For generations after World War II, he was sure that globalization would continue unabated. The opening of economies, technological advances, cultural exchanges and political engagement have ushered in one of the most extensive periods of global interconnection in history. Despite recent gloomy warnings, there is little evidence that this trend will reverse.
Data from the DHL Global Connectedness Index (GCI), produced by NYU Stern’s DHL Globalization Initiative, indicates that the flow of goods, services, capital, information and people across borders has increased steadily since the 1940s and by more than a quarter during this century. .
Given the disruption of the coronavirus pandemic and the rise of nationalist and populist movements around the world, many have spoken out about the impending rise of autarky and the end of globalization as we know it.
But we haven’t seen a turning point yet. Despite a slowdown after the 2008-09 financial crisis and a brief abrupt drop in the aftermath of the pandemic, the GCI and other indices point to a rebound in globalization flows. The volume of global merchandise trade is 5% higher than pre-pandemic levels, and most other flows are recovering rapidly, with the exception of the movement of people, mitigated by travel restrictions.
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So what did the experts go wrong? They misunderstood the resilience and slow-changing nature of the political, economic and social institutions that support existing trends.
Despite populist anti-globalization political movements, meaningful action has only taken place on the fringes. Tariff increases created friction and increased the costs associated with trade, but they did not stop trade. Brexit has complicated UK-EU relations, but many efforts have been made to avoid harming critical trade.
Rather than withdrawing massively from bilateral and multilateral trade agreements, in recent years, countries have entered into new trade deals in Asia, Africa and around the Pacific, while the NAFTA has been renegotiated.
With the exception of Brexit, there have been few long-term political brakes on the flow of people. A recent UN review found that 10 times more countries are relaxing their immigration policies than they are restricting them. While the US, UK, and EU become a little less immigrant-friendly, they remain attractive for all types of human flows: legal and illegal immigration, extended studies, and sightseeing. Countries like Canada, Australia and the United Arab Emirates have, in some ways, become more welcoming and have filled the void.
As for information flows, as Big Tech regulation develops, there are multilateral actions to improve data transfers, which are increasingly included in trade pacts. Data policies often reaffirm the protection of privacy while also recognizing the importance of cross-border communication.
The economic systems, structures and paradigms of the post-WWII liberal economic order remain relatively intact. The hegemony of the US dollar and US-led institutions continues despite repeated attempts to develop viable alternatives. Multilateral organizations such as the WTO, the IMF and the World Bank continue to provide essential infrastructure and support for economic exchanges.
China established the Development Bank of China and headed the Asian Infrastructure Investment Bank. Yet they are eclipsed by the World Bank and the IMF, their more widely supported brethren. Developing countries are arguing for greater influence in global financial institutions, but the fundamental functions of these bodies have not changed.
In a world where globalization was going backwards, one would expect to see more economic decoupling. Yet the overall health of the global economy continues to be influenced by consumers, banks, businesses, and entities in the world’s largest and wealthiest economies, including state interest rate policy. United and the activity of the central bank.
Even the emergence of China as an economic power has helped to widen the globalization pie. As long as developing countries continue to embrace economic openness as a path to growth and prosperity, like China, South Korea and Japan, globalization is unlikely to weaken.
Robert Salomon is Professor of International Management and Associate Dean of Executive Programs, NYU Stern School of Business
Socially, a decline in globalization would likely be preceded by changes in sentiment, with people increasingly disapproving of foreigners and rejecting foreign cultures. Yet a study by the Pew Research Center shows that most countries view immigrants as a source of strength, and a recent poll by US News indicated that the majority of the world’s population sees substantial value in global trade.
Globalization has so far suffered from recessions, pandemic and political nationalism. What would it take for that to change? Indicators would include political action that increasingly reflects rhetoric, erosion of confidence in multilateralism that undermines multilateral institutions, decoupling of global economies and significant shifts in social sentiment. Unless we see such changes, expect globalization trends to continue, albeit at a slightly slower pace.
The strength of globalization in the face of significant threats highlights the need to dig deeper to understand social, political and economic institutions, how they are likely to change over time, and the data behind them.