‘Act local, think resilience’ - The future of globalisation and what governments of ‘developed’ nations must do now

Peter Vanham’s paper for the World Economic Forum in 2019 (A Brief History of Globalisation)  gives a fascinating and valuable insight into globalisation from the 1st century BC to the modern day.

However, whatever may have been the realities of globalisation over the centuries, the last few decades have seen an acceleration of globalisation like no other. I believe that we have seen interesting and unforeseen consequences from this globalisation that now require a seismic shift in thinking, particularly among governments in the ‘developed’ world.

So, what was the sequence of events leading to these unforeseen consequences;

-         growing wealth among ‘western’ consumers stimulated demand for an increasing range of products and services

-         sensing a great profit opportunity, ‘western’ companies looked to exploit low-cost labour markets (predominantly in Asia and the South Asian regions) to meet this demand. Potentially this was a new form of ‘economic’ rather than ‘military’ colonisation, but these countries were no longer ripe for the exploitation of previous colonial periods in history

-         instead, this exponential growth in ‘global’ trade led to the development of huge wealth amongst entrepreneurial classes in the new manufacturing and services regions  

-         soon, this wealth enabled these new market entrepreneurs to reverse the flow of capital and acquire many of the companies who had sought to be the ‘exploiters’

-         the growth of supply from the new powerhouse regions created a dependency within existing developed countries. This dependency was exacerbated by the decline in traditional capabilities within the developed countries due to the increasing outsourcing of supply to the new regions.

Whatever the potential long-term consequences of this new globalisation, a further set of unpredicted events emerged to create a ‘perfect storm’ of misery for the developed world:

-         Covid

-         War in Europe

The so-called success of globalisation was predicated on two major factors:

-         A concentration of supply

-         An effective global supply chain

With Covid, and now the war in Ukraine, both of these success factors have been disrupted. Consequently, western nations are facing shortfalls in supply which is creating an inflationary crisis, unprecedented in most people’s living memory.

So how should the governments of ‘developed’ nations react. Short term emergency measures need to be introduced. These will likely vary and reflect the political biases of respective governments, but at best these are only likely to be mild aspirin for the migraine. There is going to be significant hardship. Whilst deploying these short-term analgesics, governments in developed nations need to consider the medium to long term solutions that can bring some form of stability back to world trade and create a more balanced and resilient world order.

Building resilience into economies through effective understanding and mitigation of risk should now become a priority. Rather than the ‘free for all’ of globalisation, countries should look at those factors necessary for resilience. Predominantly, these can be considered in four major categories:

-         Water

-         Food

-         Energy

-         Critical capability

Water, food and energy are perhaps easy to understand. ‘Critical capability’ refers to those components necessary for economic survival. In the industrial age, they would have referred to things such as the heavy industries of steel and coal. These may still have a place in critical capability consideration, but perhaps now we need to think as much about microchip manufacture or even areas of intellectual knowledge capability.  

‘Act local, think resilience’ is about each nation’s government evaluating their level of global dependence on each of the above categories. For many, total self-sufficiency in any one of the four is likely to be unrealistic, and perhaps not even desirable. But there should be a determination of the level of acceptable risk in each category based on each countries’ level of global dependency for supply. Some counties have always done this. An example is Singapore’s investment in NuWater to mitigate its risk on water supplied by Malaysia – a potentially unfriendly neighbour. However, in many countries, such thinking appears to have been subrogated to the pursuit of free market profits from a globalised world marketplace.

Having determined the level of ‘local’ supply, governments can then shape policies in fields from education and economic investment policies, as well as targeted restrictions on foreign ownership, that enable them to exercise more control over the sustainability of their economies in the event of future seismic global shocks.

Nigel Penny is a strategy consultant operating globally. He serves many of the largest private sector companies in both the ‘developed’ and ‘developing’ world, and has further worked with governments and not for profit enterprises world-wide.