No economic growth model is immune to the effects of sociopolitical as well as technological disruption. Globalisation is beginning to lose its appeal because of new socio-economic realities that are evolving.
The fall of the Iron Curtain ushered in an era of trade liberalisation. China joined the World Trade Organisation. Politicians in Western countries abandoned protectionist policies and businesses started treating labour as a commodity that could be sourced from low-cost countries.
The end of the last century and the beginning of this century saw a revolution in transport in the form of ‘containerisation’.
Items such as colour televisions, cars and household appliances that for decades were unaffordable to many people could be bought for a fraction of the price that one would have to pay had they been manufactured in developed economies. But the social cost of globalisation was often undervalued by politicians.
Millions of workers lost their jobs that were continuously being exported to low-cost countries. Discharged workers found it difficult to adapt as many countries’ education and learning systems had ossified outdated learning models that were not fit for purpose to retrain people.
The era of hyper-globalisation that prevailed between 1980 and 2010 came to an end due to the economic shock brought about by the global financial crisis. A banking crisis soon evolved into an economic crisis made even worse by the austerity measures adopted by political and regulatory measures.
After 2010 the US and the EU experienced sociopolitical turmoil as ordinary people lost faith in traditional political parties and backed populist leaders who declared that globalisation was inflicting unnecessary pain on millions of workers.
US former president Donald Trump waged a vociferous war on free trade and introduced tariffs on imports from countries that he believed were depriving US works of their jobs. The same anti-globalisation sentiment was also very evident in Europe.
The reversal of globalisation will only be effective in countries where investment in robotics, artificial intelligence and other advanced technologies will help create new jobs with high productivity potential
Global value chains started to decline in 2010 because of a change of political direction and because business conditions were favourable to a change in microeconomic strategy.
It would be wrong to assume that the business decision to reshore to Europe and the US resulted from a newfound conviction that workers should not be treated as a commodity.
The low-interest-rate scenario that has prevailed for over a decade has made the investment in robotics more feasible. Today, many developed countries are again seeing a renaissance of high-tech manufacturing. The difference in wages in low-wage countries relative to wages in developed markets, inclusive of transport costs, has been reduced substantially. The uncertainty of delivery and the fear of increasing trade tariffs and quotas made the adoption of robots less costly.
Those countries that were the first to ride the wave of this changing trend in the dynamics of international trade will be among those that benefit most as the reshoring of economic activities accelerates.
The COVID pandemic is accelerating the pace of change in world trade. The disruption of supply changes in a time of a global crisis has cruelly exposed the vulnerabilities of relying on just-in-time supply deliveries that have prevailed for the last four decades.
Countries with robust educational systems, including former Soviet countries like Slovenia, the Czech Republic and Slovakia, have invested in robotics so that today they have more robots per thousand workers than the US or France. The pool of well-trained young people makes these countries attractive as an onshoring destination for wealthy countries that have still not made the sufficient investment preparing their young people to exploit the opportunities offered by the advances in technology.
It would be wrong to conclude that the retreat of globalisation will mean that developed economies will see old jobs returning from low-cost countries. The reversal of globalisation will only be effective in countries where investment in robotics, artificial intelligence and other advanced technologies will help create new jobs with high productivity potential.