Globalisation and Fink’s discontent

When Larry Fink speaks, it usually makes headlines. Blackrock’s chief previously drew attention for defending the manager’s investment policies amidst accusations of being too ‘woke.’ His interjection on Russia’s invasion of Ukraine is certainly quotable, believing as he does that it marks “an end to the globalisation we have witnessed over the last three decades.”

In his latest annual letter to shareholders, Fink noted that, with increasing threats to national security, companies and governments would be looking to move away from international dependency and perilous supply chains.

He writes: "Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments worldwide to re-evaluate their dependencies and re-analyse their manufacturing and assembly footprints – something that Covid had already spurred many to start doing. And while dependence on Russian energy is in the spotlight, companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries."

As discussed below, the crisis is leading investors to recalibrate the risks they attach to exposure to non-democratic states such as China. While the use of sanctions and the exclusion of Russia from global markets is one aspect of this, is may also lead to a resurgence in mercantilist arguments. And it does not take much effort to see how this will interact with more familiar ESG issues. For example, renewable energy might be promoted as a domestic alternative to reliance on ’foreign’ fuel, and ’national’ ownership of infrastructure might be reasserted.

This seems to accord with Fink’s view, at least over the longer term. While he argues that the immediate effect of the invasion will be to “slow the world’s progress toward net zero” his longer-term prognosis makes for more optimistic reading. He suggests that “recent events will actually accelerate the shift to greener sources of energy.” It is certainly easier to understand the logic behind that: even forgetting the environmental concerns, higher fossil fuel prices only serve to make the economics behind renewables that more appealing.

There is nothing inevitable about the future. Like Francis Fukuyama’s much maligned and often misunderstood ‘end of history’, previous reports of globalisation’s death have been greatly exaggerated. The West itself has been galvanised by the invasion, and economic blocs like the Trans-Pacific Partnership promising free trade might be more likely to succeed in light of China’s growing assertiveness.

Nonetheless greater global integration may have hit its limits for the foreseeable future.?