No longer. Today political risk is multiplying and power is decentralizing, changing globalization with it.
These tensions were on full display in Davos this week.
The town’s promenade was dominated by crypto businesses with little interest in the official conference program. Ukraine-themed spaces dotted the town, where a beamed-in President Volodymyr Zelenskyy was a bigger draw than any of the political minnows on WEF’s main stage. Governments may be struggling to pay down pandemic debt and buttress inflation pain, but good luck finding a WEF panel about equitable taxation policy, despite cries from NGOs.
These multiple versions of Davos talked across each other instead of pulling in one free market direction.
Where once it was manufacturing supply chains that were globalized, now it’s more often rules and regulations — from ending corporate tax loopholes to mandating a carbon-neutral future.
“Our concept of risk has expanded,” said Arancha González, the former executive director of the U.N.’s International Trade Centre, and a former foreign minister of Spain. “The rules part will be as important as opening markets. It’s no longer a case of opening markets and thinking it will all work out. It will not.”
Those risks stretch from the ongoing global pandemic that has set the world’s agenda for the last two years to a global food crisis that now threatens mass famine.
And it is digital technologies more than finance that powers what is globalized today — everything from terror, hate and misinformation to the proliferation of new cryptocurrencies and streaming services.
Sure, there’s fretting about cracks in the global economy induced by Covid lockdowns and Russia’s war in Ukraine: a new Accenture study found that supply chain disruption could cost Eurozone economies more than $1 trillion this year, up to 7.7 percent of GDP.
There’s also a real risk that parts of globalization stall or go backwards long-term, delivering a world split into democratic and authoritarian political blocs, riven with sanctions and tariffs and powered by regional internets.
González is confident that globalization, though changing, will continue because a world beset by global challenges needs cooperative frameworks. “I don’t see a reduction in interconnection. For me globalization is interconnection, and that is increasing, not reducing,” she said.
Former Danish Prime Minister Helle Thorning Schmidt agrees. “We have to find a way to work with China. We [in democracies] have to find ways of working with countries that don’t fully share our values,” she said.
While political fears about China are rising in democracies, there’s no widespread momentum to substantially alter trade relations based on human rights or intellectual property concerns.
U.K. Trade Secretary Anne-Marie Trevelyan told POLITICO she would continue to raise concerns, but said “we have a very substantial bilateral trade relationship with China, and our businesses want to continue to grow that.”
While Western governments worry about energy supply chains and the rise of China, that’s not top of mind for the rest of the world, which often feels marginalized in Davos.
“For most of Asia, China becoming number one is a given: a return to the natural state of 1,800 of the past 2,000 years,” said Kishore Mahbubani, a distinguished fellow at the National University of Singapore’s Asia Research Institute and an open admirer of the Chinese Communist Party. “Most of the region is trying to integrate with China,” he said.
For Mahbubani, it’s clear that the “U.S. has decided to try to stop China becoming number one.” But the real risk from that is not that globalization will halt, but rather American self-sabotage. “If the U.S. tries to decouple from China, it will decouple from most of the region,” he said.
The future is regionalization
Columbia University’s Adam Tooze rejected the idea that globalization is ending. “It’s B.S. Ending globalization? Life as we know it would cease to exist,” he told POLITICO. “When people say this, they’re either naive or apocalyptic,” he said, adding “it’s a bad way of thinking about the problem.”
Tooze expects “a reconfiguration of globalization, a rearrangement, and politicization in certain respects of certain relationships.”
Alexander Stubb, the peppy former prime minister of Finland who now leads the European University Institute’s School of Transnational Governance, warns of a complicated future. “It’s too simplistic to say we’re moving towards some kind of a new Cold War, with a liberal world order and an authoritarian world order,” he said. “I think we’ll have more regionalization of globalization, but it’s not going to go away.”
Instead, the West will need to adjust: “If we want to work for a rules-based order, it’s not necessarily going to be us setting the rules anymore.”
Loic Tassel, European president of Procter & Gamble International Operations, says regional supply chains are here to stay: “90-plus percent of what we’re going to be selling in Europe will be produced in Europe. That’s a profound change, which I think is going to be a lasting one.”
The bigger risk to globalization may come from the rising expectations that democratic governments and the businesses that call these countries home should cut ties with unsavory regimes.
A special Edelman Trust Barometer report published Monday found that businesses are now subject to extensive geopolitical demands: 95 percent of respondents said that they expect companies to act in response to Russia’s unprovoked invasion by publicly speaking out, applying political and economic pressure or exiting the aggressor country’s market.
“When businesses shut down in Russia they were not making that decision about Russia alone,” said Microsoft’s president, Brad Smith, who argues that withdrawal from Russia was a message to all authoritarian regimes, and an implicit acknowledgment that they may be forced to withdraw from other markets.
The WEF itself was forced to freeze its relations with Russian organizations and executives in March, under political pressure and to avoid litigation over breaking sanctions.
As with other large global businesses, WEF must now confront difficult questions about where it draws its moral lines. Traditionally, autocrats have been welcomed with open arms in Davos. This week, the love extended to Cambodia’s Hun Sen and Zimbabwe’s Emmerson Mnangagwa.
But the days of believing that conversation and open markets lead to democratization are over.
We know now that global economic ties don’t lead to political relaxation. And, like everyone else, the self-anointed high priests of globalization can’t avoid this redrawing of the global order.
The real question isn’t whether globalization will carry on, but whether a markets-first and Western-centric WEF can evolve with it.
Suzanne Lynch and Jamil Anderlini contributed to this report.