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What Follows Globalization, Part 1

Posted on the 05 February 2013 by Stephendeangelis @EnterraCEO

David M. Smick, editor of International Economy magazine, believes that the globalization model is crumbling and, with no apparent model to succeed it, he predicts that things are going to get very ugly. In fact, he predicts that things will get so bad over the coming four years that the Democratic Party could be out of power for a generation because President Obama was unlucky enough to get re-elected just as things are falling apart. ["What will replace the globalization model?" Washington Post, 16 October 2012] He writes:

"The risk stems from something more fundamental: The globalization model of the past 30 years is cracking up. And there appears to be no new model to replace it. Since April, an ugly economic world has turned uglier. The annual growth rate of total global exports has collapsed. Exports were a crucial engine in powering the U.S. economy out of the worst of the recession in the second half of 2009 and remain important for growth. Lately, even China and India, which were thought able to decouple from the weakness of the industrialized world, have fallen victim to the seizing up of global trade. The World Trade Organization is slashing its estimates for trade growth. The U.N. Conference on Trade and Development reports that economic growth is weakening worldwide."

The litany of evidence that Smick uses to make his case goes on to include failing trade negotiations, currency wars, rising nationalism, "and new software-based cost-cutting manufacturing technologies." He notes that the one remaining traditional flow of globalization that has been relatively untouched (i.e., the flow of capital) is "under worldwide assault." Smick feels compelled to conclude that the globalization model is all but dead. He continues:

"The U.S. economy can limp along under these conditions, but achieving the level of robust growth needed for full employment will be difficult. The rise of geopolitical tensions from globalization's collapse will increase U.S. investor nervousness, contributing to a debilitating risk-averse environment. It is difficult to underestimate the degree to which this flawed, sometimes frightening, good we call globalization has been the proverbial goose that laid the golden eggs. As a result, the public has unrealistic expectations about how much the economy can deliver in a post-globalization world."

I'm not quite as gloomy as Smick because, as I wrote in a previous post entitled Regionalization is on the Rise, regionalization is going to remain a prominent (if not increasing) feature of tomorrow's business landscape. This change will require businesses to adjust, but the adjustment shouldn't be too difficult. Regionalization makes more sense than globalization in many ways (e.g., ensuring production is closer to consumers and adapting products to fit regional tastes and lifestyles). Nevertheless, Smick concludes:

"Despite its flaws, globalization has been a wealth-creating machine. That is why the world's governments spent $15 trillion and central banks increased their balance sheets by $5 trillion in response to the financial crisis, essentially to try to save that machine. Yet the globalization model is cracking up anyway — and there's no replacement in sight."

The end of globalization portrayed by Smick is far different than the ending predicted by Daniel Yergin back in 1998. Fifteen years ago he popularized the term "globality" to describe "a hypothetical condition in which the process of globalization is complete or nearly so, barriers have fallen, and 'a new global reality' is emerging." Globality certainly doesn't seem to be the direction in which the world is heading; especially considering that regionalization is on the rise. Smick, however, doesn't offer any thoughts about what model he believes should succeed globalization if that model collapses completely. Eric Cazdyn and Imre Szeman agree that more thought needs to be given to this topic. In fact, they argue in their book entitled After Globalization that the "world is disabled by a fatal flaw: the inability to think 'an after' to globalization."

In many ways, Smick's observations mirror those of John Ralston Saul. Five years ago he was preaching that after three decades of globalization, the results are mixed. "These," he wrote, "include some remarkable successes, some disturbing failures and a collection of what might best be called running sores." ["After Globalization," The Tyee, 27 June 2005] He continued:

"That very clear idea of Globalization is now slipping away. Much of it is already gone. Parts of it will probably remain. The field is crowded with other competing ideas, ideologies and influences ranging from the positive to the catastrophic. In this atmosphere of confusion, we can't be sure what is coming next, although we could almost certainly influence the outcome."

Saul claims that the "Privatize, privatize, privatize" mantra that was continuously chanted by "Prophets of Globalization" was eventually replaced by calls for national rule of law. Like Smick, Cazdyn, and Szeman, Saul viewed the lack of a real understanding of what was going to follow globalization as troubling. He wrote:

"We are transiting one of those moments that separate more driven or coherent eras. It is like being in a vacuum, except that this is a chaotic vacuum, one filled with dense disorder and contradictory tendencies. Think of it as a storm between two weather fronts. Or think of those moments in fast-moving sports, like soccer or hockey, when a team loses its momentum and there is furious, disordered activity until one side finds the pattern and the energy to give it control. These moments tend to begin with denial on all sides. The confusion frightens those who thought they were setting the direction. And it disappoints those who criticized that direction. There is nothing decisive or noble about the situation. The options are not clear."

Saul, however, does not simply toss up his hands in the face of impending doom. He looks chaos in the eyes and sees opportunity. He explains:

"A period of uncertainty is also one of choice, and therefore of opportunity. We cannot know how long it will last. Probably not long. And those choices that set the future will come insidiously, in fits and starts. Some have already presented themselves and somehow been processed, without our fully registering that a determining step was taken. The shape of what comes next will therefore be decided - a conscious act - or it will be left to various interest groups to decide for us, or simply to fate and circumstance. It will probably emerge from a mix of all three. The soundness of the outcome will depend on the balance between these necessary mechanisms. The most dangerous disequilibrium will have favoured fate and circumstance over the other two. The most mediocre, interest groups. The soundest equilibrium would be led by conscious public decisions."

If Saul is correct, then the Great Recession hopefully snapped a few government and business leaders back to reality. As I noted above, regionalization (which is taking place within the larger framework of globalization) is likely to be one of the first follow-on models to globalization. It will not look anything like globality (as described above). It will rely on big data to help governments create smarter cities (in an increasingly urbanized world) and to help companies understand the nuances of a growing global middle class. That middle class needs to continue to grow if the global economy is going to expand and spur further prosperity. I agree with Saul that we are at a point of decision. He concludes:

"To believe in the possibility of change is something very precise. It means that we believe in the reality of choice. That there are choices. That we have the power to choose in the hope of altering society for the greater good. ... The conviction that citizens have such power lies at the heart of the idea of civilization as a shared project. And the more people are confident that there are real choices, the more they want to vote - a minimal act - and of greater importance, the more they want to become involved in their society."

Making communities, regions, and nations smarter and more prosperous requires the involvement of all stakeholders -- especially citizens/consumers. There are a number of analysts who believe that new technologies are going to transfer control over personal data to the individual. Saul certainly seems to be counted among that number. Access to that personal data will be critical if analytics are going to help us make smarter choices about the future. We have the opportunity to understand our world better and, thus, make better choices. What follows globalization? No one really knows; but, I don't believe the future needs to be scary. Tomorrow I'll discuss an article that has received a lot of attention. It involves a "5-point plan for a new globalism" suggested by Klaus Schwab, founder and executive chairman of the World Economic Forum.

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