Picking up on the point that I ended on in our last Swamp Notes, I want to return to BlackRock chief executive Larry Fink’s proclamation last week that “the Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades”. As he put it, the war marks “a turning point in the world order of geopolitics, macroeconomic trends, and capital markets”.
As Swamp readers will know, I have been arguing this for about four years now. But while I certainly agree with Fink that this round of globalisation (one of many that have been coming and going for centuries, if not longer, depending on how you define the term) is indeed over, I wouldn’t say that Ukraine was the turning point.
I’d put the true pivot point as the day after Lehman Brothers fell way back in 2008. That’s when the Chinese began rolling out their fiscal stimulus programme in response to the great financial crisis (this according to a very high-level financial source who would know). And that’s when the calculus for Beijing about how fast and how far to go in terms of embracing Anglo-American style free-market capitalism really changed. The subprime crisis and the global recession that followed really underscored the limitations of hyper-financialised free markets, when left for too long to their own devices.
Of course, at the time, the conventional wisdom was that globalisation had actually triumphed, because the world avoided the Great Depression-style protectionism and trade wars that many people thought would follow such a crisis. But it was only a matter of time before the disconnection between the global economy and national politics became manifest with the rise of populism on both sides of the Atlantic, as well as resurgent nationalism in many emerging markets.
What happens now? I’d argue that we won’t see a 1930s-style meltdown but rather a new kind of regionalisation that will replace what came before. I’ve been arguing for some time that regional trading blocs are the only way forward given the mercantilist reality of China’s current system, which is simply incompatible with the rules of the World Trade Organization. I think the big question is whether we move towards a bipolar system, with the US and Europe (and whichever OECD nations decide to come along with them) creating some new structures, particularly for digital trade and platform regulation — or whether we will be in a tripolar world of US, European and Asian blocs.
The past several weeks have made me think that the former is much more likely. The US has cut a deal to supply more liquefied natural gas to Europe in order to speed up the decoupling from Russian energy. America and Europe have reached a deal on transatlantic privacy standards, which doesn’t bring the new regions completely in alignment over how to deal with Big Tech, but is an important step. The idea of values, rather than simply market access, being at the centre of foreign policy seems relevant again. Certainly, the US, Europe and Asia will be producing more at home, or “local for local” as the business community puts it. But that’s different than a 1930s-style trade war.
I don’t want to be at all sanguine about what’s happening. Supply chain shifts won’t be easy (though as I wrote in my column last week, I’m amazed at how quickly companies are adapting. The war in Ukraine may yet go in some even more horrible direction and cause further chaos. But, assuming that doesn’t happen, perhaps this crisis of the old order will actually help us redefine liberal values and reconnect markets and nation states in ways that make more sense — for labour, politics, and the planet.
Ed, I suspect you’ll tell me I’m being way too optimistic? Either way, I’m curious where you’d put the marker for the end of this round of globalisation, and how you think this period of adaptation to whatever comes next will play out.
Recommended reading
I was interested to read in The New York Times about the launch of a “radical American journal” called Compact, dedicated to breaking out of political silos, and edited by a Marxist and two religious conservatives. This has gotta be worth a read . . .
In the middle of so much hard and bad news, I find myself drawn to totally unexpected magazine features like this Rebecca Mead tale about who owns the property rights for leopard spots.
On the same note — I grew up on Middle Eastern cuisine and loved the evocative photos and escapism of this lovely FT Weekend piece on the hunt for the world’s greatest saffron.
Edward Luce responds
Rana, as you say, globalisation has been in train for centuries (millennia, in fact) with sharp ebbs and flows. But I agree that the recent era of hyperglobalisation that began in the 1970s and reached its apogee in the early 2000s is now being replaced by a more fragmented world.
We could debate about the degree to which the 2008 financial crisis and the populist backlash to modern capitalism has been driving this. I would suggest that it has principally been a western — and particularly American — reaction to the so-called great convergence. This is the process by which what we used to call the Third World is catching up with western incomes, which has been going on for half a century and has at least another half a century to run.
In my view, the great convergence is a very positive thing for humanity. Moreover, there are far better ways of addressing the economic piece of the west’s populist backlash by shifting to more redistributive fiscal policy and effective public investments. But trade has been made the scapegoat and now the US is pulling up the drawbridge. As you know, I think this is a huge error — and the classic move of an ageing hegemon — for which all of us will pay a price.
The question that most interests me is what impact Ukraine will have on this. My hunch is that it could be dramatic. The speed and ruthlessness with which the west has decoupled from Russia has been matched by the half-heartedness of most of the rest of the world. As the Peterson Institute’s excellent Chad Bown points out, very few others are following the west’s lead. Opters-out include most of the Middle East, Africa and Latin America, in addition to China and India. Even if the war came to a miraculous close in the next few weeks, the Ukraine demonstration effect will change all kinds of financial and economic behaviours around the world. Nobody wants to be that exposed to the US sanctions regime.
Are you being too optimistic? The answer to that depends on whether you think more closed economies are a good thing or not. If so, then there are grounds for optimism. Alas, I don’t think they’re a good thing. The last two great periods of western disengagement from the world economy were 1914 to 1939, and before that, the long Christian Medieval night . ..
Your feedback
And now a word from our Swampians . ..
In response to ‘It may be impossible to settle with Putin’:
“The difficulty is to identify anything that looks like ‘victory’ to Putin, and is actually sustainable. One could say, for instance, that bringing back pro-Russian regimes in Ukraine, the Baltics, maybe even central Europe, would look like victory, but these, even if the rest if the west ever agreed to it (a non-starter, to be clear), would not likely be stable as local populations would not accept it. Ukraine’s example has shown that it is possible to resist Russia’s army.
So Putin has proven to the world (and most importantly, to the countries in question) that he cannot obtain what he craves (submission of Ukraine and other neighbours to Russia), and that’s kind of an irreversible fact on the ground. The worry then is that he will decide that everybody must lose if he loses himself.
Which is why, personally, I don’t see how this will end without direct confrontation between Russia and the west, and I believe we should unfortunately get ready for it — starting by interrupting all imports from Russia, including oil, gas and other metals.” — FT commenter Jerome a Paris
Source: Economy - ft.com
