Financial Times – and IFIs – recognise the passing of globalisation
A triple blow from unlikely sources: Mario Draghi, president of the European Central Bank, Christine Lagarde, managing director of the International Monetary Fund, and Donald Tusk, president of the European Council, have all decried a system they claimed had neglected the security of its weakest members.
Earlier this month Izabella Kaminska referred to UBS’ ‘big note’ reviewing the passing of globalisation. According to UBS strategists Bhanu Baweja, Manik Narain and Maximillian Lin, the elasticity of trade to GDP — a measure of wealth creating globalisation – has fallen near to the weak average of the 1970s and early 1980s – and is well below the second and third waves of globalisation.
She comments that as labour costs go up in emerging markets — and as western consumers become more conscious of what constitutes fair and unfair trade — we should not really be surprised that global supply chains are shrinking, and that:
“Shipping stuff half way across the world simply doesn’t make half as much sense if the pay-off from cheap labour or favourable currency effects doesn’t compensate for the shipping costs (or increasingly, the carbon footprint either)”. The downturn in global trade was detailed on this site in July.
Longer and more complicated supply chains require a far more complex and extended route to market — including far more expenditure on transport and energy — than they would require if they were sourced more locally.
UBS notes that global value chains have become shorter as some countries have on-shored (or reshored) production because bringing production closer to home often serves end customers better and there are now higher unit labour costs in Asia. (See the work of Professor David Bailey and references on the WM Producers website).
In February Izabella also noted that reversing the off-shoring trend is likely to reduce demand for mobile international capital. UBS reports that global cross border capital flows are already decelerating significantly.
And today the FT reviews a book by Guy Standing, a professor at the University of London’s School of Oriental and African Studies: The Corruption of Capitalism, noting that many of the author’s ideas for fixing the system — such as a universal basic income, where all citizens receive regular payments from the state whether or not they work — are receiving more attention from the mainstream.
Is localisation part of the the answer: Search the Localise West Midlands site – especially see the work on Mainstreaming Community Economic Development.