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Economics

Navegar la desglobalización

May 11, 2020 Mohamed A. El-Erian

LAGUNA BEACH – Luego de haber sido abofeteado por dos grandes sacudidas en los últimos diez años, el cableado sumamente interconectado de la economía global está sufriendo una tercera crisis por culpa de la pandemia del COVID-19. La globalización así enfrenta una situación de tres golpes fallidos con el bate y afuera, lo que bien podría resultar en una desvinculación gradual pero bastante prolongada del comercio y la inversión, agudizando los vientos de frente seculares que ya enfrenta la economía global.

Los llamados a retomar el actual proceso de globalización casi con certeza caerán en oídos sordos –particularmente porque esta última sacudida será manejada simultáneamente por los gobiernos, las empresas y los hogares en los países desarrollados-. Quienes quieran preservar la globalización en el más largo plazo, en cambio, harían mejor en concentrarse en minimizar la alteración causada por el período inminente de desglobalización y sentar las bases para un proceso más sustentable de ahí en adelante.

Por empezar, ya resulta claro que muchas empresas buscarán alcanzar un equilibrio más adverso al riesgo entre eficiencia y resiliencia en tanto vayan saliendo de la dañina sacudida pandémica. El romance de varias décadas del mundo corporativo con las cadenas de suministro globales costo-eficientes y la gestión de inventario justo a tiempo dará lugar a una estrategia más localizada que implique repatriar ciertas actividades.

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Mohamed A. El-Erian

Writing for PS since 2010
161 Commentaries

Mohamed A. El-Erian, President of Queens’ College at the University of Cambridge, is a professor at the Wharton School of the University of Pennsylvania and the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse (Random House, 2016) and a co-author (with Gordon Brown, Michael Spence, and Reid Lidow) of Permacrisis: A Plan to Fix a Fractured World (Simon & Schuster, 2023).

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0 Comments on this paragraph, 31 Comments on this article

Harlan Green May 20, 2020

Mr. El-Erian seems to have forgotten it was the corporate private sector that drove the expansion of globalization forces without regard to domestic worker security and safety, in the name of free trade. Why would we want further input from the private sector to design new rules for globalization? A weak U.S. government sector has been the problem in allowing monopsony, or concentration of too much power and growth in multinational corporate sector that caused the current populist backlash. GW Bush was probably the worst offender, allowing China into the WHO without adequate preconditions. What good was/is NAFTA and even the TPP, when the private sector writes most of the rules?
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Enrique Woll Battistini May 19, 2020

SOME 400 PEOPLE IN THE UNITED STATES - 0.0001% OF ITS POPULATION - OWN USD 3 TRILLION! THE PRODUCT OF UNFETTERED CAPITALISM

This, according to https://mkorostoff.github.io/1-pixel-wealth/?fbclid=IwAR3D2ptFqN-2CJy3WouPmrIGiAlyU3jYP_O1lO8WcK27DxEl1Tt4Se93I1k,

My take on this seemingly encroaching reality, and some ways in which it could be averted, is reflected in some of my comments below. The forthcoming deglobalization that Mohamed A. El-Erian envisions, if realized, would be akin, from a practical standpoint, with luck, to a detour to the European Middle Ages, but in far-away lands, for hundreds perhaps billions of impoverished human beings, mostly non-white, many of which, by Western standards, are still living in the states of disorganization and social blindness and hunger of pre-Roman times, who have been laboriously intent, for some ten years now, on attaining residency in the EU, for example, by resorting to all manner of forceful immigration strategies and even hundreds, maybe thousands, of deadly attempts at crossing the Mediterranean Sea mostly from Africa and the Middle East. The peoples of other Third World regions, rich and poor alike, would fare not much better than these should global investment and trade suffer the screeching slowdown and relative halt feared.

A cursory analytical look at Thomas Piketty's Thesis clearly suggests that the intrinsic nature of Capitalism ensures that the rich will get richer and the poor poorer, ad infinitum, till annihilation of the poorest, in any society in any country, unless taxation through a sole consumption tax is used to regularly redistribute the wealth created in all societies, within societies, in such a way as to preempt consumption by the poorest from falling below the threshold of autonomous survival with monotonically increasing welfare potential, that would bring their share of wealth consumption irreversibly and asymptotically closer to consumption by the richest of the rich over time. This condition would not imply equality, only the trend to equality, but when perceptible, would ensure the possibility of harmonious socioeconomic development and peace. Absolute extreme poverty as well as relative extreme poverty would be eradicated, and planetary rescue could then be pursued, essentially through voluntary population stabilization, production and consumption stabilization, and carbon emissions stabilization.

Again, at the crux of world peace, and planetary rescue, would be tax reform, via Sole Consumption Tax (SCT), that would enable eradication of absolute extreme poverty and relative extreme poverty, through regular income redistribution ensuring the attainment of autonomous survival with increasing welfare potential for the poorest, that would irreversibly approach that of the richest, voluntary population stabilization, voluntary production and consumption stabilization, and carbon emissions stabilization.

The world the baby boomer generation's grandparents knew as children has been obliterated by a century of recurring monstrous wars, concurrent with exponentially increasing revolutionary scientific and technological discoveries and inventions, and massive economic, social, political, and legal changes which for many signify development. These changes have occurred in a stark and pervasive moral and ethical vacuum, in the context of unconscionable, unsustainable, and monotonically increasing welfare disparities between the rich and the poor. The world as we know it now is at the historical fork between the threshold of recovery and the brink of a new conflagration, indeed at a very promising and very threatening tipping point, and begging for drastic global financial, economic, and social redress, which only the most comprehensive multilateral and national governance reforms that would redefine the social contracts in the East and the West, the North and the South, and between them, could satisfy. Some of the more evident issues in need of holistic attention are addressed herein.

https://www.academia.edu/…/Informal_Proof_of_Thomas_Piketty…

https://www.academia.edu/…/La_Reforma_Tributaria_del_Siglo_…

https://www.academia.edu/…/OFA_-_At_the_Brink_of_Recovery_o…
- Enrique Woll Battistini May 26, 2020
  
  The world as we know it now is at the historical fork between the threshold of recovery and the brink of a new conflagration, indeed at a very promising and very threatening tipping point, and begging for drastic global financial, economic, and social redress, which only the most comprehensive multilateral and national governance reforms that would redefine the social contracts in the East and the West, the North and the South, and between them, could satisfy. Some of the more evident issues in need of holistic attention are addressed herein.
  
  https://www.academia.edu/43111321/PROJECT_SYNDICATE_-_Navigating_Deglobalization_by_Mohamed_A._El_Erian_-_My_comments
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Jay Kay May 18, 2020

"Against this background, those who appreciate the power of cross-border interconnectivity to unleash win-win economic opportunities and reduce the risk of major military conflicts will be inclined to defend the pre-pandemic status quo. "

Alas like all religions, when tested experimentally Globalism always fails to deliver on any of its predictions. Yet, the True Believers simply refuse to acknowledge that the hypothesis doesn't work...
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John Sweeney May 18, 2020

An "inclusive and sustainable process of globalization..." Think about who would actually do that. Increasingly parochial governments? Coalitions of nations? The U.N.? The only global "entity" is commerce and it will retrench and continue to do or try to "do business" as its nature and opportunities dictate. Business is the only "game in town" if you want to deliver phones in Zambia, jobs in Eastern Europe, tax moneys in South America, and food in Asia. Those are all inclusive and sustainable and don't require high flown verbiage.
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Alejandro Cabezut May 18, 2020

Globalization is not an on-off switch and deglobalization is not the dominant direction nor the post-pandemic final normal.
Companies and consumers will not give up the evident benefits of globalization, importantly comparative cost advantages, global economies of scale, access to financing and to consumer products.
The decades-long secular globalization trend is now continuing in the form of global managed redundancies: if a product, capital or talent supply chain is disrupted somewhere, back ups are being developed elsewhere. Globally.
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Janos Nagy May 17, 2020

Globalization what globalization
One should only look at the trade between India Pakistan and China 4 billion people and 1 percent the global trade
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Norman Kennedy May 17, 2020

Once America killed multilateral trade agreements, it has been a free for all. That was the game plan and now there is no game plan, just a competitive freee for all. Prosperity is created by competition and a level playing field with consistent and constant rules. Now that business must assume that the rules will change, prosperity suffers due to contingency costs. It is that simple. You are delusional if you think common sense should prevail especially when long term planning/cooperation has become a waste of time due to ignorant politicians and citizens whose intellect is limited to sweeping rationalizations.
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Nic Mudie May 17, 2020

The econocracy ( French scholars will relish the second syllable as equally prescriptive and descriptive) , being true believers in comparative advantage ( PPE 1.0) will always point to increased trade as the route to every participating country increasing it's GDP. Leaving aside, for the moment, the outdated usefulness of GDP as a measuring rod in an era where advanced economies have nearly 80% of activity devoted to services ,mostly non-tradeable, and sometimes up to half of the total devoted to government expenditure of sometimes questionable use, what seems to have eluded their thinking is the need to pose following questions.

What is the correct balance between an enhanced GDP and an ever worsening equality in the cutting of the cake?

Should we forgo the increases in GDP obtained through globalisation in the name of not just morality but also political stability by reversing the seemingly inexorable trend to inequality in what is somewhat smugly called the developed world?

Increasing disparities in both income and wealth at a faster rate than GDP seems like an excellent recipe for revolution. Not many revolutions have resulted in an increase in GDP! Old Ford realised that his workers had to earn enough to be able to buy his cars. In working out what he should pay he was lucky to be spared the wrangler defying contortions of most of continental Europe which reveals an ever widening disparity between wage costs and take home pay.Today,the idea of earning enough seems to have been replaced by being able to borrow enough.

The elegance of theoretical equations that so fascinate the modern practitioners of the dismal science should be given no more weight than the views of the daddy of the all, one Adam Smith who was no mean moral philosopher and recognised the dismal science to be political economy.

Whilst we’re considering the wisdom of the ancients, Locke’s definition of mad men includes those who reason perfectly from erroneous assumptions.
Do you know economic man personally and has he fallen for an indifference curve or the free market ?

The questions posed above are not intended to decry the effect that globalisation has had in lifting a vast number of people out of poverty in the poorer nations. The aim is to point out that any collapse in richer countries’ economies brought about by gross inequality will inhibit any transfers, be they by means of aid or preferably trade, to the poorer ones. Some replacement of just in time by just in case might be in order
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Ted Peters May 17, 2020

I'm pro-globalization but anti-ChiCom. Surely it is wiser to maximize diversity when it comes to supply chains rather than concentration them in a single country with an extremely repressive regime.
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About Face May 17, 2020

Globalisation is not so much about outsourcing and supply chains stretching far from markets. The model is about remaining dominant ( not relevance ) to extract maximum profits. The wealth concentration by the 1% of 40% of global wealth smacks squarely into the face of why no body quite discuss this until recently at the last Davos. The weaker players have Covid to thank to have this eco system adjusted to more favourable terms, in place of more sporadic but frequent conflicts waged by the dominant players.
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Adrian Wu May 17, 2020

Globalisation has generated winners and losers. It has also become a tool for oligarchs to take a larger share of the economic pie, at the expense of workers. It has become a new form of colonisation, but instead of natural resources being exploited as in the old colony days, it is labour. It is sort of like saying one should not rely on minerals and other resources extracted from colonies, because if something happens to these colonies (such as a revolt), supply will be interrupted. This is exactly what is happening; the low cost of labour and lax environmental regulations in China, India etc. were ripe for developed countries to exploit. Under these circumstances, when the relationship was unequal, globalisation was perfectly acceptable because it was to the advantage of the developed countries. Now that China has "grown up" and commands more bargaining power, and even have pretensions to become the boss, globalisation is suddenly bad. China is acceptable as a subjugate, but not as an equal partner. Western governments suddenly start citing the number of jobs lost locally, but never once mentioning the profits that have been made by their companies and investors. They talk about the unfairness of trade deficit, where actual goods were imported in exchange for IOU notes that they now contemplate of not honouring.
So here lies the problem of globalisation. If it developed in the spirit of mutual benefit, it could have led to long lasting prosperity and global harmony. But it was conceived as a means to exploit the weaknesses of other nations, and this was surely doomed from the beginning.
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John James May 14, 2020

Dr. El-Erians presentation is well written. I would be interested to see a more mathematical/structural presentation of how this "deglobalization" would take place.
As I currently understand it, the developed world accounts for a major but declining share of consumption and a minor share of production(ex services).
The developed world is also demographically characterized by 1) most aged population, 2) chronic current account national deficits, 3) high social welfare spending and low and declining manufacturing production. They also represent approximately 10%-15% (and declining) of total global population. The opposite obtains for the rest of the world.
Given these facts, I am in a constant state of worry as to how to navigate, from an investment perspective, this terrain. It is difficult for me to see, in an increasingly commoditized, concentrated global economy how restrictive investment planning options placed by national governments will trump objective, private sector (and even SOE) financial/investment planning.
- Michael Hullevad May 14, 2020
  
  I fully agree! We will see a "new world" with more productiom based on much shorter supply lines,
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Alex Calfee May 14, 2020

Mohamed, I respect your optimistic opinion on this but it has been made pretty clear to any casual observer that the people driving globalization did so cynically. They sought to reduce exposure to higher regulatory regimes (environmental and labor) that layered cost on their operations. Their ultimate goal was not to reduce conflict or tighten the brotherhood of nations, but to increase the bottom line.

Globalization had positive impacts for two main groups: owners of capital and the destitute in the nations that attracted said capital. There are plenty of economic indicators that show everyone else ended up with a net negative outcome.
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Mirek Fatyga May 11, 2020

One cannot navigate well without a good map. A good map of the modern world seems to elude the establishment thinkers for reasons that, frankly, baffle me ever more.

One cannot understand the problems of the contemporary world without pondering consequences of the XXth Century population growth. And yet, the very fact of population growth, never mind the consequences of it, is hardly ever mentioned in the pages of this whole outfit, Project Syndicate, supposedly populated by the leading lights of politics and economics. Why would that be?

The population growth occurred primarily in the developing world, a side effect of rapid improvements in childhood mortality colliding with cultural imperatives still attuned to the old reality of ~50% mortality. The population of the whole globe nearly tripled in my lifetime. The consequences of this are quite straightforward and can be understood with a reasonably easy math: the United States, with ~4% of world population is still using ~20% of world oil production. To bring the multitudes to the US level of oil consumption one would need to roughly quadruple the world oil production. To bring them to the EU level, roughly double. And this is just one resource.

While supply chains can be surely shortened, and some are probably nonsensically long and complex, the aspirations of newly born multitudes cannot be squashed, particularly given the globalization of information flows which is unlikely to go away. The old hat trick of the developed world was to corrupt the poor countries, while at the same time loudly complain about their corruption and lecture them about virtues of the rule of law. Then, their resources could be extracted and used in the West, and all one had to do was to provide a refuge for corrupt rulers and their progenity when the time came. This strategy is wearing thin, as the primitives are unexpectedly learning and aspiring to keep some of their bounty for themselves. These aspirations could have been slowed down 20-30 years ago, though probably not indefinitely thwarted, but this was then ,Ross Perot had his moment. The horse is out of the barn. China added the whole US worth of consumers in the last 20 years, and they have another, cool, billion to go. And then there is India and all of Africa.

The only plausible solution to this is technological development, assuming that the solution does exist. The elites in the rich countries should have leveled with their populations long ago and explained to them that globalization reflects an inevitable process of equilibration of resource use and the only way out of the predicament is to innovate. The West needs to move away from fossil fuels, gradually, not because of non-existent climate crisis, but because there is not enough of them to go around. Say this to the young generation, as a challenge ,and they will understand. Much better than trying to scare them with chimeras of everything melting into the living hell ,which debases science and thus makes people ever more cynical and distrustful as the scientific case melts away instead of the arctic ice.

We need to start talking about scarcity and it's consequences, urgently. Otherwise demagogues will inevitably win. They do not need to be truthful, just sound plausible to win power. And, frankly, some of them may simply be deluded (calling Peter Navarro ...).
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Frans Verhagen May 11, 2020

This well-articulated position on a response to the three punch on globalization does not measure up to demands of new thinking and action during this pandemic, let alone the looming climate catastrophe. This time of deglobalization and systemic disruption of economies presents the opportunity for new thinking and action.

Notwithstanding the present trend of deglobalization we should be clear about the demands for a just and sustainable global governance system. An important component of such system is a 21st century quality of economies in the Global North and South that are embedded with businesses based on the triple-bottom line or sustainability principle, economies that are also distributive and regenerative. These economies should strive, each in their own way, to make emergency quantitative easing permanent and thus develop money-based financial systems away from the present debt-based financial systems.

Due to the enormous social and economic demands of the looming climate catastrophe political leaders notwithstanding the deglobalization trend should decide to transform the unjust, unsustainable, and therefore, unstable international monetary system by basing it on the monetary carbon standard of a specific tonnage of CO2e per person. The ethical, commercial, intellectual, ecological and strategic dimensions of such carbon-based international monetary system are seminally presented in Verhagen 2012"The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation" (www.timun.net) and are being updated in its sequel “The Tierra Pathway”.
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Sy Pra May 11, 2020

Hi
Very well articulated and argued. Would be great to get clarity, perhaps via another piece, of how the issue of the global commons for which time is of essence- aka Climate Change can be addressed, please.
- anime enemy May 13, 2020
  
  Exactly, sy. This article would be more explicit has it analysed this paragraph.
  - Michael Hullevad May 14, 2020
    
    The solution is cheap energy that can out-compete the coalfired powerplants. We have to invest in nuclear solutions.
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