For decades, the world has been enamored with globalisation, a term that conveys a tapestry of symbols. As noted in the Kent News years ago, supply chains integrated with point of sale technology at check out counters, in-depth news coverage of distant crises, foreign students in American universities, projection of global corporate might, displaced factory workers and damaged manufacturing industries, social media to reach friends everywhere by electromagnetic waves, merchandise and services exports, and foreign direct investment may be seen as parts of it. Also part of it is the general perception of the rise of the global 1%, resulting in societal disparities as well as some countries left behind. Globalisation has resulted in the interdependence of nations through the largely unimpeded transmission of investment capital and information, and integrated business operations. Besides the global 1%, a leading beneficiary of globalisation has been the Peoples Republic of China.
But now the gushing over the word “globalisation” will abate, after several body blows to the world. The first shot, although then not suggestive of a pattern, was the Arab oil embargo declared in 1973 during the Arab-Israeli War by the Organization of Arab Petroleum Exporting Countries. The embargo was imposed against the United States and other countries for military support of Israel. This action underscored the dependence and vulnerability of the U.S. to foreign sources of supply.
The second shot was the Iranian Revolution of 1979.While this began as a social revolution that stoked religious fervor, it put an abrupt halt to the increasing Western influence in Iran, and the dependence of the Iranian monarchy on the United States. Fashion, cinema, beauty products, and the use of alcohol were viewed as instruments of the U.S., “the Great Satan,” indeed viewed as a so-called godless society. The Revolution also broke apart the Middle East along historical, cultural, sectarian, and geopolitical fault lines. The source of the world’s oil was no longer cohesive or predictable, and it became a theater where proxies could make mischief.
The third shot was the rise of Al-Qaeda in the 1990s. It is fair to say that lack of an industrial revolution, dependence on only one product (oil), and no separation of church and state have left many Islamic countries out of the integrated world mainstream, both West and East.With exceptions such as Turkey and Dubai, most of the Islamic world has not benefitted from globalisation, adding to a resentment that was fueled by U.S. support for monarchies seen as oppressive, and its ongoing special relationship with Israel. By this time, it became clear that globalisation had the power to incite radicalism.
The fourth shot is COVID-19. There is an overwhelming consensus that it was released either from a government laboratory in Wuhan, China or from wet markets in that city where fresh meat, fish and produce are sold. Although the origin and nature of transmission are disputed, certain facts have been established: the Chinese government knowingly delayed disclosure of this spreading pathogen; it also said that human to human transmission was not possible; it shut down domestic flights but not international ones in and out of Wuhan; and it intimidated members of the medical profession who issued warnings.
A principal management objective of the U.S. has been to control the surge of COVID-19 so that it does not crush the health care system, which is almost 18% of GDP. The economic and political implications of COVIDF-19 are yet to play out in full, but certain observations may be made.
First, much of the world – the U.S., Europe, India and Japan – see the need to dilute their commitments in China and to restructure manufacturing and distribution. Indeed, it was mainly the West that made China a success story through massive direct investment and re-export of product, resulting in a so-called economic miracle that started in the 1970s with Deng Xiaoping’s economic deregulation and embrace of quasi-capitalism. Remedies against China will not succeed if they are limited to action by the U.S., as they will be seen as yet another issue of divisiveness between the U.S. and China. Fortunately, it appears that Europe, which has long favored commerce over security considerations, is slowly becoming more like-minded with the U.S., and the Japanese government is now willing to subsidize Japanese companies that leave China.
China’s efforts to write the rules of trade and investment for its half of the world, challenging the U.S. and Europe, will meet with resistance. Further, China’s aspirations for economic hegemony will be diminished, as countries now subscribing to its Belt and Road Initiative become skeptical of both resulting indebtedness to China, as well as the wisdom of having thousand of Chinese constructions workers in their countries.
Decreasing Chinese influence and credibility will be an opportunity for some Asian countries to attract foreign direct investment. The most likely destinations will be those that can move quickly in this regard, and those with transparency, protection of intellectual property, a respected legal system, and a commitment to free markets. This is an opportunity for India to enhance the “Make In India” strategic initiative of the Modi government.
A second observation is the dichotomy between science and political objectives in an election year. Some frame the challenge as lives versus livelihoods, but the truth is more nuanced. The real question, understandably not easily answered, is what rate of infections can be sustained by a moderately well-functioning economy, until such time as a vaccine and treatments are available?
Third, many industries are threatened, as the consequences of a global pandemic eat their way through the economy and the prospect of a severe recession looms. Bank capital ratios, stronger than in late 2008, will come under pressure from numerous personal and corporate bankruptcies. Retail companies, some of which have already filed for bankruptcy protection, will need to restructure themselves with more on line emphasis. The fate of major airlines is not clear, however the decline of the stock of American Airlines, about 80% over the past five years, puts it just above a small cap firm. Commercial real estate will likely suffer, as ingrained telecommuting habits become the norm. And it is hard to imagine how the consumer economy, about 70% of GDP, can recover when many people are afraid to associate in restaurants and bars.
With tighter immigration policies, particularly vis-à-vis China, the education and tourism sectors will also be affected. There are nearly 370,000 Chinese students in the U.S., constituting one-thirdof the foreign student population. And Chinese tourists to the U.S., already on the decline during a trade war, are said to be the highest spending of all international travelers.
As resentment of China increases, corporate boardrooms will consider how to reduce dependency on that country. The slogan “America First” will likely gain more traction, especially among conservatives, as people come to contemplate what the Chinese Politburo has perpetrated on the planet Earth.
It is too late and not possible to rollback an interconnected world order, and countries need allies. China, the world’s second largest economy, is not going away. But globalisation as we know it will recede, as will China’s standing in the world, such that we will eventually be able to say, “Good-bye to all that hype.”
Frank Schell is a business strategy consultant and former senior vice president of the First National Bank of Chicago. He was a Lecturer at the Harris School of Public Policy, University of Chicago and is a contributor of opinion pieces to various journals.
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