Image source: http://www.chinadaily.com.cn/a/201907/01/WS5d196537a3103dbf1432b248.html
Mark my words, but the situation we have today (as of May 2020) in the economy and politics globally is the end of globalisation as we know it. If you missed somehow in the notion of globalisation, it is, according to IMF 2000 definition, “the increasing integration of economies around the world, particularly through trade and financial flows.” Besides the trade and capital movement, it relates among many others to the movement of people and the spread of knowledge/technology as some of the most important mechanisms for the existence of globalisation. We are about to witness how all of these are going to be trashed or replaced. Replaced with what? Now, this is a good question. To even distantly approach it, we need to see why/what for globalisation exists, what happens now (past years, even a decade) to threaten its existence. Only then we can imagine/fantasise what is next.
Why globalisation exists?
It is almost a common sense that trade is a part of the big geopolitical game and the rules were set to serve the interests of the main beneficiary (-ies). Let me reemphasise: it was assembled by the interested player(s) for the expected benefits of the interested player(s). If someone is good at swimming, it would be naïve to propose to compete at marathon running especially with professional runners. If you are good at swimming, then make everyone swim. The existing global trade system was designed to facilitate trade in those areas, where the western civilisation has a relatively good edge against the rest. The system is designed to support the trade of high-tech products, goods and services, and financial instruments which yield thicker profit margins. The rest of manufacturing, for instance, is considered insignificant and was outsourced to the second and third world countries. No one designed the system for the resistance of the heavy stress conditions, global crisis, major threats as this is not the main strength of the one who sets the rules.
In the post-Soviet era/post-Cold War era, it was considered that the development of the globalisation would secure the leading position of the USA as the main beneficiary. The foreign policy of Ronald Raegan administration brought “the giant” to the knees. The decision was made to ransack the Soviet Union, Russia and the satellite states, benefiting of the abundant resources and relatively unsaturated market of Eastern Europe. Think for a moment about the geographic spread: from Eastern Germany on the west, to Yugoslavia on the south, up to Estonia and all the way to Russian Kamchatka laid the market to consume the manufactured products and resources awaiting for someone to get hold of them. The pie was too big to digest alone so the States brought to the table its Western European allies. At about the same time, China was allowed to get access to the globalisation system. China, at the time, was a huge pool of cheap human resource and outsourcing some of the insignificant tasks made good sense. Then producing more advanced products made equally good sense, since no one expected anything of China. The players made money out of this cooperation, but no one expected that China can win the race. The race was for the white gentlemen to win – not for China. Fast forward to present days, here we are: China is the biggest manufacturer, biggest economy, with the biggest internal market, projecting its influence there, where only the gentlemen were allowed (Africa, Middle East, Europe and even Americas).
What happens now?
Unfortunately for those interested, namely USA+, the obvious trend towards losing its game positions became evident with the stronger rise of China already by the end of the 2000s. It is more and more obvious with the current development of the crisis on the stock market, low oil price (read as the “war on shale oil”), gold shortage for sale trends and resistance of the existing supply chains to reorganise in favour of national interests. China has won the globalisation effort. It turned out that the Dragon outsmarted the Eagle and the Lady on the Bull’s back. Moreover, it is the People’s Republic of China (PRC) who is interested today in such aspects as transparency, globalisation and the preservation of the status quo as it is today – not the US or the EU. The PRC is the main beneficiary of the produced fruits.
What would an Anglo-Saxon gentleman do when he foresees the approaching loss? Would he admit the loss and congratulate the winner? Oh, no! The gentleman does not accept the loss – he changes the rules of the game.
We witness how the players chaotically change the rules while they are still capable to do that and the main victim is the global economic architecture. Instead of collecting the benefits of globalisation, China got the surprise in the form of the Corona apocalypses and the supporting confrontation directed at weakening the position of the Dragon. The global economy is set on hold, forcing almost all companies to revisit and reorganise the existing supply chains, networks and relations even at a heavy “temporary” costs for the domestic markets. The system is halted, which means it will be hard to restart it, provided there is an interest in restarting the global economy in the existing configuration terms. …but what if there is not?
We witness now a trend towards increasing national egoism among the political and state leaders. Especially, the national egoism mentality dominant among the leaders of the western democracies brings nowhere close to a solution to the crisis: for instance in the EU, the borders are shut and Schengen agreement falls as a victim, each state has to deal with own issues, the economic relations are revised. Instead of helping with the common to USA+ agenda of weakening the threat (read China), the national egoism reveals the typical pattern of actions of the global leaders pushing some for more daring voicing of the need in global vertical integration, the world government.
Such messages from helpless and feeble in the face of the COVID-19 problem USA and Europe play in favour of alternative political and economic vectors of development projected by China, for instance. China is, in fact, getting out of this challenge as the winner as well. Some say, that the outcome of the crisis will hit the western economies and bring them to a strong recession (-3, -5%), while China is expected to perform slower than before, but still in the positive key (3-3.5%). That is why it seems natural to put all the blame for the Corona recession on China and better force China to pay for the transition to the new economic order, new world order. That is why we start hearing the claims that PRC has to pay 20 trillion for the spread of COVID-19. These claims seem awkwardly close to resonating with the state budget deficit of the USA, isn’t it? No one cares that the US economic slowdown according to many economic activity indicators was inevitable and observable already in 2018-2019. If there was no COVID-19, it should have been invented.
This adds up to a sad conclusion that on the functional level the model of financial globalisation has failed just as the neoliberalism failed on the ideological level. If they were to succeed, the obvious beneficiaries of those would still retain its leadership and they are obviously not. We are in an open search for alternatives. There is a big chance the alternatives will not be pretty, which brings us to explore what is next.
What is the future?
The globalisation as we know it is done – long live regiocentrism or even better – the world government. We are witnessing a gradual transition towards the establishment of the world government whether we like it or not. This transition cannot happen immediately that is why the intermediary step is the regiocentrism. The notion of regiocentrism can be perceived as the formula “the state+”: the state + sphere of influence, the state + the zone of free trade, the state + dependent periphery.
Europe is a good example of the concept, where the EU states surround the Franco-Saxon core. These are a good example of what we are going to see happening in the short- and middle-run perspective with other states. Noticeable is that the USA projects its influence over France and Germany making this whole construct get on the completely new level. Nevertheless, in the light of the past year concerns voiced both from France and Germany about the need of the EU to get self-sufficient in terms of economy and defence, we are going to see a strong trend towards strengthening the regional relations.
The other states will attempt becoming the centres of gravity for similar entities. The PRC strengthens its regional influence in the Asia-Pacific region and Africa, which makes the US experience the panic attacks, when, for instance, the long ally, Australia, is found flirting with the PRC and threatened with restrictions of intelligence sharing. Perhaps, Russia will continue reestablishing its influence over its traditional spheres of influence projecting and expanding it further to the Middle East. The Middle East countries will try surround itself with other neighbouring states around the Arabic or Muslim core. Eventually, these will consolidate around either the USA+ or the China+ vectors. One is obvious: the increasing trend towards regional orientation in the coming years. When the regions are going to consolidate and blend in its tolerance to external influence, it is easier going to be to set the control and project power over them. Then one vector will win and voila – the new world order.
Although the EU may serve as the example of the regional integration, the European Union as we know it may fall as the first victim of the strong centrifugal motions set for the transition. The pandemic is a weak screen for the groundbreaking transformations in geopolitical and economic contexts. Whether some like it or not, but among the biggest centres in Europe, there is Franco-Saxon tandem and Russia. The national egoism shown in Italy by Germany and France contrasts heavily with the symbolic but still help from Russia. This same egoism is heavily projected by the US and UK. This leaves no alternatives to the small and insignificant players in the search for orientation than turning to either China vector or stay on the offset, while big western players/economies try to save themselves. Apparently, to keep the centrifugal motion going, we hear that the German chancellor, Merkel, has announced the establishment of the 500 mil. euro fund to support the businesses of the most hurt economies. The motion is still there yet another question arises among the periphery players (e.g. Finland): who pays for “the party” and for how long.
The further polarization of the two main vectors will eventually lead to confrontations. On one side, there is the flunking in the face of “the COVID-19 giant” USA, which still has the biggest army force and, on the other, the rigid and relatively sturdy economically China with the humble and unpretentious projection of its power. This polarisation must collide in a conflict whether the players like it or not. If we look back in history, the WW1 participants were not interested in confrontation at all, yet everyone was affected one way or another. The current situation is much less antilogous with obvious sides leaving so little room for manoeuver.
One of the main indicators for the approaching confrontation is the appearance of the COVID-like issues in the years to come where the sides will accuse each other. Consider for a second that COVID is a natural disaster. It is not a good casus belli. If we assume for a second that the situation with COVID-19 is natural, we tackle the situation and it will pass away in 1-2 year as a bad dream. Then we go back to normal, but what if it is not? We will see COVID-22, COVID-25 and alike coming up again and again. The reason is simple – the existing state of affairs is not favourable anymore for the player(s) requiring a change. Thus, old rules must be replaced with the new one and the COVIDs may be considered a “fair price” for that. Thus, we will see more accusations towards China in all the possible sins and developing ideological/sociological/psychological hostility with forthcoming sanctions.
What does it mean for businesses especially in SMOPEC?
Reindustrialisation. For small and open economies (SMOPEС), this means only one thing – urgent reindustrialization. The products of regiocentrism and national egoism are the urge to return the main production capacities to the regional/domestic markets. It already happened, but with the rapid demolition of the globalisation it takes noticeable scale. The USA leaders were voicing the need to return the production capacities back to the States for years before and the virus is a good reason for that actually to happen. The EU returns/reestablishes its production capacities back from China as well. Russia works on the needed reindustrialisation. Saudi Arabia redirects its oil money towards that as well. The one who has the strongest industrial (and scientific) backbone will win and China has an edge at it.
Cheap labor. To compete with the PRC, one needs to have cheaper workforce since China long had this advantage. The cheaper workforce is achieved by the abundance of the workers on the market. We see that COVID-19 throws a huge bulk of people on the market and, when kept without income for a long time, they will work for a loath of bread and a glass of water. Robotisation will eliminate about 800 mln job places within 10 years. Automation of the production processes further ejects the workforce to the market reducing the wage amount, insurance, pension fund contributions, taxes. The cyclical for capitalism crises does the rest. Such abundance means more competitiveness, but at what price.
I4.0. For businesses, this as well means reindustrialisation in short- and medium-run. Implementation of the principles and technologies of the Industrial Revolution 4.0 are inevitable. This means among others increasing automation and robotisation of production processes. Anything that is dull, dirty or dangerous is targeted for a computerization or mechanization. All that can be automatised will be: accounting, delivery, assembly, HR, security, identification, cleaning… you name it – there is a solution to make it digital or automatic. Such will improve the productivity driving the costs down and the winners at least in the short run are those companies that can implement it the fastest. The dream scenario for success is when companies can keep production capacities at home turf while selling the products internationally.
Patterns of organisational development. The urge to reindustrialise quickly demands an answer to what pattern a firm should follow in the given situation. What policies should government support? One way is to develop small and medium enterprise, flooding them with cheap money, but this may be a tedious process which efficiency is hard to control in stressful situations. The other alternative is the vertical integration of the main players with stronger governmental support and control, but this resonates with the repulsive to a neoliberalist ideology of the planned economy. Whether we like it or not, but the planned economy may be a viable alternative in the face of emergency proven by the rapid reindustrialisation of the Soviet Union before and after WW2 or as in case of Marshal plan in Germany. The PRC is using an adapted version of a planned economy as well. Perhaps, the hybrid version exists in the overlap area of those two alternatives when the giants are surrounded by the smaller players. One is evident, the future may require a lot more flexibility in policy-making if the expected results are to be attained.
Who will pay for the party?
One more question is still interesting to me. Who pays for the feast? Eventually, these changes will come at a price in the long run. Unfortunately, the payer is the proletarians (sounds almost like Marxist writings, right?). Think for a moment, who will pay for the extra capacity, when worker is replaced with robots? Who will buy the excess if the customers do not have earned resources? First, the worker will lose income, then the capitalist will lose the source of cash flow. Reindustrialisation is paid by the worker. One may rightfully argue that the life of a bee is insignificant when facing the survival threat of the bee-family. But then let’s think for a second, is it or is it not? Is there another way? There should be one. If the bee-family turns against itself, what can save it from inevitability?
Final thoughts
In the light of the described events and trends, it seems that even after thousands of years of enlightened existence human still has no answer to the most basic questions of fruitful, wealthy and constructive coexistence other than by starting destructive competition. Globalisation, regionalization, world order, vertical order, flat order – we are still monkeys with a stick hunting for that big elephant. What is all this for? What is the benefit of winning the race if it does not benefit the future generations? Who said that we need to race with each other after all? The race always is internal – that is why China is racing for becoming the best it can be and advances and the USA races to be the best comparing to the others while losing its positions. Without taking sides, I ask myself whether this is the kind of the world I want to pass to my child? Is this the kind of future worth fighting for? Definitely, giving up is not an option, but running for the sake of running is more suitable for a hamster in a cage than for a rational human.
Globalisation is no more… what is next?