In the economic sphere, this era of globalization witnessed rapidly rising income inequalities among people, while the distribution of wealth became even more unequal. The income gap between rich and poor countries widened. In sum, the prosperity created by globalization was captured by a few, excluding the many, leading those excluded to voice their discontents with globalization. The global economic crisis in 2008, precipitated by financial liberalization, led to a contraction in international trade and investment flows, combined with a volatility in capital flows, while the Great Recession that followed led to a sharp slowdown in economic growth. Yet, governments sought to focus on balancing budgets and managing inflation, at the expense of both output and employment, accentuating the difficulties of those excluded. Such macroeconomic policies were shaped by globalization, as governments were sensitive to perceptions in international financial markets.
The political consequences were no surprise. Economies might have become global, but politics remained national. There was a political backlash in the form of resurgent nationalisms riding on populist or chauvinist sentiments. In industrialized countries, nationalist-populist political parties, or xenophobic populist leaders, exploited fears about openness to immigration and trade as a threat to jobs. In developing countries, nationalist-populist political leaders exploited economic inequalities, social divides and ethnic or religious identities to challenge or oust incumbent governments. It would seem that such political parties or leaders from outside the mainstream captured the political space created by unequal outcomes and social discontents associated with globalization. The changing international context injected a new political challenge. Globalization has always required a hegemon to set the rules of the game and ensure conformity by players. This role was performed by the US. However, the economic resurgence of Asia, particularly China, juxtaposed with the aftermath of the global economic crisis, both attributable partly to globalization, have eroded its economic dominance and political hegemony. And, the US, almost in a withdrawal syndrome, seems to be relinquishing its political leadership role in the world. However, there is no country, yet, that could replace the US as the global hegemon.
Thus, by 2020, an uncertain future for globalization loomed large on the horizon. But more was to come. A novel coronavirus emerged from China, surfaced in different parts of the world in early 2020, as cross-border movements of people rapidly transformed it into a global pandemic. It has persisted for two years, turning the world upside down, and has not yet gone despite vaccinations. The pandemic prompted repeated and prolonged lockdowns everywhere, which shut down economic activities—manufacturing and services— leading to a sharp contraction in output and employment across countries. This meant a serious disruption in integrated global production networks. Just-in-time production systems were paralysed, as intermediates and components made in China or East Asia were no longer available. International trade and investment flows were inevitably stifled. Draconian restrictions on international travel disrupted the globalization process further, for which cross-border movements of people are just as essential as those of goods, services, capital and technology.
The situation might have improved in early 2022. But that was thwarted by the Russia-Ukraine war, which disrupted global supply chains, particularly in food and fuels. Russia and Ukraine together are an important source of supply for wheat, maize and edible oils in the world market, while Russia is a primary source of oil and natural gas. The war might be localized, but the continuing conflict has created global ripples. It has also accentuated uncertainty and risk in economics and politics, making markets nervous, constituting another body blow to globalization.
The pandemic and the war could well be the last straw on back of globalization already under stress. Global supply chains are stockpiling inventories while large international firms are contemplating relocating or dispensing with offshore production, as an insurance against shortages or disruption, reinventing established business models. Governments, worried about global risks, are in search of national economic security or strategic autonomy to reduce dependence on the outside world. Clearly, for our present era of globalization, which seemed unstoppable a decade ago, the end is near.
History suggests that globalization has always been a fragile process. It has come to an abrupt or unexpected end thrice during the past millennium. The underlying reasons were embedded in the consequences of globalization, ranging from the spread of pandemics to economic or political conflict between winners and losers, whether nations or people. The earliest wave of globalization in the Mongol Empire ended circa 1350 when plague germs carried from Central Asia to Europe killed one-third the population of Europe. The next wave of globalization in the age of mercantilism ended circa 1810 with conflict culminating in the Napoleonic Wars. The preceding epoch of globalization in the age of empire ended in 1914 with a World War. And, now, our current epoch of globalization is about to end.
It is clearly not the end of geography. It is not the end of history either. Of course, history does not repeat itself. But it would be wise to learn from history.
Deepak Nayyar is emeritus professor of economics, Jawaharlal Nehru University
