The Lesson of a Year Lived Dangerously
What is left of globalization?
Vision Think Tank1 - January 2023
World trade growth is, without any doubt, the phenomenon that has defined history after the Second World War and that has accompanied the largest leap forward in well-being that mankind has ever seen. However, globalization produced painful contradictions too: new inequalities and unbearable homologations which had multiplied enemies and slowed down the march of globalization even before Covid came.
The year of the Ukrainian war seems to have led to a decrease in trust among States: trust is an essential condition of globalization. The challenge for next year will be, above all, finding a way to govern phenomena that risk dying because of their own excesses impoverishing us all.
David Ricardo mathematically proved that trade between two countries is always convenient, if each country specializes in the good for which it has a comparative advantage2. This argument – now known as “Ricardian model” - provided, at the beginning of the XIX century, a theory for the first big rise of world trade and a mission for the British Empire which was built around the affairs of the East India Company – the first multinational company, the one that ruled big part of Southeast Asia on behalf of Queen Victoria. In 1915, trade among countries was worth a quarter of the global GDP and this percentage – dramatically dropped with the two World Wars – was reached again in 1975, at the end of a serious energy crisis. Since then, as the graph shows, the weight of imports and exports increased to 51% in 2008 and this made possible a series of “economic miracles”: in the last 30 years, per capita income increased by three times; the inflation rate – that was around 15% in the 70s – decreased and then stabilized around 2% (up to a year ago); one billion people came out of absolute poverty – when a person or household does not reach the minimum amount of income needed to meet the minimum living requirements - and 600 millions of these are in China alone.
And yet, in the past ten years globalization seems to have slowed down because of its own excesses. Inequality between countries has decreased (even if Africa and territories whose despots decide to "specialize" in the extraction of rare minerals remain behind); but the inequality within countries has increased (for example in China, but also in Europe between those who hold capital and those who rely only on their work). The urgent need to increase the consumption of today voters is jeopardizing the rights of the next generations. And, above all, the creation of global winners is reducing the difference between cultures, that was precisely what made the exchange experience the one that more than any other produced progress. Unregulated globalization, just like markets left to their own devices, can be burnt by the trend to cultivate the exact opposite and, therefore, to feed its own enemies. And it is from the unfulfilled promises of an economy without customs barriers that the temptation of many countries to close in themselves has arisen. Since the financial crisis of 2008, world trade has not grown. The COVID has literally frozen international trades and when it seemed we were getting back to normal, the war came and wiped out the minimum trust between states that globalization needs.
Today, even the European Commission, that for years was left alone to defend the simulacrum of free trade, is forced to make "sovereignty" an absolute priority. After fighting internal tendencies to sovereignism that threatened to crumble the EU. The need to become sovereign again arises specially to avoid depending on who might become an enemy (as happened with Russia). That need comes with the suspicion to be surrounded by unreliable partners. Therefore, the "deglobalization" leads to a shortening of the logistic, distributive and productive chains that designed an integrated global economy. However, "re-establishing control over critical resources to be shared with friendly States" is a strategy that poses two very concrete problems.
The first is that the list of what is critical is constantly being changed by technology. In recent months, the China’s advantage of controlling the production of the first electric batteries without cobalt and nickel3 seemed not to be insurmountable any longer.
The second problem is that the map of countries with shared values and interests changes. With the speed of the elections and poll even among European Union countries, it is difficult to understand with whom to define energy policies that are meant to last.
A different strategy is to reduce the likelihood of war, just moving in the opposite direction: increasing dependencies that reduce the incentives to conflict and minimizing the excessive concentrations of indispensable raw materials in a few countries (the real reason to overcome the production of oil and gas).
The principles of classical economics are still valid. We need an economy in which labour is divided. The alternative produces the increase in prices that is already impoverishing us and reduces the convenience of not resorting to war.
However, economic globalization must be matched by global governance tools. Instead, the "World Trade Organization" (WTO) has been paralyzed for two years by Trump’s decision to block the appointment of judges who define disputes between States. The Biden administration has many merits but on this subject it seems to agree that the interest of their electorate comes before and anyways. The problem does not lie in globalization, but in the inability to govern a phenomenon driven by technology and capital with institutions that have weakened instead. There is an economic, political and moral challenge that will determine whether future generations can continue the journey that began when the leaders of another world decided they could no longer afford wars.
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1: The co-authors of this paper are Giorgia Caianiello and Francesco Grillo from Vision Think Tank
2: Ricardo D., On the Principles of Political Economy and Taxation, 1817
3: Airhart El., This Cobalt-Free Battery Is Good for the Planet—and It Actually Works, in WIRED, Aug 17, 2020
