Can we Have Another Wave of Globalization Despite Ongoing Disruption?

Fifty years ago, very few people talked about globalization. Cross-border travel was both difficult and expensive. Communication requires human translators. Transporting goods and services across borders and oceans was complex and uncertain.

The Internet helped change our feelings about globalization because it put diverse cultures and customs in front of our eyes and vast amounts of international commercial information at our fingertips.

Businesses and individuals responded accordingly, forging relationships and genuine interest with institutions and people outside our borders. Thanks to information and transportation technology, companies could outsource jobs and develop new sources of supply that helped their bottom lines.

We seemed willing to accept the tradeoffs that came with commercial globalization. For every job that went overseas, a local person lost their livelihood. When a manufacturer taps an overseas supplier for raw materials, components, or services, a local company loses an opportunity.

Additionally, commercial globalization required relatively open borders and seamless movements of capital goods and human resources – an ideal state that we have taken for granted in recent decades.

Globalization Comes Tumbling Down

In reality, commercial globalization is a high-stakes, tenuous balancing act at the micro (company) level and the macro (nation-state) level. Disruptions can topple things in either case. And macro/global disruptions hit with a vengeance in the last three years with the conflict in Ukraine, concern about China’s global intentions, and, of course, COVID-19.

Suddenly globalization was a liability. Global supply chains snapped due to shipping snafus and overseas company closures. Collaboration and commerce with Chinese companies raised concerns about trade secrets and national security.

The New Trend Toward Localization

At this time, companies are trying to develop and maintain shorter domestic supply lines. Governments are incentivizing companies to source domestically rather than rely on high-tech components suppliers in a country that may be a potential adversary and could turn the spigot off.

Are we merely seeing a short-term pendulum swing toward localization? That would mean we either expect the current global situations to disappear or that we’ve chosen to live with them. And even if we magically were to go back to something that resembled the days of wine and roses (i.e., circa 2018), would governments and business leaders put their blinders back on, revert to their generous risk tolerances, and ignore the possibility of future disruptions?

I hope not, and I don’t think we’ll need to worry about that. Disruption will be a way of life in the future, and with it, we’ll all maintain our current tendency to protect and isolate national and local economies.

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