[Analyse] Economic fragmentation will have a price
It seems that globalization is no longer popular and is doomed to decline. Although many problems will remain global. Even if all this has a price.
After almost 30 years of accelerated economic integration, we felt that the process was running out of steam after the 2008 financial crisis, some say we have gone global (globalization) to “globalization” (don’t slow down). For a long time, the World Economic Forum, which has been considered both a champion and a symbol of this globalization, has been alarmed this week in Davos, Switzerland.
The slowdown of the economic integration process is due to both cyclical factors such as the recent economic crises and structural factors such as the rapid development of China, which no longer needs foreign products, experts of the International Monetary Fund (IMF). ) reported in an analysis this week. But more so, it stems from increasingly open competition between certain major economic powers, as well as growing popular discontent.
The COVID-19 pandemic and Russia’s attack on Ukraine have not helped the situation by disrupting supply chains and revealing to many how dependent their country is on foreign medical, energy, food or technological levels. Since then, companies have been willing to sacrifice some of their wonderful efficiency to be more resilient to such disruptions. Many governments are also increasing policies aimed at forcing them to stay at home and cut ties with certain nations.
This is especially the protectionist industrial policy of his predecessor in the interest of the national interest, such as green energy, electric vehicles or even semi-drivers, the analysis of the National Bank on Tuesday, Angelo Katsoras observed. Since other countries, including European states, do not want to become Persian turkeys, they are threatening to take the same step.
It’s not all good news, IMF Managing Director Kristalina Georgieva said in a blog post on Monday. It is true that globalization has been associated with all sorts of problems, such as stagnant middle-class incomes, the enrichment of the richest 1%, and the spread of an ecologically unsustainable development model. But it is also true that since the end of the Cold War it helped triple the global economy and lift 1.5 billion people out of extreme poverty.
European Commission President Ursula said on Tuesday that the move to “de-globalisation” could not be timed worse, as we are far behind the “biggest industrial transformation of our time”, the transition to a carbon-neutral world. von der Leyen at the Davos Forum. But because everyone’s resources will be needed to make this revolution happen, “as the pace of transition accelerates, our economies will increasingly rely on international trade.”
In fact, all this will lead to a complete disintegration of the world economy, not even to the regionalization of trade, but to the reconstruction of interdependencies with each other, predicted economic history expert Adam Tooz on the same platform on Wednesday.
A salty account
Meanwhile, it is necessary to understand that globalization has influenced the increase of specialization of countries especially in global value chains, the IMF emphasizes in its analysis. This today sometimes translates into a high concentration of certain sectors in an extremely limited number of countries, from which we could not cut ourselves off, at least in the short term.
Several studies on the subject estimate that if the world were further divided into regional blocs, it would reduce the world’s gross domestic product by 0.2% to about 7%. If these blocks did not benefit from any technological exchange between them, the loss could even reach 12%.
In all cases, the impact will be proportional to the depth of the cuts, the IMF concludes. The latter would particularly harm developing countries, as it would reduce their technological capacity.
But the damaging effects of this fragmentation will “run through several other channels,” the IMF continues. By impeding labor mobility, it will hamper efficiency, innovation and technology diffusion, while complicating matters for countries struggling with aging populations. By blocking the flow of capital, it would deprive national companies of sources of finance and national economies of foreign companies’ expertise.
And then, as we say, there are major problems that cannot be solved at the global level, such as global warming, pandemics, tax havens and cyber security.
But ok. Philosopher Kristalina Georgiyeva says that “it is better to try to be pragmatic” as the wind of division blows into the world.
This means adopting a multilateral approach and acting as quickly as possible on the most urgent issues where we feel a common will. If several countries are ready to act, they should move forward within open agreements so that one day the opposition can join them. Now when it comes to questions that everyone seems to want to do as they please, we should at least agree on “safeguards” aimed at preventing the unilateral actions of some from causing too much harm to others, especially others. the poorest.
To this end, governments should also remember that their policies, whether in terms of social safety nets, training or labor mobility, have the power to make trade fairer.