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Business News/ Opinion / Columns/  Globalization is dying: Long may the phenomenon live

Globalization is dying: Long may the phenomenon live

Gloom over it has grown but its logic is so compelling that safeguards for it should be in the works

Photo: BloombergPremium
Photo: Bloomberg

Last week, in a letter to shareholders, Larry Fink, chairman of BlackRock, declared that globalization was over. The manner in which the Western world came together to impose sanctions on Russia, coupled with the alacrity with which global businesses terminated decades-old business arrangements with the country virtually overnight, seemed to suggest that many of the assumptions upon which global trade has been based so far can no longer be counted upon to hold true anymore. Given that all this came on the heels of a pandemic that had already shone a light on many similar issues, these events, Fink argued, “mark a turning point in the world order of geopolitics, macro-economic trends, and capital markets".

These past few weeks have been a sharp reminder to countries of their global inter-dependencies. At the same time, it has exposed the vulnerability of many of the core elements of our global infrastructure to geopolitical pressures. This has resulted in calls for a better alternative to Swift, the global bank-messaging system, and raised questions about whether the dollar can still be used as the global currency for trade.

Among nation-states, the immediate fallout of all this has been a hardening of nationalistic agendas. Twice-burnt (first by the pandemic and now by war-induced disruptions to global trade) countries have begun to take a more self-reliant approach in an attempt to reduce the geopolitical risk of external eventualities. This has changed the tenor of discussions at international fora, as countries prioritize sovereignty over multilateral cooperation.

But can we really halt humanity’s inexorable march towards greater globalization? Is it even possible for us to reverse trends that have been millennia in the making?

One of the reasons why humans have become the dominant species on the planet is our extraordinary ability to cooperate with one another to further our common objectives. As hunter-gatherers, for example, we leveraged the shared skills of all members in hunting parties, allowing us to bring down prey beyond the ability of any single one of us to slay. When we put down roots and established permanent settlements, we learnt to depend even more on one another, realizing that instead of having everyone develop basic expertise in a wide range of skills, it was far better to encourage specialization so that the entire community could benefit from the mutual exchange of differentiated goods and services.

As towns and villages coalesced into nation-states, this philosophy of cooperation extended even further. Communities that found common cause with each other allowed monarchs or elected representatives to chart their collective destinies, showing their commitment to these national agendas by paying their taxes and complying with national laws.

In recent times, this idea of collective participation has gone global with multinational arrangements like the European Union extending these principles of cooperation to coalesce many countries of Europe into a single economic and political unit.

Viewed in this light, globalization is the logical (and perhaps inevitable) extension of the very human tendency to work together to achieve common goals. And while Russia’s invasion of Ukraine (and the response it has provoked) might seem like a rejection of this core philosophy, when viewed as part of a larger timeline of human development, it is but a minor blip in the evolution of the species towards a more cooperative and inter-dependent future.

That said, when events of this scale and magnitude give rise to questions about the core assumptions upon which our global arrangements are based, we would do well to understand the reason for these concerns, and, if possible, address them in ways that will allow us to continue to reap the benefits of globalization.

Take concerns around Swift, for example. It turns out that this secure messaging system, which lies at the heart of most international fund flows, is operated by a Belgian company that is, as a result, subject to the sort of pressures that any entity regulated by domestic law has to face. While it has resisted previous requests for sanctions against other countries, the alacrity with which key Russian banks were ejected from the Swift network raises concerns as to whether managing such a vital element of our global financial infrastructure in this manner poses a risk to the financial system as a whole.

We need better alternatives. Rather than have a single entity control the global switch for financial messages, for instance, could we not set up financial messaging infrastructure that is based on open protocols? Central banks around the world would be free to use these protocols to connect their national financial systems with those of other countries they choose. This way, nations would have interoperable platforms with other countries, but their unwillingness to inter-operate with any given country would not come in the way of others doing as they please.

We should evaluate all our global public infrastructure through a similar lens. Where it turns out that important infrastructure is being managed by private entities, we should consider wresting control away from them, so that it can function like a part of the global commons. In cases where effective control lies with a small group of nations, we need to develop alternatives that mitigate the risk of a given political group dictating how the rest of the world should behave.

Rahul Matthan is a partner at Trilegal and also has a podcast by the name Ex Machina. His Twitter handle is @matthan

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Published: 29 Mar 2022, 10:39 PM IST
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