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  • Posted On: 11th June 2013
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“East is East, and West is West, and never the twain shall meet” wrote Rudyard Kipling, and up until 2008 he couldn’t have been more wrong, or was he?

Globalisation – the “big idea” of the late twentieth century, is the removal of national barriers to facilitate the flow of goods and services, capital, technology and labour. This integration means an increasingly homogenised world; a single society functioning as one. What does this mean for the global economy? The post war period brought significant changes and, if you will, significant advances in laissez-faire capitalism. The world economies started opening up their borders to trade by reducing trade barriers, and an increased integration of cultures and technologies started taking place. All this has led to increased prosperity and increased interdependence.

Globalisation is not a new phenomenon. History has taught us that the globalisation train has derailed more than once before; after World War I and II, and during the times of the Gold Standard Crisis and the Great Depression. Presently, our current world economic order is entering, if not already entered, another recession. Economists now debate that the world is slipping into a period of deglobalisation as the recession has already destroyed 45% of global wealth after years of economic integration. After all the benefits of globalisation, is the world really going to witness a period of deglobalisation as the economic recession keeps gaining pace? British Prime Minister Gordon Brown certainly feels that the threat of deglobalisation is very real, expressing his concerns in his policy speech at Davos.

Are the British Premier’s concerns about deglobalisation warranted? Most economies of the world have showed significant slowdown. The world economy was set to grow, according to the IMF in 2008 by 2.2% i.e. half the rate of 2007. In 2009, the world economy is said to grow by only 0.5%; the lowest in 60 years. To see if the process of globalisation has gone into reverse, we need to look at each of the processes characterising globalisation independently.


According to the International Air Transport Association (IATA), air cargo traffic; constituting over a third of the value of all traded goods; dropped by 23% which is a significant drop by any standards. Not surprisingly, economies that opened up to world trade the most are reeling from the effects of the recession — economies like the Asian tiger economies. Singapore’s exports are 186% of GDP — its economy shrank by 17% in the last three months of 2008. Taiwan’s economy is estimated to shrink by 11% this year. Japan is showing a sharp downturn as its economy is said to shrink by 13% — a nosedive — the likes of which was last witnessed in the 1970s. A few of the large emerging economies are battling the recession well — such as India, China and Brazil — largely due to the fact that they have extremely large domestic markets and neither of the countries liberalised their banking systems. Despite crumbling economies all around them, the Indian economy is estimated to grow by 5% in 2009, Brazil by 2% and China a steady 6.8%.

Capital flows

According to the World Bank, net private equity and debt will fall from $1 trillion in 2007 to $530 billion in 2009. The Institute for International Finance states that this year banks will extract more from debt repayments than they inject in new loans. Even more worrisome is the sharp decline in foreign direct investment (FDI). The United Nations Conference on Trade and Development says worldwide FDI flows shrank by 21% in 2008. FDI flows are further expected to shrink by 12%-15% for 2009. Countries that have seen a positive percentage change in FDI inflows this year include India, China, Brazil and Russia; where FDI inflows were 59.6%, 10.7%, 20.5%, and 17.5% respectively. Britain saw a negative change of 51.2%. The Bank of England cut interest rates to an all-time low hoping companies would continue to invest further.


A forecast for 2009 by the International Labour Organisation (ILO) seems grim; predicting that global unemployment will rise by 30 million over 2007’s level. In Britain, unemployment rates stand at 6.5%, while the United States has seen more than 4 million jobs lost. These unemployment figures largely stem from recession rather than deglobalisation. However, declining investments and fall in trade do play their roles in the current unemployment figures. The effect that deglobalisation will definitely have on labour is the ease of movement of labour from one country to another. We have seen in the past decade, the increasing demand for labour in Middle Eastern countries to carry their real estate boom, and the demand for Latin-Americans in the US for construction projects. Countries such as Australia are now implementing legislations to limit the amount of migrants coming into the country citing protection of jobs for locals as first priority. Even in Britain, the slogan “British jobs for British workers” grows more strident.


What conclusion are we to draw from this? Has the phenomenon of globalisation come to an abrupt end failing to deliver promises of a better world with less poverty, better living standards, enhancement of civil liberties and more efficient allocation of resources? The biggest threat to globalisation is the sovereign government. Governments have the power to erect trade barriers, reverting to policies favoring protectionism and seriously hinder migration of workers from one country to another. Of course, some policies have been implemented, e.g. India raising steel tariffs and French President Nicolas Sarkozy’s $5 billion bailout to French automakers on the condition that they may use only French-made parts and shift their production units back to France from Eastern European countries. US President Obama’s 2010 budget will see stricter taxation laws on US companies with overseas operations thereby reducing incentive to do business overseas.

With significant reduction in world trade, reduced capital mobility and reduced labour mobility, the three key elements of globalisation have been thrown into reverse, and with many nations in the west reverting to nationalism, this may be the end. But maybe, we should follow British PM Gordon Brown’s example: “while we can do a great deal nationally, we also have to act internationally”. The ideology underpinning globalisation has to be reviewed, and a system of checks and balances needs to be implemented. There are a lot of benefits that can be gained from globalisation. However, countries should not be forced into global trade without developing their own economies first. If Keynes thought globalisation had come to an end after the First World War, and yet globalisation bounced back, it is due to an inherent belief in its benefits by the people of the world.

Deglobalisation… I would think, not quite yet.

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