Dhruva Jaishankar, Executive Director
The following article originally appeared in The Hindustan Times on April 8, 2020.
It is now evident that the coronavirus pandemic (Covid-19) is a systemic global event, one that will have significant consequences for people’s well-being and lifestyles, national economies, and political leaderships on every continent. It is natural for people to be considering the secondary implications of the pandemic. Some of the repercussions will be unexpected, and may not be felt immediately.
One natural question is what Covid-19 will mean for globalisation. Globalisation is the accelerated flow of goods, people, capital, information, and energy across borders, often enabled by technological developments. Over the past three decades, globalising trends were assumed to be the new normal. Trade without tariffs, international travel with easy or no visas, capital flows with few impediments, cross-border pipelines and energy grids, and seamless global communication in real-time appeared to be the natural endpoints towards which the world was moving, if at different rates for different places.
But the globalisation of goods and capital had already begun to plateau or stagnate since the 2008 global financial crisis (GFC). Trade as a percentage of global GDP rose from 39% in 1991 to 61% in 2008 but has remained flat over the past decade. The figure stands at 59% in 2018. Similarly, net foreign direct investment inflows, which were never above 1% of global GDP before 1989, occasionally crossed 4% over the past 30 years. But by 2018, it had dropped precipitously to 1.4%, its lowest level since 1996. Similarly, personal remittance flows, previously on the rise, flattened to around 0.75% of global GDP.
There are several causes for the great stagnation in the globalisation of goods and capital. It became increasingly apparent that not all countries, societies, and people were benefitting equally from globalisation, and that soon began to be reflected in national and international politics. The United States’ (US) sub-prime mortgage crisis of 2007-08, and its spillover to the eurozone, exacerbated national sentiment in Europe, which had previously been a model of international integration. The assumption that China’s rise would result in similar development opportunities for others proved unfounded. As one business leader cynically put it to me, “China, after climbing up the ladder, is kicking it out from under everyone else.” In hindsight, the economically nationalist impulses of countries as different as the US (“America First”) and India (“Make in India”) were a natural consequence.
A similar flattening has been underway in the globalisation of energy. Net international energy trade, which stood at 1.5 billion tonnes of oil equivalent in 1990, swelled to 2.5 billion by 2008 but then grew only moderately to 2.8 billion by 2018. But the drivers have been different: Increases in energy efficiency, the rise of renewables, and new sources as a result of fracking.
Other aspects of globalisation have not seen as much of a plateau after 2008. In fact, the globalisation of people accelerated, although in a manner that was partial and subordinate to national interests. The stock of global migrants grew steadily from 190 million in 2005 to 243 million a decade later. The number of international tourist arrivals rose from 900 million in 2009 to 1.4 billion in 2018. Similarly, on the face of it, the globalisation of information did not slow down. The percentage of Internet users around the world more than doubled from 22% in 2008 to 50% in 2017, although the national, cultural, and corporate Balkanisation of information firmly set in.
How could Covid-19 impact these trends? There will almost certainly be calls for the re-nationalisation of manufacturing, particularly for what are considered critical or essential goods. The recent bickering over personal protective equipment (PPE) and pharmaceuticals have brought this to the fore. This will further complicate trade agreements, both those in force and those under negotiation.
The globalisation of people, including short-term tourist or business traffic, may face new kinds of restrictions. National governments will have to weigh the risks of contagious diseases against the benefits of ease of travel or may have to consider stronger safeguards. In turn, the globalisation of finance will be indirectly affected: Less migration and business travel coupled with incentives to invest at home will hinder transnational capital flows.
The globalisation of information may confront a paradox. On the one hand, information will be more available, important, and shareable than ever. On the other hand, we may well see greater monitoring of individual information. The SARS epidemic of 2003 was a watershed for the use of mass surveillance and big data by governments in the interest of public health. Similar sentiments in a post-Covid-19 world may contribute further to the nationalisation of data.
On balance, the coronavirus pandemic may further slow down (or possibly even reverse) certain globalising trends that had already decelerated. The risk of supply chain disruptions will feature to a greater degree in trade calculations. Decisions about lowering barriers to international travel will face greater scrutiny. Information may continue to become more plentiful, but will be more jealously guarded. The ongoing phase of globalisation has recovered from systemic shocks before, such as 9/11, SARS, and the GFC. But the omnipresence of Covid-19 presents a challenge of a different magnitude.
(Correction: The original article had erroneously stated that net global FDI had never been below 1% of global GDP before 1989, when in fact it had never been above that figure.)