Globalization Under Trial
From the beginnings of the time, man is spellbound by new cultures, languages, and land. With that fascination in mind, he sailed across the wide-open ocean and truly integrated the world. The exchange of ideas, cultures, trade, and technology transformed the world into one global village. Globalization is a continuous and ever-growing phenomenon. Still, in the last couple of decades, it boosted due to low-cost traveling, internet connectivity, the establishment of international institutions post World War 2, and a greater sense of collaboration after the Cold War. If Adam Smith could have seen it, he would be proud of the symbiotic society we created with the application of division of labor. With the profit-making minds, the major corporations have utilized specialized resources from different countries, dividing roles for each country like China being the world’s factory and India the world’s market. Hence, creating co-dependency among the developed and developing economies.
Globalization does not always showcase a rosy picture. Taught in every class of Finance 101, we need not only make decisions based on rewards but also consider risks associate with it to find the perfect equilibrium. Only in the last century, we have been through The Suez Crises in the 1950s, the oil crash in the 1970s, The East Asian Crises in the 1990s, and the infamous The Financial Crisis of 2008. The world has been severely impacted because of the dependency of one economy to another, dropping like dominos. And now we stand in the midst of a unique challenge posed by COVID-19. It has challenged the very core principles of globalization, restricting the absolute mobility between the countries, damaging supply chains, enabling distrust in international organizations such as WHO, United Nations.
Stressing over this unseen pandemic poses a question of whether globalization is a flawed concept that is bound to fail its members in times of distress. Based on that, a country should focus and plan its economies in isolation and complete autonomy treating others as competitors. That might work in the short run but will hinder the growth of human civilization in a broader sense. Before failing the globalization due to COVID-19, it is important to consider which factors specifically led to economic damages.
Lack of diversification in production and consumption capacity. There is a golden rule of investing that is to diversify the portfolio. Yet looking at the global markets, few countries have gained the monopoly of the world’s inputs and outputs. According to EBRD, during the SARS pandemic 2003, China held a 4% share of global output while today in 2020, it accounts for 16%. In conclusion, making the world four times vulnerable.
Lack of alternatives, safe keep checks, inventory. The division of labor (in sense of countries) made it difficult to cultivate substitutes as they are costly and ineffective. In normal times, it is cheaper to produce and supply the products rather than keeping inventory. Medical supplies shortages are created due to a limited number of suppliers, high demand, constrained machinery, and political pressure.
Lack of leadership in times of crisis. Before Trump administration, the United States of America was perceived as the leader and advocate of international organizations. From the past few years, there is no viable leadership as seen even before COVID-19 in G20 Summit. Now when the United States and many other nations openly challenging WHO, it creates a reservation in participating nations to feel like one unit in these challenging times. European countries, the UK, Canada, Japan, Russia, Australia fails to take the leadership position taking the world in one direction.
The worst one of all is the lack of preparedness in terms of mitigation strategies before a crisis takes place. It leads the leaders to make decisions based on their worst instincts in times of uncertainty. Bulk buying of masks, threatening countries for essential supplies, moving back from a partnership, closing up borders in panic. It all contributes towards squashing the strategic unity that has been created over the last decades.
Whole show boils down to that globalization is not a flawed concept but a delicate one. It needs constant efforts, planning, strategies to give its most precious fruits. The adversities we are facing are due to the limitations we have posed due to our short sight motives based on profits. The world dynamics are about to change after the effects on COVID-19 and globalization is under trial. We can go on the road that we did after World War 1, which is to increase nationalism policies, protective laws, and strong borders. Else, we can take the route that we did after World War 2, establishing international organizations and promoting the world is a family concept.
We need to understand COVID-19 fallouts did not bring new risks in the economies rather showcased the systematic risk that has always been inculpated in our system. Proper hedging techniques are required such as diversified markets as well as production hubs, strong leadership, proper partnership guidelines between countries under pandemics. In addition to that, create a more open and equal society. These measures cannot fully eliminate the risk but reduce them exponentially. Hence, we can reap the benefits of globalization and keep ourselves protected under extreme situations like today.