Handelsblatt International correspondent Torsten Riecke analyzes interesting data and trends from all over the world in his weekly column. You can reach him at [email protected]
(Photo: Klawe Rzeczy)
London There are not very many issues on which Olaf Scholz takes a clear position. However, when it comes to the supposed end of globalization, the Chancellor braces himself with verve against the doubters: “I oppose all those who are now pushing the idea of deglobalization,” said Scholz last week at the German Employers’ Day.
This also meant host and employer president Rainer Dulger, who had made deglobalization partly responsible for the high inflation rates. Dulger and Scholz have apparently not yet recognized that globalization has not gone into reverse gear, but has only changed its face thanks to new technologies. The dangers are therefore not lurking at the barriers of national borders, but at their digital hubs.
The financial information service Bloomberg has found that since the pandemic, the bosses of international companies have increasingly used terms such as “onshoring”, “reshoring” or “nearshoring” to relocate their production facilities. What all these buzz words have in common is that they describe a reversal of the multinationals towards safe, homely regions.
Economics Nobel Prize winner Paul Krugman sees this as “the first signs of a partial withdrawal from globalization”. At the same time, the star economist points out that such a retreat is by no means as unusual historically as it might appear to us.
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On the eve of the First World War, a well-to-do citizen of London could “while sipping his morning tea in bed, order by telephone the various products of the whole world in whatever quantity he thinks fit, and expect their speedy delivery to his doorstep”. This is how John Maynard Keyes described life in the first wave of globalization, which ended abruptly with the outbreak of war.
Today, in addition to the aftermath of the pandemic, it is Putin’s war in Ukraine that is cutting international supply chains, slowing down world trade and prompting global corporations to gear their production to “just in case” rather than “just in time”. In other words: being safe is more important than efficiency.
This is currently most evident in the international struggle for locations for computer chip production, since intelligent semiconductors have become the most important building blocks for the prosperity of nations.
In politics and business, however, the new key technologies are not only stirring up a tightrope mentality for fear of being left behind in technical progress. At the same time, they are changing the face of globalization.
The Geneva globalization researcher Richard Baldwin described the development of international networking as follows: The Industrial Revolution paved the way for the exchange of goods across borders and oceans. “The second unleash — sometimes referred to as the global value chain revolution — has redrawn the international frontiers of knowledge,” writes Baldwin.
This made it possible to combine two comparative production advantages from geographically distant areas: technical knowledge and cheap labour. This led to massive relocations of production facilities from the rich industrialized countries of the North to the up-and-coming emerging countries of the South such as China and India.
Today, as the economist first argued in his 2019 book “The Globotics Upheaval”, it is no longer so much a matter of distributing goods or entire production facilities across the globe, but of offering intelligent services worldwide. Anyone who wants to capture this type of globalization should therefore not look at freight traffic or foreign direct investments, but must pay attention to the international data flows.
Data flows are becoming more important than freight traffic or direct investments
According to calculations by the McKinsey Global Institute (MGI), 45 times more data was exchanged between the world’s major economic regions in 2014 than in 2005. The MGI researchers estimated that globalization and free trade increased global prosperity by around ten percent or 7 Raised $8 trillion.
More than a third of this has already been attributed to global data flows, which is more than the traditional trade in goods has contributed to the prosperity of nations. Since then, the trend has accelerated.
So are all prophecies of doom about deglobalization exaggerated? No, data streams can also be cut and the world economy can be split up into geoeconomic technospheres using digital “firewalls”. Therefore, when we talk about the risks to globalization, we should focus on its digital hubs.
More: “If China slides into recession, we are heading for the biggest crisis since World War II”