5 Rules for the Post-Global World That Business Leaders Must Know

For the last half century, we’ve been told by economists, politicians and pundits that the “world is flat,” and globalization unstoppable. But as everything from the 2008 financial crisis, to COVID-19, to war in Ukraine and US-China decoupling has shown us, globalization as we’ve known it is over, and we are moving into a new world. Here are five things every business leader should know about this seismic shift.?

1. Globalization isn’t ending wholesale, it’s transforming.?While the last half century of globalization made the planet as a whole wealthier, it resulted in huge and growing inequality within most countries – and that disconnection between the global economy and national politics has led to the political populism we see in the US and beyond. It’s a problem that has been brewing for decades, as politicians on both sides of the aisle adopted “neoliberalism,” the economic philosophy that has underpinned modern globalization, as a North Star. Capital, goods, and people were meant to travel seamlessly across borders. All boats would rise, policy makers told us. Place didn’t matter. But in fact, it did. Capital traveled a lot faster than labor. Multinationals got rich as the environment was degraded. Cheap TVs didn’t make up for stagnant wages. Corporate “efficiency” turned out to be not particularly resilient in crisis.?With bare supermarket shelves and the shortage of PPE supplies, the pandemic brought the fragility of global trade and supply chains into stark relief. The tragic war in Ukraine and the political and economic chaos that followed have further underlined the vulnerabilities of globalization. The world, it turns out, isn’t flat—in fact, it’s quite bumpy. A certain amount of regionalization and localization, particularly in goods and labor, will be important to ensure a more resilient world.?
2. De-globalization comes with challenges, but also great opportunity. Certainly, when driven by geopolitical conflict, protectionism or nationalism, de-globalization is bad. But when it’s about rethinking supply chains to increase redundancy, or clustering production and consumption more closely together to better serve local markets, it’s a good thing. Certain parts of de-globalization are actually welcome -- counting on autocratic governments for crucial supplies was never a great idea. Expecting countries with wildly different political economies to abide by a single trade regime was naive. Polluting the planet to produce and transport low-margin goods around the world doesn’t make as much sense when you tally in the true cost of labor and energy, not to mention changing geopolitics. More than three decades of falling real interest rates have resulted in unproductive and dangerous asset bubbles; we desperately need some price discovery in markets.
3. All this said, there is no getting around the fact that a de-globalizing world will also be a more inflationary one, at least in the short term. This will present a major challenge for both the US economy and the wider world. For the last few decades, globalization and disinflation have gone hand in hand. As multinational companies grew far beyond the confines of individual nation states, they were able to use technology, outsourcing and economies of scale to drive down prices. Cheap labor, cheap capital and cheap commodities kept them down.?Now war in Ukraine has put an end to cheap Russian gas. The global push towards carbon neutrality will ultimately add a permanent tax on fossil fuel usage. Decoupling between the US and China means an end to “efficient” (aka cheap) but fragile supply chains. The end of quantitative easing and the Federal Reserve’s rate rises are putting a cap on easy money. Countries, companies and consumers will have to get used to the fact that cheap was never really cheap when you accounting for the true price of production.?
4. Technology could help buffer the inflationary impact of a de-globalizing world. Large companies that can afford to own more of their entire supply chain have been moving towards vertical integration as a way to smooth disruptions and the inflationary pressures that result. Companies of all sizes are looking for ways to localize more production wherever their consumers are, no matter which country or region they are in, because they simply want more buffers against shocks of any kind — be they geopolitical or climate-related. Look for cutting edge decentralized technologies like additive manufacturing, 3-D printing, vertical farming, and digital currency to help bring jobs, production and wealth closer to where consumers are.?
5. Labor will have more power relative to capital. There has been, in many OECD nations, a decoupling of productivity and wages over the past 40 years, during which time the corporate sector took a larger share of national income gains. But while 55 per cent of productivity gains in western Europe still go to labor, American workers have to duke it out for a mere 14 per cent — and most of that goes to the top third of workers. De-globalization will favor local labor markets in some industries, is starting to shift that dynamic. Ageing demographics, which will create a structurally tighter labor market, as well as millions of new onshore jobs in the caring professions, is too. There will also be increasing pressure on companies to give workers more pay, better conditions, and a greater say in how companies run. De-globalization and stakeholder capitalism will rise hand in hand.?

This is a preview of my book Homecoming: The Path to Prosperity in a Post-Global World, on sale October 18. You can read an excerpt of my book about the beauty of localism here.