Wealth Management: Strategy blog – Slowbalisation

Strategy team: Victor Balfour

'Flygskam' (flight shame) - one of 2019's buzzwords - was one of the many legacies that Greta Thunberg and the broader environmental movement left it in its wake. 2020 was tipped to be the year that many eco-warriors swapped planes for trains, and global for local. This was prescient, if somewhat accidental.

But the subject of global vs local is highly topical. Many pundits feel that globalisation is at an inflection point, spurred by covid-19, and that an era of 'slowbalisation' - which has been in place even before nationalism (briefly) took hold in Europe and Trump's mercantilist policies undermined decades of US-led trade policy - is likely to lead to a further fraying of alliances and deterioration in the pattern of global trade.

What is globalisation?

There is no strict definition, but it encompasses the integration and interdependence of individuals, companies and nation states globally. More specifically it typically embraces the free flow of trade, people, capital, ideas and technology. It is a sensitive and complicated subject, and there are both winners and losers from such seismic shifts in the global balance of commerce and trade.

Its critics point to the seemingly big impact it has had on fading manufacturing sectors - likely accelerating the deindustrialisation of many Western economies and leading to loss of many blue-collar jobs. One study estimates that nearly half of the five million jobs lost in the US manufacturing sector since 2000 relate to the displacement of trade, i.e. globalisation.

The mismanagement of resources, inadequate working conditions and disdain for broader ESG-related concerns are often some of issues often associated with companies that seek to exploit global scale. It is also believed to have fostered inequality - the UN estimates that the richest 20 percent of the world's population consume 86 percent of the world's resources, an equilibrium that has deteriorated over the past half century. Of course, correlation does not imply causation.

Set against this, its advocates point to this phenomenon as the single greatest factor that has lifted millions out of poverty. It has enabled countries to specialise and benefit from comparative advantage and technological change, leading to the offshoring of complex supply chains; this combination has promoted competition, boosted innovation and ultimately led to greater output. In turn, this has broadened the availability of products and has supressed the price of goods (and has likely contributed to disinflationary forces over the past two decades). There are also the wider benefits: the movement of people and greater cultural diversity.

It is not surprising that given the complexity of these interrelations that the distribution of the gains from trade will be uneven and invariably there will be vocal proponents on both sides of the debate.

De-globalisation is not new

There have been earlier episodes of globalisation - the latter half of the 19^th century, the post-war era and the liberalisation that accompanied the formation of the GATT and latterly the WTO. The two decades through to the GFC was arguably a golden period, with the dismantling of the Soviet bloc, momentous policy change - privatisation and deregulation - and China's ascension to the WTO in 2001.