Article: Covid 19: an end to globalisation?

Covid 19: an end to globalisation?

Globalisation - Covid-19 a wake up call?

Globalisation has been a corporate mantra for the last fifty years, so much so that virtually every aspect of our day to day lives is influenced by its effects.

But has it run its course and are the costs of globalisation becoming too much to bear? And is the Covid-19 crisis the instrument of its demise?

This article is a discussion piece about our modern society and how the Covid-19 crisis could affect key parts of it. We’ve steered away from statistics and have been purposely generic in order to promote consideration of the issues rather than getting bogged down in the minutiae.

Globalisation – what is it?

Globalisation is the extension of the factory system (division of labour) to a global scale.

In simple terms, the extraction, processing and production of goods and services have been located (quite often re-located, i.e. moved) to areas / countries where it is simply more efficient / cost-effective.

Whilst there are many exceptions, in even simpler terms, globalisation has been the process where labour intensive activities have been moved to lower cost countries.

This has resulted in many benefits, notably:

  • Both cheaper and a wider variety of goods and services from specialisation and economies of scale
  • More competitive global markets driving innovation
  • Higher overall global economic growth – especially in developing countries.

Also, it is worth while making the point that globalisation, at a certain level, has always been a part of the global economy since ancient times – simply termed back then as “trade”.

So, where’s the problem?

The problems of globalisation…

The problems with globalisation

The notion of manufacturing products and services in the most cost-effective manner is not necessarily a bad thing, arguably its been one of the key drivers of modern society.

So why is globalisation bad?

Globalisation is bad – because it simply doesn’t share its costs and benefits equally.

We do not live in a global society where all costs and benefits are shared equally whatever they may be. Instead, we live in a series of closely connected but fundamentally separate societies and economies – where costs, and indeed benefits, are unequally shared.

Add in the emergence of a new global actor – the multinational – who reaps most of the benefits through profits, the distribution of those benefits and costs becomes even more skewed.

Whilst these costs on a normal basis can be hidden, in times of crisis they become more apparent.

Example

If a UK business, which sells predominantly to a UK base, were to relocate / outsource its energy intensive manufacturing to say China to take advantage of lower labour, energy and environmental costs for example. Who would benefit and who wouldn’t?

Benefactors:

  • The business – by utilising cheaper manufacturing costs supported by a cost-efficient international distribution network they can maintain profit-margins even if they reduce prices
  • The consumer – potentially benefitting from wider range of products and cheaper prices
  • China – increased employment / increased tax take.

Losers:

The employees – the most directly affected are those who have lost their jobs, and those that are dependent on those jobs (suppliers, family etc.)

The state – from the loss of income in the form of taxes

The state – from the provision of benefits to those that have lost their jobs

Local communities – which may have been dependent on those jobs.

The above are the direct losers, but there are other less-direct negative effects of globalisation.

The environment:

In the good old days, before we understood about global warming, environmental issues, were in the main, local and regional issues. They caused death and suffering in the immediate locality (think Bhopal as an early example).

Casting aside the moral issues of locating pollutive industries in countries with low(er) environmental standards in order to maintain profit margins, the production of greenhouse gases in any part of the world affects us all. Relocating industry to countries which generate energy by the most pollutive means possible (i.e. the burning of lignite) and which either do not have or do not enforce emission regulations for the sole purpose of profit is not only morally reprehensible – but is a direct cost to us all in terms of long term climate damage.

This is especially the case as energy costs, say in the UK, increase to in order combat climate change and make mere existence sustainable.

Security:

Security encompasses a variety of things – security of borders, security of supply and security of capability. Globalisation has affected all.

Borders – compromised by increased movement of people and goods – whilst not necessarily a negative on its own (there are many benefits of open borders) potential costs include the influx of labour willing to undercut indigenous workers and the increased challenges to protect our borders against risks such as a global pandemic.

Supply – by “off-shoring” production as a society we simply relinquish control of it – be that food, ventilators, testing equipment or reagents. Normally, not an issue – but in emergencies we simply do not have the ability to control it. Is it acceptable for a society to have such little control over things so important to it?

Capability – the capability of a state to be able to do something – for example, the ability to design and build warships (which we do retain because we consider it a “strategic industry”) – linked closely to supply – but over a longer time frame. If, in the future, a crisis goes on for a long time period – do we as a nation state have the actual capability (knowledge, production facilities, skills) to produce key things that are important to our society – or are we always going to be held to ransom by international markets?

Globalisation – gone too far?

Covid-19 and globalisation

It is the non-direct effects of globalisation that are the true “tellers” here.

During normal times most people will only look at the direct effects of globalisation – and broadly speaking, most will consider it a positive. The less-direct effects, as they are broadly less visible, generally have a longer time frame and affect societies as a whole rather individuals, are discounted.

But in terms of crisis, they become important to all.

Climate change is a global crisis – it is not solved by exporting production to countries that do not enforce environmental protections and then transporting those goods halfway round the world.

Likewise, with the Covid-19 crisis we are realising that our supply chains and our capability to fill in the gaps are not as robust as we would like them to be, as we would demand them to be.

Climate change, by being more of a “slow burner”, has only started to challenge hegemony of globalisation. The Covid-19 crisis on the other hand, by being so acute, has brought some of these issues into stark relief.

Will this change our attitude towards globalisation?

Quite simply, too soon to tell. The profit motive is a strong driver, especially when driven by "stateless" multi-nationals and supported by certain powerful state actors.

However, questions are being asked, the debate is beginning to take place.

Do people want to be dependent on external third parties they have little control over in times of crisis when they need that control the most?

Will businesses respond to changing consumer preferences if they do?

Can we justify trade with countries that have scant regard for the environment and even less regard for their people and the people of the world through their actions?