The Current State of Globalisation

The Economist - 2013-10-15The Economist this week (Oct 15 issue) includes a special report on the world economy, where an important conclusion is that the forward march of globalisation has paused since the financial crisis, with nations states and trade unions returning to a more conditional, interventionist and nationalist model.

According to The Economist, a simple measure of trade intensity, world exports as a share of world GDP, rose steadily from 1986 to 2008 but has been flat since. Global capital flows, which in 2007 topped $11 trillion, amounted to barely a third of that figure last year. Cross-border direct investment is also well down on its 2007 peak.

After two decades in which people, capital and goods were moving ever more freely across borders, walls and trade barriers have been going up. Governments increasingly pick and choose whom they trade with, what sort of capital they welcome and how much freedom they allow for doing business abroad.

Almost all countries still embrace the principles of international trade and investment. They want to enjoy the benefits of globalisation, but as much as possible they now also want to insulate themselves from its downsides, such as volatile capital flows or surging imports that damages domestic industries.
200470159-001The flow of people between countries is also being managed more carefully than before the crisis. Borders have not been closed to immigrants, but admission criteria have been tightened. At the same time, however, many countries have made entry easier for scarce highly skilled workers and for entrepreneurs. Talents are now prioritised before refugees.
Most likely, this is a temporary trend. Globalisation has changed the role of the nation state politically because of strengthened interstate relationships and dependence on one another through trade flows.
States were historically created to be sovereign but due to globalisation and creation of trade pacts and unions, often give their sovereignty away by economic interdependency. This has led to increasingly similar jurisdictions across states and to power and influence being seen as economic rather than political strength.
Adding to this, global supply chains in the large multinationals integrate across borders and such flows are often not seen in the trade statistics. Also by now internet and social media has made news and information sharing instant, making it impossible for countries to hide facts and inequalities. These processes seem irreversible.

Below is a video published on YouTube today, where the author of the special report, Greg Ip,  discusses his conclusions.

The world economy

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