Is Globalization Over?

An interesting article in the Financial Times tell us "The world is marching back from globalization." Globalization, if you remember, has been hailed as the economic miracle worker of our times. The golden phrase "global economy" intimated a rising ocean of opportunity to be shared by all the world's people after the collapse of the Soviet Union. So far that hasn't worked out so well - not only for the former slaves of communism, but even here in the West.

If western leaders have grown wary of globalisation, many of their electorates have turned positively hostile. Globalisation was sold in the US and Europe as an exercise in enlightened self-interest – everyone would be a winner in a world that pulled down national frontiers. It scarcely seems like that to the squeezed middle classes, as the top 1 per cent scoop up the gains of economic integration.

So "strike one" for today's global economy would be that it has unfairly benefited a small segment of the world's people, and has not lived up to the promise of economic progress for the other 99%. But there's a darker side to the potential fragmentation of the global economy. To understand what that might be we need to remember that the current global economy isn't the first of its kind in world history - not by a long shot. Even before the advance of the Roman Empire, various periods in history saw a build up of free-flowing trade. And each time we find some degree of belief that among the benefits such trade might bring would be the prevention war, or at least some tempering of the ambitions of psychopathic leaders who would turn to war to slake their thirst for power. The most recent instance of this belief prior to the build-up of our contemporary global economy was the globalism that engulfed the world under the leadership of the British Empire, culminating in the 19th century - a globalism many believed would preclude what turned out to be World War I (as we noted recently).

Back to that article in the Financial Times, the author focuses on sanctions against Russian economic interests, smartly recognizing that

Narrow nationalisms elbow aside global commitments. Sanctions are part of this story, but Russia’s contempt for the international order is a bigger one. Sad to say, we learnt in 1914 that economic interdependence is a feeble bulwark against great power rivalry.

But we might go a step further here and note the heating up of trade wars between countries over and above the usual attempts to protect specific domestic industries, the most egregious of which is the constant struggle of each country to lower the value of its currency relative to that of its neighbor in order to keep the price of its goods relatively cheap, thereby increasing their export to other countries. This has been going on now since the start of the 21st century, arguably one of the chief causes of the dramatic rise in the price of gold since 2001. As countries devalue their fiat currencies, the sophisticated smart money types buy gold to protect themselves from the persistent decrease in the value of their native currencies, including the U.S. dollar. Indeed, this devaluation is so persistent, so ubiquitous, hardly anyone refers to it anymore.

And, of course, let's not forget a powerful driving force behind the growth of nationalism, sanctions, trade wars, etc., something we pointed out a little more than two years ago:

...politicians will use any policy to their own advantage, including policies that they themselves have recognized as counter-productive or even destructive to economic activity. And that's not good news for the rest of us.

May I suggest that anyone who takes the trouble to observe the behavior of most politicians should find this painfully obvious. Valdimir Putin may simply be the most recent, as well as the most egregious, example of this awful phenomenon.

So with the weight of history and the self-interest of politicians pressing in, should it surprise any of us if globalization not only begins to deflate, but one of these days crumbles to the touch like a chunk of fine Feta or Gorgonzola cheese? One hundred years after the collapse of the last global economy, we might be witnessing the demise of its successor.