What’s really driving deglobalization in a world of catchy slogans
After a buoyant surge of globalisation since the end of the Second World War, and a period of hyper-globalization between 1990 and the 2008 global financial crisis, we experienced the so-called “slowbalization” era. This reduction of trade in global gross domestic product (GDP) paved the way for what we now refer to as “deglobalization”. Historically used to describe periods of declining economic trade and investment between countries, what does deglobalization mean for the global economy today? And why now?
From production relocation to geopolitical tensions, there are numerous factors to consider when addressing the decrease in global economic integration. The World Economic Forum suggests that the recent upswing in deglobalization could be down to the COVID-19 pandemic, the war in Ukraine, and the push for renewable energy. Such recent events have hampered global value chains, inspiring governments and corporations to seek trusted partners, locally. These shifts are set to have a ripple effect across financial markets and the global economy. But there’s more to the story.
A clear driving factor includes the noticeable decrease in foreign direct investment (FDI). Deciding to fund more local markets, foreign investors are withdrawing from the global market in swathes. This substantial reduction of investment in international markets is significantly impacting global economic growth in recent years. Companies are also leaning more towards local production, relocating closer to home and contributing to the reduction in international trade. This has an obvious knock on effect on the countries who rely on such trade, leading to a potential rise in unemployment and lower economic growth.
Another component to consider is the increased accessibility of technological advancements. With a world at our palms, the need for physical travel has been greatly reduced with businesses able to function almost entirely online. This increased during the COVID-19 pandemic, where companies realised the efficacy of remote working – seeing less money spent on travel, office space and even staff. So said the UK Government, “Stay at home, save lives” but not perhaps your job.
Then we have the great energy debate, with nations urged to take climate action. In doing so, we realise the importance of reducing carbon-intensive transport, and the price of fossil fuels never mind its environmental impact. Domestic renewables are therefore preferable, while an increased awareness of our carbon footprints could all be contributing to the rise in deglobalization in a bid to ‘Save Mother Earth’.
While a precise shift may be tricky to pinpoint, deglobalization can certainly be spotted woven into swarms of red baseball caps and loosely scrawled across British buses. The philosophies behind such catchy calls to arms as “Make America Great Again” or “Bring Back Britain” may appeal to certain individuals and businesses, but lie vulnerable to the inevitable pitfalls of protectionism. Increased inequalities between countries has the power to disarm social and political stability, with widespread socio-political conflict; financially and environmentally. A world in a state of ‘conscious uncoupling’, with separate bank accounts and messy prenups.
It is clear that those cheery slogans belie the complexities of this phenomenon, with the potential to seriously impact financial trends and the global economy. Where deglobalization continues to gain momentum, what does this spell for your business? Will we make decisions via politics over economics? Do we see ourselves physically relocate to a ‘friendlier’ market, or aim to be fully self-sufficient?
As another saying goes, it takes a village to raise a child. But what does it take to nurture a global economy?