Opinion | Failing health of globalization: Covid-19 blow to a stressed order

It has been a month of jitters, tremors and shocks for the world economy. 9 March was yet another Black Monday. Stock markets crashed worldwide, as their respective indices plunged 5-10%, wiping out trillions of dollars in wealth, the worst since 2008. Oil prices plummeted to $33 per barrel, suggesting a price war among oil-exporting countries. During 2020, there has already been a sharp contraction in international trade flows. There is also a serious disruption in integrated global production networks. Just-in-time production systems are paralysed with intermediates and components made in China or East Asia no longer available. GDP growth has slowed down everywhere.

Mounting fears arising from Covid-19 are the trigger. So far, just four countries—China, South Korea, Italy and Iran—account for 95% of the cases (with China and Italy in a lockdown), but the disease is reported to have surfaced in more than 100 countries. Airlines have scrapped flights. Schools have closed down. Governments have advised citizens not to travel abroad. Large-gathering events are on hold. Institutions and firms are asking their staff to work from home. The situation is grim. The World Health Organization (WHO) has just announced that Covid-19 is now a pandemic.

Globalization in our times, which gathered momentum since 1980, has been confronted with mounting economic problems and consequent political challenges after a smooth sail of almost three decades. The economic problems began with the financial crisis that surfaced in late 2008. Recovery from the Great Recession that followed is not quite complete. Economies might have become global. But politics remains national.

There is a political backlash in the form of resurgent nationalisms riding on populist or chauvinist sentiments. In industrialized countries, nationalist populist political parties, or far-right xenophobic populist leaders exploit fears about openness in immigration and trade as a threat to jobs, clearly visible in the US and Europe. In developing countries, nationalist-populist political parties or leaders, challenge or oust incumbent governments, exploiting religious beliefs, ethnic divides or rampant corruption. Such toxic nationalisms across the world seek to capture the political space created by unequal outcomes associated with globalization.

It is impossible to predict how Covid-19 will spread in the months to come. But it has already affected large numbers of people worldwide. It is bound to disrupt the process of globalization, for which the cross-border movement of people is just as essential as that of goods, services, capital, technology and ideas.

In the economic sphere, a slowdown in growth will hurt the vulnerable, or the poor, increasing the already-high economic inequality. This would be attributed, in popular perception, to increasing openness and deepening integration with the world economy. Such sentiments will be exploited by populist political parties and leaders seeking to shut the doors on immigration or restricting openness in trade, to strengthen their so-called nationalist credentials in politics. In this context, there is much that we can learn from history.

During the second millennium, there were waves of globalization and de-globalization, which straddled continents and geographies, driven by trade and flag, or technology and politics. For people who lived in those times, at every juncture, the process seemed unstoppable. But history suggests that globalization has always been a fragile process. In fact, it has come to an abrupt or unexpected end many times in the past. The underlying reasons have been embedded in the consequences of the process of globalization, ranging from the spread of diseases or pandemics to economic strains or political conflicts between winners and losers, whether countries or people. Just two examples are instructive.

There was a wave of globalization starting around 1240 CE when almost the entire Eurasian landmass became part of the Mongol Empire. The geographical unification drove economic interaction through trade in a horizontally linked world system. But there was a flip side. Plague germs were carried by Mongol troops, with their horses, from Central Asia to the Black Sea in 1347 CE, transmitted by ships to ports across Europe. It is estimated that the plague—Black Death—killed more than 25 million out of a total population of 80 million in Europe in just three years from 1348 to 1351 CE. The global spread of disease was a corollary of the economic integration, which led to the formation of a common market not only for goods, but also for microbes and germs. The mid-14th century then witnessed the disintegration of Pax Mongolica so that, in this epoch, globalization sowed the seeds of its own destruction.

There was another wave of globalization in the late 19th century, coinciding with the zenith of European colonialism, the age of empire (1870-1914), manifest in an integration of the world economy through international trade, investment, finance and migration, which closely resembled globalization in the early 21st century and seemed unstoppable. But growing inequality between and within countries and increasing conflict between winners and losers, which led to World War I, brought it to an abrupt end in 1914.

History does not repeat itself. But it would be wise to learn from history. Our era of globalization is already under stress because of its consequences. Economic inequalities between countries and among people have risen rapidly and there is a political backlash embedded in resurgent nationalisms. The problem will be compounded further as Covid-19 has turned into a global pandemic. Everything possible must be done to manage it. But it is also time to manage the unequal outcomes associated with globalization.

Deepak Nayyar is emeritus professor of economics, Jawaharlal Nehru University