The period of globalisation that has driven so many trends in world affairs over the last 30 years is coming to an end. So what comes next? The new world order will bring first disorder, then new ideas, then promise. For the small, open economies of the world, from Ireland to Singapore and the UAE, it will be a time to focus on and adjust to risks from beyond their borders, but also an opportunity to launch the next phase of their development.
That our world is changing at a tectonic level is undeniable. This has been demonstrated in recent weeks by multiple protests around the world – from Chile, Hong Kong and Bolivia to Iraq and Lebanon – reinforcing the sense that something seismic is afoot. Many of these protests are centred on issues that are associated with globalisation – climate change, inequality, corruption and poor economic management – but that really have more to do with how individual countries are impacted by a globalised world.
Still, if we examine the components of globalisation – trade, the flow of finance, ideas and people, the way the internet is organised – they are in retreat and, in general, are becoming more regionalised. The elections of Donald Trump in the US and Jair Bolsonaro in Brazil, as well as Brexit, are just a few examples of the smashing of the old order; they are the detonators, the wrecking balls of a system that has evolved since the fall of communism.
At least two things have put paid to globalisation as we know it. First, organic economic growth worldwide has slowed and as a result, debt has risen and more monetary activity is required to sustain an international expansion. Second, the side effects, or rather the perceived side-effects, of globalisation are more apparent – wealth inequality, the dominance of multinationals and the dispersal of global supply chains have all become live political issues.
One problematic factor here is that there is no central body or authority to marshall globalisation, beyond perhaps the World Economic Forum or the Organisation for Economic Co-operation and Development. In many ways, the end of globalisation is marked by the poor and inconclusive response to the global financial crisis. In general, the response has been to cut the cost of capital and not tackle the root causes of the crisis.
There is also a sense that the cycles of the rise and fall of nations are repeating themselves and that, as over the past 400 years, we are again grappling with basic issues such as the quality of public life, equality and the machinations of democracy.
From the perspective of countries in the Gulf, perhaps two trends are worth focusing on. The first is geopolitics and the evolving world order; the second is the necessary search for better organic economic growth.
From a geopolitical perspective, globalisation is already behind us. We should instead set our minds to the emerging multipolar world. This will be dominated by at least three large regions – the US, EU and China-centric Asia.
They will increasingly take very different approaches to economic policy, liberty, warfare, technology and society. Each region will be distinct in its approach to these fields. Take the internet as an example: the US owns the companies that have built it, Europe will regulate it and China has already erected a cordon sanitaire around its internet space.
The contest between these regions has now begun, with trade and technology the initial battlegrounds. More broadly, Europe is beginning to assert itself as the lead regulator and standard-setter in the environment, new technologies such as data and old industries such as the food and drink trade. The US is still the pre-eminent power militarily but is losing soft power. There is a risk that this could translate into incrementally weaker financial power through lower dollar usage. China is trying to expand its economic influence through overseas investment but is in a race against time against the consequences of its own debt-fuelled economic boom and the limitations of an economy burdened by environment stresses.
More generally, when talking about the future of globalisation, commentators focus too much on the US and UK, most likely because their political institutions are currently so unpredictable. As a result, trends in what the geopolitical commentator Afshin Molavi calls "the other 85 per cent" are often neglected. Here, urbanisation and the productivity gains from social media and telecommunications remain in place but increasingly the emerging world will have to deal with the consequences of inequality, climate change and debt, as recent protests have shown.
Elsewhere, mid-sized countries like Russia, Australia and Japan will struggle to find their place in the world and might increasingly have to align themselves with one region. Australia and Japan, for example, are allies of the US but commercially tied to China.
New coalitions such as the Hanseatic League 2.0 – the new incarnation of the 14th-century assembly of northern European trading powers, this time made up of small, advanced eurozone states - will emerge. Institutions of the 20th century – the World Bank, International Monetary Fund and the World Trade Organisation - will appear increasingly defunct. In many cases, they could be replaced by great-power diplomacy. Ideally, they will be replaced by institutions that tackle the problems of the 21st century such as a global climate body with real teeth and a global cyber police force.
While it is increasingly clear that geopolitics will be dominated by those three significant players, there is a question mark over whether India can be a superpower and where the Middle East and North Africa fit in.
One very interesting possibility is that Gulf states increasingly act as a fulcrum to connect India to the Middle East and North Africa and that in time, this large region becomes another centre of power in the multipolar world order. It is a possibility that stresses how many of the new challenges and opportunities that lie ahead of the UAE will involve diplomacy.
The second great challenge is economic growth. Since the turn of the 21st century, economic growth worldwide has been running out of steam; only stimulants in the form of very high levels of debt and aggressive central-bank action have kept it going. Globally, debt-to-GDP is now at its highest since the Second World War and the Napoleonic Wars before that. Equally, central-bank buying has pushed a quarter of the world into negative interest rate territory. As this has happened, some governments have increased deficits, with the US now looking like a textbook weak emerging market economy in terms of its large deficit and high debt levels. A recession will test these faultlines.
As a result of low interest rates and central bank support, many policymakers have lost sight of the drivers of organic economic growth and will be forced to rediscover them. These factors include the skill base of the labour market, innovation and technology, intangible infrastructure and the system of laws and institutions that form the backbone of a nation. Countries like Switzerland that tend to have stable growth have durable institutions and invest a great detail in education. Governments will have to innovate if they want to spur growth.
The Gulf states are no exception here. Vision and leadership have made them one of the extraordinary accomplishments in the age of globalisation. As globalisation ebbs and gives way to a more complex, multipolar world, Gulf economies will need to carefully craft the next phase of their development.
In this respect a number of points are worth stressing. The first is that while physical infrastructure has been the driver of the region’s economies, intangible infrastructure (education, laws, human development and the socially responsive use of technology) will drive the next phase of growth and in particular, productivity.
The second relevant point is to think about development broadly, not just in economic terms but in terms of diplomacy, citizenship and environmental sustainability. If carried out correctly, advances in these areas also bring prosperity, or at the very least, make growth less volatile.
Then, there is short to medium-term economic policy. Here, regulation can be an interesting focus. In other economies, periods of growth are usually followed by an increased regulatory burden. In some cases, a period of de-regulation or at least what is now called agile governance can help to stimulate growth. Agile governance is where authorities assess the impact of policy and where necessary, adapt it to changed circumstances. Regulation is one such area. It is also an area that, done strategically, can help lay the groundwork for new industries and growth sectors.
The worst we can do is to assume that globalisation will continue in the way it has done over the last 20 years. Every day we are reminded that the old order is being chipped away and that a new world order is slowly emerging.
Mike O'Sullivan is the author of The Levelling: What's Next After Globalisation and a former chief investment officer for Credit Suisse international wealth management