A global pandemic and globalization – analysis
It is now evident that the coronavirus pandemic (Covid-19) is a systemic global event, which will have significant consequences for the well-being and lifestyle of people, national economies, and political leaders on all continents. It is natural for people to consider the secondary implications of the pandemic. Some of the repercussions will be unexpected and may not be felt immediately.
A natural question is what Covid-19 will mean for globalization. Globalization is the accelerated flow of goods, people, capital, information and energy across borders, often enabled by technological developments. Over the past three decades, globalization trends have been assumed to be the new normal. Tariff-free trade, international travel on easy or visa-free visas, unimpeded capital flows, cross-border pipelines and energy grids, and transparent global communication in real time seemed to be the natural endpoints towards which the world was moving, if it were different rates for different places.
But the globalization of goods and capital had already begun to stagnate or stagnate since the 2008 global financial crisis (GFC). Trade as a percentage of world GDP increased from 39% in 1991 to 61% in 2008, but has remained stable for the last decade. The figure stands at 59% in 2018. Similarly, net inflows of foreign direct investment, which were never less than 1% of world GDP before 1989, occasionally crossed 4% in the past 30 years. But by 2018, it had plummeted to 1.4%, its lowest level since 1996. Similarly, personal remittance flows, which were previously on the rise, flattened to around 0.75% of world GDP.
There are several causes for the great stagnation in the globalization of goods and capital. It became increasingly clear that not all countries, societies and people benefited equally from globalization, and that soon began to be reflected in national and international politics. The 2007-08 subprime mortgage crisis in the United States (US), and its spread to the eurozone, exacerbated national sentiment in Europe, which had previously been a model of international integration. The assumption that China’s rise would lead to similar development opportunities for others was unfounded. As one business leader cynically told me: “China, after climbing the ladder, is putting it down below everyone else.” In retrospect, the economically nationalistic impulses of countries as different as the United States (“America First”) and India (“Make in India”) were a natural consequence.
A similar flattening has been underway in the globalization of energy. Net international energy trade, which stood at 1.5 billion tons of oil equivalent in 1990, increased to 2.5 billion in 2008, but then grew only moderately to 2.8 billion in 2018. But the drivers have been different: increases in efficiency energy, the increase in renewable energy, and new sources as a result of fracking.
Other aspects of globalization have not seen as much plateau after 2008. In fact, the globalization of people accelerated, although partially and subordinated to national interests. The global migrant stock grew steadily from 190 million in 2005 to 243 million a decade later. The number of international tourist arrivals increased from 900 million in 2009 to 1.4 billion in 2018. Similarly, at first glance, the globalization of information did not decrease. The percentage of Internet users worldwide more than doubled from 22% in 2008 to 50% in 2017, although the national, cultural and corporate balkanization of information was firmly established.
How might Covid-19 impact these trends? There will almost certainly be calls for the renationalization of manufacturing, particularly for what is considered critical or essential goods. Recent disputes over personal protective equipment (PPE) and pharmaceuticals have brought this to the fore. This will further complicate trade agreements, both current and negotiated.
The globalization of people, including short-term tourist or commercial traffic, may face new types of restrictions. National governments will have to weigh the risks of communicable diseases against the benefits of ease of travel or may have to consider stronger safeguards. In turn, the globalization of finance will be indirectly affected: less migration and business travel, along with incentives to invest at home, will hinder transnational capital flows.
The globalization of information can face a paradox. On the one hand, information will be more available, important, and shareable than ever. On the other hand, we may well see more monitoring of individual information. The 2003 SARS epidemic was a milestone for the use of mass surveillance and big data by governments in the interest of public health. Similar sentiments in a post-Covid-19 world may further contribute to data nationalization.
Overall, the coronavirus pandemic may further slow (or possibly even reverse) certain globalizing trends that have already slowed down. The risk of interruptions in the supply chain will be presented to a greater extent in commercial calculations. Decisions about lowering barriers to international travel will face increased scrutiny. Information may continue to be more abundant, but it will be more closely guarded. The ongoing phase of globalization has recovered from previous systemic crises, such as September 11, SARS, and the GFC. But the omnipresence of Covid-19 presents a challenge of a different magnitude.
Dhruva Jaishankar is the director of the United States Initiative at the Observer Research Foundation.
The opinions expressed are personal.