Slowbalisation revisited

Every year, in the picturesque town of Sintra, located between the mountains and the sea a few miles away from Portugal's bustling capital Lisbon, the ECB gathers the crème de la crème of policymakers, academics, financial market representatives and journalists to exchange views on current policy issues and discuss a key topic from a longer-term perspective. If you have not been there yet, I really encourage you to visit this UNESCO-World Heritage Site with an architectural legacy going back to the Roman and Moorish rules. Last year, the theme of the ECB Forum on Central Banking - otherwise called the "Sintra Forum", or the European response to the Fed's iconic Jackson Hole Symposium - was "Central Banks in a shifting world". For obvious reasons, the 2020 vintage was a virtual one. The ECB has just published the complete proceedings of that virtual event, casting a light on a variety of hot topics among which Slowbalisation was the most passionately discussed (You can watch all the video recordings of the Forum and download the papers related to the different sessions by clicking here). 

As many other newly coined economic words and concepts, Slowbalisation has gained in popularity after being adopted and endorsed by The Economist in its January 24, 2019 issue. The oldest economic newspaper of the world, which boasts a 177 years history, excels at detecting disruptions, regime changes and inflection points in the global agenda...or at borrowing them from some less-famed pundits. As a matter of fact, as The Economist recalls, the term slowbalisation has been used since 2015 by a Dutch trend-watcher, Adjiedj Bakas.

Basically, the whole idea stemmed from an extrapolation of trends in the post-GFC era with the end of the global "trade deepening" (i.e. the stagnation of the world trade-to-GDP ratio following three decades of steady growth, cf. the chart below). In 2018, in a keynote speech delivered at the Asia Pacific Financial Forum in Seoul, I alluded to the same developments by observing that "in the aftermath of the 2008 crisis the ratio of trade to GDP growth has fallen down to around 1:1" (you can read the keynote speech here). I also mentioned in that speech that this reflected structural changes in global economic growth, with a sharp slowdown in residential and non residential investment, especially in China, and industrial overcapacity. 

In a paper presented at the Forum, Harvard Professor Pol Andras argued there was little systematic evidence indicating the world economy has already entered an era of de-globalisation. Instead, the observed slowdown in globalisation is a natural sequel to the unsustainable increase in globalisation experienced in the late 1980s, 1990s and early 2000s. In the same line of reasoning, to the extent that agents perceive the COVID-19 pandemic as temporary, it is unlikely to become a persistent de-globalisation force according to Prof. Andras. However, “the political rhetoric that has fuelled the backlash against globalisation will remain a challenge unless tax systems do a better job of providing a safety net or offering active labour-market policies to those individuals experiencing negative trade-related income shocks, such as job dislocations caused by import competition. “ In this regard, the agreement on a minimum taxation rate for multinationals that has been pushed by the Biden Administration and is on the verge of being adopted at the international level is perhaps the best recognition of this challenge. It is an important milestone and breakthrough in multilateralism after decades of kicking the fiscal ball down the road. 

The discussant of the paper, Susand Lund, a partner at the McKinsey Global Institute, which produced a remarkable study on the resilience of global supply chains in the wake of the pandemic had a different perspective. She noticed that their occasional disruption can have measurable implications for company profits, and that a large share of executives considered making them safer, including through "near-shoring" and regionalisation. She also pointed out the importance of non economic factors - mostly political and geopolitical factors - that have been pushed to the front by the pandemic. Indeed, as Lund states - and we completely agree with her on this point - "A multipolar world has brought more trade disputes, higher tariffs, and broader geopolitical uncertainty, while increased reliance on digital systems increases exposure to cyberattacks. In many cases, suppliers are concentrated in a single geography due to specialisation and economies of scale and a natural disaster or localized conflict in that part of the world can cause critical shortages that snarl the entire network. Even in value chains that are generally more geographically diversified, production of certain products may be disproportionately concentrated. "

The debate about slowbalisation has actually obliterated the changing nature of international trade, with the trade in services now growing much faster than the trade in goods and to a large extent services that are exchanged virtually are not recorded in trade statistics. The global economy is now increasingly structured around the intertwining of physical and virtual activities, at the local, national, regional and global level. The sabotage of Colonial pipelines and oil storage facilities in the United States by a ring of (allegedly) Russia-based (if not backed) hackers, known under the sibylline name of DarkForce, is a strike illustration of how the nefarious threat of large-scale cyberattacks has gone from a hypothetical risk to a reality. A fascinating account of DarkForce, its origins, its "mission statement" - yes, they do have a mission statement! - and operating mode can be read in this article from TechRepublic. The involved hackers claim that the main target of their "ransom-as-a-service" business model is limited to large corporations, sounding almost like some kind of "ethical" anti-capitalist activist group. Ironically, the hackers have been helped by self-promoting IT security companies like BitDefender - so called "White Hats" - as has been reported by the MIT Tech review. Indeed, earlier this year, Bitdefender announced that it had found a flaw in the ransomware and that companies facing demands from DarkSide could download a free tool and avoid paying millions of dollars in ransom. The many sides of DarkSide remind me of the many-Faced God worshiped by the mysterious cult of assassins, known as the Faceless Men, in the Game of Thrones franchise. The nexus between trade, technology, social and political developments has always been at the heart of all economic developments, but this nexus has taken a new relevance in a data-augmented context. After all, digitalisation and globalisation are only two different faces of an ever changing Janus-like economic deity, with one face mired in the past while the other is already discounting the future. 

For more insights on the Global Economy, Finance & Geopolitics, visit The Multipolarity Report (Multipolarity.info)