Athens was chosen by the US president Barack Obama to be the first stop of his final foreign tour, with Lima being his last port of call. Mr Obama remarked, during his speech on Wednesday at the Stavros Niarchos Foundation cultural centre, that globalisation will have to change its trajectory if it is to avoid creating inequality.
“Trends under way for decades have meant that in many countries and in many communities there have been enormous disruptions. Technology and automation mean that goods can be produced with fewer workers … Our globalised world is passing through a time of profound change [and] history does not move in a straight line.”
Mr Obama is expressing a concern of policymakers for some time now about the slowing down of globalisation or its end. The evidence: a slowdown of trade.
Starting in 1986, global trade expanded, almost unabatedly, through to 2008. But the financial crisis in 2009 brought global trade down. Although trade recovered in 2011, almost to the same level as pre-crisis levels, it has again been on the decline since last year.
In this year’s second quarter, according to statistics from the Organisation for Economic Cooperation and Development, the dollar value of goods imported and exported by the G20 countries actually grew. It was the first such gain since early 2014, but the figures remain significantly below the post-crisis peaks. On a seasonally adjusted quarter-on-quarter basis, exports rose by 1.5 per cent and imports by 2 per cent in the quarter, following seven and eight consecutive quarterly falls, respectively. This is probably just because oil prices bounced back a bit after hitting a 12-year low in the first quarter.
Another matrix for global trade is the shipping business, which has been suffering since last year. Four out of the 15 top container companies have gone out of business in the past nine months. The industry requires more trade for existing shipowners to survive or ostensibly a smaller fleet. About a fifth of the global container fleet is sitting at anchor, up from less than 8 per cent in trade’s peak ahead of the 2008 financial crisis.
There are many reasons for the renewed decline in global trade. Here are four:
First, China, which drove the past decade of globalisation, is trying to rebalance its economy towards services and domestic consumption. In comparison, India’s contribution to global exports was clearly not as significant. This is partly because of India’s economic growth in the past 25 years having been slower than China’s. India’s economy rose to equal about 11 per cent of US GDP in 2014 from about 4 per cent in 1990, while China’s soared to 60 per cent from 9 per cent in the same period. Consumer spending in 2014 accounted for 36 per cent of China’s GDP and 59 per cent of India’s. These reflect a better balance in a world where exports and capital spending are no longer the easy route to economic growth for developing countries.
Second, there is a shift in what the world produces, especially among countries that industrialised. The global economy is trying to adjust and that is not an easy and smooth task. China is a very large country, of course, with much of its workforce still in rural areas. But most migrant workers now find jobs in services rather than in factories. Similarly, it is extremely unlikely that the new crop of manufacturing exporters, such as Vietnam and Cambodia, will ever reach the levels of industrialisation attained by the early industrialisers, such as Britain and Germany. It seems that those who have industrialised very recently – look at Brazil – can quickly deindustrialise. It might be harder for them to catch up with wealthy countries. But it does mean less demand for things, and for the resources to make those things.
For the Middle East economies, it places them at an ever-shifting environment where they have to compete as manufacturers but also providers of services. In many ways, the notion that rapid growth historically has always been associated with industrialisation could be put to the test. Services could be an area the Gulf economies can excel as the providers of logistics and transshipment facilities.
The third reason for a slowdown in globalisation is automation, which is reducing the importance of employment-cost differences between countries and manufacturers are rediscovering that it can be better to make products near customers rather than across the world. The Gulf economies have a lot to gain from automation as they rid themselves of a low-skilled and cheap workforce while strides can be made to improve productivity through automation. Also, Gulf economies are capital endowed, more so than other cash-stripped economies of the Middle East.
Fourth, it could be that there is a limit to globalisation and global trade and probably how globalised the global economy can be. It could also be that the flow of goods and money is being supplanted by flows of data and information. We still want to build and buy cars but we also want to buy and upgrade our mobile phones. That’s a different sort of value creation than 20th-century resource-based value creation. Gulf economies have embraced technology more so than others and need to move into that value creation chain and digitisation in an entrepreneurial way.
John Sfakianakis is the director of economic research at the Gulf Research Centre in Riyadh
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