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Published on April 19th, 2020 | by Steve Hanley

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COVID-19 Could Be The End Of Globalization As We Know It

April 19th, 2020 by  


Music can be prophetic. Take the 1987 song It’s The End Of The World As We Know It by R.E.M. In the refrain, the band sings this line — which could well be a metaphor for the state of the world today as the coronavirus rages — over and over: “It’s the end of the world as we know it (time I had some time alone).”

It many respects, it does seem as thought the world we knew at the beginning of the year has disappeared, only to be replaced by a strange new world where funerals and weddings occur virtually online, work — if there is any — is done on a computer at home, people wear masks when they leave home, and time alone is the new normal.

A Pandemic & Globalism

In a recent article for The New York Times, economics writer Neil Irwin writes, “It’s The End Of The World Economy As We Know It,” suggesting the virus pandemic has accelerated a move away from globalism that was already underway. He very well could be right.

Most national economies depend on manufacturing, not sitting around selling insurance to each other. The Union won the Civil War because it had a deeper manufacturing base than the Confederacy. The South had plenty of soldiers but could not produce as many ships, rifles, bullets, locomotives, uniforms, and mess kits as the North. Ultimately, the South ran out of what it needed to pursue the conflict and surrendered.

Much the same thing happened in World War II. For every tank the Germans made, the US made 3. For every ship the U-boats sank, the US produced 4 more. For every airplane Germany manufactured, the US made five. Despite all the efforts of all the soldiers and all the generals, in the end the balance tipped toward the Allies because they outproduced the Axis powers by a wide margin. The skies over Pittsburgh and Youngstown glowed red from dusk to dawn for years because of the blast furnaces in America’s steel mills.

That Giant Sucking Sound

The roots of globalization began in America after World War II as the shoe manufacturers in Danvers, Massachusetts and the worsted mills in Manchester, New Hampshire shut down and moved lock, stock, and Jacquard loom to southern states where anti-union sentiment was strong and wages were low. A few generations later, NAFTA was born and the whole process repeated itself as corporations moved their manufacturing centers to Mexico.

H. Ross Perot warned us about the “great sucking sound” that would be caused by US jobs going south of the border. Most smiled or snickered, calling Perot a crackpot opposed to the new economy. It wasn’t long before Mexico suffered a similar fate as the quest for cheaper labor drove production first to China and then on to Vietnam, Bangladesh, and Sri Lanka.

People eating in fancy restaurants on the shores of the Pacific were told they were eating fish caught just offshore. That part was true but what they weren’t told was that after it was caught, it was transported to fish processing plants in Asia where people spent 10 hours a day up to their knees in fish guts before the fillets were frozen and shipped back to the US. For more about the relentless quest for cheap labor, read Naomi Klein’s soul searing book No Logo.

The Galactic Pool Table

Irwin’s thesis is that the global economy is like a gigantic pool table filled with billions of balls. They collide and bounce off each other in a dizzying cascade of events that lead to results few can predict. Often, a disruption in one part of the table has unintended consequences somewhere else.

“The world economy is an infinitely complicated web of interconnections,” he writes. “We each have a series of direct economic relationships we can see: the stores we buy from, the employer that pays our salary, the bank that makes us a home loan. But once you get two or three levels out, it’s really impossible to know with any confidence how those connections work.” And the coronavirus is making it even more difficult to make accurate predictions about the future.

Radical Uncertainty

Maersk container ship

Image credit: Maersk

“As much as I hope we are able to get ordinary economic activity back up, that’s just the beginning of our problem,” says Adam Tooze, a historian at Columbia University and author of “Crashed,” a study of the extensive global ripple effects of the 2008 financial crisis. “This is a period of radical uncertainty, an order of magnitude greater than anything we’re used to.”

Irwin suggests the very idea of a world economy with the United States at its center was already falling apart as China began to flex its economic muscles on the world stage and America took a hard right turn toward economic nationalism. “There are signs that the Covid-19 crisis is exaggerating, and possibly cementing, those changes,” Irwin writes.

Reliance Reconsidered

“There will be a rethink of how much any country wants to be reliant on any other country,” says Elizabeth Economy, a senior fellow at the Council on Foreign Relations. “I don’t think fundamentally this is the end of globalization. But this does accelerate the type of thinking that has been going on in the Trump administration, that there are critical technologies, critical resources, reserve manufacturing capacity that we want here in the U.S. in case of crisis.”

Trade as a share of global G.D.P. peaked in 2008 and has trended lower ever since. The election of President Trump and the onset of a trade war with China had already made multinational companies start to rethink their operations.

“I think companies are actively talking about resilience,” says Susan Lund, a partner at McKinsey who studies global interconnectedness. “To what extent would companies be willing to sacrifice quarter-to-quarter efficiency for resilience over the long term, whether that’s natural disasters, the climate crisis, pandemics or other shocks?”

What’s Next?

In her view, there will be a shift toward regional trade blocs and greater emphasis on having companies build redundancy into their supply networks. Governments will demand pharmaceuticals and medical equipment be locally produced instead of supplied by foreign manufacturers who could prove unreliable in times of crisis.

“What typically happens after you get a crisis like this is people talk about new eras and how the post-pandemic world will be different,” says Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management. “This time I think the trends that were already in motion before this pandemic will be accelerated.”

Irwin refers to a speech last August by Mark Carney, a former governor of the Bank of England, in which he warned the current international monetary and financial system, which is deeply dependent on the US dollar, is unsustainable. Adam Tooze agrees but offers a different interpretation. “The dollar system is inherently unstable, but so is a bicycle,” he says. “They’re unstable, but if you’re a skilled rider of them, they’re great. And the Fed has demonstrated it’s a skilled rider of the dollar hegemony bike.”

History Repeats Itself

Many of you have noticed a disturbing parallel between the world today and the world 100 years ago. Irwin agrees, but adds that the events of a century ago are recurring in a different order. “That era also featured a global financial collapse; a rise of authoritarian governments; the emergence of a new economic superpower (the United States then, China now); and a pandemic, though not in that sequence. We may not know exactly where this crisis will lead, for the world economy or anything else. But one thing seems clear: History sure can be scary when you don’t know how it ends.”

Maybe the world will take a look at recent events and decide closer cooperation between nations is the proper way forward. Or nations may all decide to slam their borders shut and return to a sort of medieval state of suspended animation. If, in fact, history repeats itself, a group of young people not yet born may decide in 50 years to go to a farm in New York, take off their clothes, and get high while listening to rock music in the rain.

What About Renewable Energy?

Concerns about reliance on other countries for the necessities of life are not silly, given the human inclination to hoard scarce resources in times of want. One commodity that has caused more than its share of war and pestilence is oil. Much of Europe is utterly dependent on natural gas from Russia to avoid freezing in winter. Japan’s entry into World War II was accelerated by a decision by the US to deny it access to oil supplies.

Humans now have a tool available to eliminate conflict over natural resources forever — renewable energy. As much as COVID-19 is causing havoc in the global economic system, nations no longer need to maintain large armies to wrest control of oil and gas from uncooperative neighbors. Renewable energy can easily confer energy independence on any nation who wants it. Perhaps the current pandemic will help business and government leaders realize just how vital renewable energy is to a stable economy. The fact that it creates no carbon emissions is a nice bonus, too. Perhaps the cloud of a world pandemic does indeed have a silver lining. 
 


 


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About the Author

Steve writes about the interface between technology and sustainability from his homes in Florida and Connecticut or anywhere else the Singularity may lead him. You can follow him on Twitter but not on any social media platforms run by evil overlords like Facebook.



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