Recap: Prosperity in a Post-Global World – Short Cut with Rana Foroohar and Holger Görg
Has the era of globalization ended? And if so, how can we ensure prosperity in a post-global world? We invited Rana Foroohar and Holger Görg to discuss this question with us.
PUBLISHED18. JANUARY 2023
READING TIME5 MIN
From the pandemic to the war in Ukraine and the political and economic chaos that followed, recent developments have brought the fragility of global trade and supply chains to light. In her recent book ‘Homecoming: The Path to Prosperity in a Post-Global World’, Financial Times columnist and CNN analyst Rana Foroohar argues that we urgently need to move from globalization to regionalization in order to usher in a more equitable and prosperous future. But is globalization really over – or will it just look differently?
We have invited her to discuss her theses at our New Economy Short Cut with the Head of the Kiel Institute for the World Economy, Holger Görg.
Rana Foroohar started the discussion off with an insight into the broader analysis underlying her book, and why she thinks globalization has failed. Under neoliberal globalization, capital, goods, and labor were assumed to travel equally seamlessly to where they could be used most productively. Rana argued that this assumption turned out to be flawed, given that capital traveled much faster than either goods or people. This led to more global growth being created than ever before, but also to more inequality, both within and across countries.
While proponents of the old neoliberal model never denied that increasing globalization may initially kill off some labor in advanced economies, they proclaimed that wages would ultimately equalize, lifting all boats. Instead, increasing economic insecurity and rising inequality ended up fueling social disruptions and populist upswings in many countries across the world, including the US and Germany. Covid and later the Ukraine war made the pitfalls of the neoliberal model of globalization even more apparent.
“Suddenly, it became clear that it does in fact matter where countries get their energy from, and whether they outsource the production of critical products. Today, we are seeing a trend towards regionalization and localization”.
The important thing now, Foroohar said, is not to talk about anti-globalization, but about the question how the benefits of globalization can be recovered, to benefit people and regions more equally.
Holger Görg observed that while there a meaningful reasons to discuss the future of globalization, on the aggregate level, annual worldwide exports have been rising since the 1970s (with small exceptions during the 2008/9 financial crisis and the Covid pandemic), and are expected to continue rising. At the same time, he admitted that the unequal distribution of globalization’s benefits sparked significant political backlash. While the debate around globalization has ensued for several decades, the polycrisis that started off in 2020 led to a broader reassessment of global supply chains by businesses. Where previously, decisions were based simply on production costs, there are now other factors being considered as well. For some products and firms, this might mean less globalization, for others, it might mean more diversification. The crucial determinator according to Görg is the question which of these decisions will turn into the rule, and which into the exception.
He also added that, apart from geopolitical and economic considerations, the environmental costs of global supply chains are increasingly becoming more important, not least due to pressure from consumers.
“The environmental aspect might have a huge impact on bringing production closer to home.”
The elephant in the room
The elephant in the room, according to Görg, is the future of trade with China. While the US seriously started thinking about China 20, 30 years ago, Germany continued with business as usual. Now, politicians are working on a new strategy on how to cooperate with China, while businesses continue to be divided. Large multinationals are changing their risk assessment, but not to the extent that they would classify China as a high-risk location.
Rana Foroohar on the other hand focused on yet another elephant: technology. While shifts are happening regarding the trade of traditional goods, in services, a competing trend is ongoing. With technology progressing and businesses transferring to more flexible work models and home office, this might stimulate a whole new wave of globalization, only this time of white-collar jobs.
In the end, the two discussed the question to what extent the ‘onshoring’ of production back home will be driven by government policy versus corporate strategy. According to Rana, in the US, the government is pushing for heavy changes with the IRA, while companies theoretically have the power to shift the labor capital balance by committing to a higher productivity labor force. Holger Görg added that the balance between corporate and political decisions, and the extent to which states will want to engage in protectionist measures, is hard to foresee, but that the future and extent of globalization at the end of the day still heavily depends on corporations making decisions where they want to produce and sell.