ll soon be back to our global ways personally, if not commercially.