The world economy was driven by globalization ever since China and India and other emerging markets truly entered the world economy. Billions of new workers from these emerging markets pushed wages and costs down and pushed global productivity up. While this flow of jobs and wealth did not serve everyone equally, it created a world where everyone believed in the possibility that they would get rich before they got old. The belief was that the future would definitely be better. Growth could be relied upon to improve. Times have changed. Now people think globalization is slowing or stopping when in fact it is accelerating and deepening. Instead of planning for globalization that is broader and deeper, people are wrongly planning for its demise. This slowing down process has been called “slowbalization”. But, it’s just a transition period to globalization that is bringing local production and global networks together. Globalization is not dead. It’s on steroids. It’s Glocalization, which means the re-introduction of local production everywhere interlinked with global supply chains and global communications. It’s global & local.
Everybody seems to have a different definition of globalization. The old definition of globalization was that all the jobs and production went to emerging markets, especially China and all the cheap goods went to the West. The new glocalization is a world where all the jobs and production are going everywhere and all the cheap and sophisticated goods are going everywhere. The old globalization flows were driven by the cheapness of labor. The new glocalization flows are driven by the sophistication of manufacturers and of consumers. Emerging market consumers are ever more discerning and leapfrogging into growth. Africa and Asia skipped past old-fashioned telecoms into a world where smartphones drive connectivity, not old-fashioned exchanges. China is no longer the cheapest place to make things now that inflation has a foothold there. Alabama and Africa are now pretty competitive places to make things. The world has dramatically changed as we’ve shifted from globalization to glocalization.
Modern globalization began when the Soviet Union ceased to exist and Communists everywhere started saying it was ok to get involved in the world economy. Deng Xiaoping said, "it does not matter if the cat is black or white, what matters is that it catches mice”. Gorbachev conceded that communism was not working and needed “glasnost” and “perestroika” or restructuring along more market-oriented lines. The key thing was that billions of new workers entered the world economy and were willing to work for almost nothing in the hopes that they could get rich before they got old. This brought down wages and brought incredibly cheap goods from toys to TV screens into the Walmarts of the West. All the jobs and manufacturing migrated to the East. China became the most efficient place to produce a huge range of stuff. People began to assume that the East was the future and the West was the past. This was globalization.
But that kind of globalization had its limits. After the Global Financial Crisis wreaked its havoc, the poor emerging market workers began to realize that they might not get rich before they got old. They began to ask for higher wages from their bosses and for better governance from their leaders. Factory life in the big cities of China and Asia started to seem less like the portal to nirvana and more like nightmares, where inmates sewed SOS notes and cries for help into the seams of the products they shipped off to the envied West. At the macro level, China and other emerging markets began to recycle their hard-earned cash into US Treasuries and Western bond markets. This pushed interest rates down in the West which allowed Western consumers to buy bigger houses that needed to be filled with more stuff. This fuelled further demand for emerging market exports and pushed more production into the East. The flow of funds created a perfect circle.
In the West, we built our world on the assumption that this state of affairs would continue indefinitely. We believed the perfect circle that circulated cash from the West into jobs for the East and surpluses in the East into bond purchases in the West. We said inflation was dead because there would always be another emerging market worker who was willing to work for less. Plus, technology became a bigger component of goods, which was deflationary too. The Federal Reserve started to tout hedonics. In other words, it was ok if you paid more for a piece of technology if that tech was more capable than in the past. Laptops and IPADs suddenly had dramatically more capability. The fact that you personally could not figure out how to use that tech unless you were a 14-year-old semi-professional video game champion, was beside the point.
An ancient symbol for the creative processes is the Ourobouros - the image of a snake or dragon eating it’s own tail. If you chase the same idea for too long, it gets old, stale and wreaks its own destruction. This is what happened to the perfect circle too.
By 2013, China realized that the perfect circle was broken. Instead of buying US Treasuries and G7 bonds, they reoriented their capital into a grand strategy to build a global infrastructure that would support demand for Chinese goods. This was the Belt and Road Initiative, which involves building the ports, bridges, roads, and digital infrastructure that connect China to the world. China’s excess supply could now be sold to Africa, Asia, and elsewhere while supplies of critical assets like food and raw materials could be negotiated in exchange for building ports and roads. China’s trillion-dollar pool of US and Western bonds remained in place, though China bought fewer and fewer US financial assets over time. China’s new business partners bought more and more as they borrowed US Dollars to pay for the roads and bridges China so kindly agreed to build for such a low price. Japan quietly picked up the slack too, increasing its ownership of US bonds. American and European pension plans also bought more Treasuries because they were desperately underfunded and government bonds are always “safe” right? So, interest rates were unaffected by China’s departure from the market because all these other new buyers showed up. But, still, the perfect circle was now broken.
President Trump smashed what was left of the perfect circle by hitting out at China’s first successful international brand – Huawei, an attack that continues today. Canada just banned Huawei and ZTE from it’s 5G networks. He also attacked China for “stealing US jobs” even though by the time he was in office the re-shoring/onshoring of US manufacturing was already well underway. Trump further enraged China by insisting that all US businesses replace Chinese investors with Western ones. The US effectively de-platformed China. Now, China’s efforts to engage in industrial espionage and IP theft has long been a contentious issue. Then, contrary to expectations, President Biden has also persisted with Trump’s anti-China tone. As a result, China and Russia began to align. Now we live in a world where no business in the West can afford to depend on suppliers or coders or customers from either Russia or China. The West began disconnecting from the East.
Plus, China has been disconnecting itself from the world economy. They built the Great Firewall, which involved banning their citizens from accessing over 1000 Western websites and making the use of a VPN a jailable offense. This new Great Digital Wall now involves physical connectivity. recently China is insisting that the Chinese public stop using Western-made computers. Goodbye Apple. Goodbye Google. Goodbye external dialogue for Chinese nationals. Then the COVID lockdown began to undermine the Chinese economy more generally. Ports have closed. The supply chain to and from China is grinding to a halt. China has disconnected itself from globalization.
So, now we decry the end of globalization. But something new and better is replacing it. Glocalization. The re-localization of suppliers and supply chains all over the world. Now everything is being produced everywhere. Yes, this means more redundancy but it also implies more competition and more specialization. Businesses want suppliers that are closer by and who will integrate their views into the design process. When buying from China, you had to wait a long time and there was rarely a phone number to call. Customer service was never a high priority for the Chinese. Western businesses want someone who will consider their needs and talk to them on the phone if needed. Modern production methods like 3D printing and laser-sintering actually demand that the customer inputs into the production process itself, well before product completion.
It is helpful to remember that the ancient symbol of change, the Ourobouros is not two-dimensional. It is 3D. It implies that improvement and ingenuity are underway all the time. So, instead of never recovering from eating its tail, the creature snakes its way upward, transforming itself into something better. That’s glocalization.
The new globalization is occurring locally and everywhere even faster now because of geopolitics. As the world cuts its ties to Russian oil and wheat, it speeds up the process of reducing dependence on hydrocarbons and imported food. Local producers of food and more innovative methods for managing energy are attracting more support from consumers and more capital from investors. Procurement officers now care as much or more about resiliency rather than price. Governments from the US to African nations like Zimbabwe and Nigeria are pressing for this. The accountability for the true environmental cost is rising too, thus forcing all procurement to favor more local production and less travel time. Instead of hiring coders from Silicon Valley, the world can now rely on African coders who bring a new ingenuity to our thinking about how things should be done.
This isn’t de-globalization. It’s globalization on steroids. The transition is awkward and slow. But, it’s happening.
The re-localization of food and energy production is bound to spur even more innovation. Farming methods for local consumption are very different and less damaging to the environment. The USDA has just announced, “a framework to transform the food system to benefit consumers, producers and rural communities by providing more options, increasing access, and creating new, more, and better markets for small and mid-size producers.” This should also help in the fight against food inflation. The President of the International Fund for Agricultural Development (IFAD), Gilbert Houngbo, says “Africa must increase local food production”, and it will.
Look at computer chip production. It used to principally be all in Taiwan and South Korea. Now it’s moving to the US, Japan, Singapore, and Europe in spite of the massive cost and investment required. Necessity is forcing glocalization.
Luckily, the transition from globalization to glocalization is happening at a time when much broader economic forces are radically changing demand. People wanted to wean themselves off hydrocarbons. Now they’ll do this faster. They wanted to shift from owning a car to buying access to mobility. They wanted to stop buying beef from the other side of the world and shift to beef grown in a lab nearby. The new glocalization is bound to be a gentler, kinder version of reality than globalization ever was. It will take time to deliver all this at the right price. But, in the end, more local production, more redundancy of supply chains, and greater use of modern technology will allow glocalization to thrive.
It is no longer true that the East was the future and the West was the past. Now everywhere is the future and the idea that any one location has a monopoly on the future has now passed.
Subscribe to stay informed on new developments as they bubble up.
I love your optimistic tone. Humans are amazing adaptable creatures.
Pipe dream Pippa. Fossil fuels may be able to be replaced by nuclear but solar and wind can't power the globe. It takes too much diesel to dig up 500,000 lbs of lithium to build a car battery