The Davos preachers are not singing their usual songs from the mountain this year. We have not yet got the traditional annual declaration that the Fourth Industrial Revolution is definitely going to happen this coming year; 2019 has been greeted by gloom.
The worry is that globalisation, the process of ever-closer global economic integration, has stalled. Protectionism is on the rise. Many obituaries have been written for the “postwar international order” and even for globalisation itself. But the concern is overdone.
The international system and the nature of globalisation are changing. But the much-lamented passing economic order is not really that old. What the ski-suited elite has been mourning really only dates to the 1990s, not the 1940s.
The standard history of globalisation runs like this: the first great age of global economic integration began sometime in the latter half of the 19th century and continued until the Great War. Driven by steam ships and railways together with advances in communications technology, goods and capital began to cross borders at a much faster pace than in the past.
As one leading historian has written: “The annihilation of distance has become a late Victorian cliché.” Indeed, the typical Davos attendee might find John Maynard Keynes’s description of pre-First World War globalisation to be oddly contemporary:
“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole Earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.
He could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world.”
This high point was followed by decades of deglobalisation, of regionalism and of rising protectionism. Economies became less global and more national. Capital movements – and the movement of people – became less common while goods were less likely to cross borders.
Then, after the Second World War, reglobalisation began once again. The Allies sought to rebuild an open international trading order under American leadership. This traditional history has it that the liberal order eventually dragged down the Berlin Wall and pulled China into its orbit.
Globalisation has, in recent years, already been slowing. It has not recovered from the crisis. And under President Trump, the US is pulling back. The self-styled “Tariff Man” argues that trade wars are good – and easy to win. Hence the fears that the party is over and, just like in the 1920s and 1930s, the process of globalisation is set to reverse.
But what this conventional tale all too often misses is that the globalisation of the 1990s and 2000s was nothing like what went before. An excellent 2013 academic paper by Arvind Subramanian and Martin Kessler argued that the gradual process of reglobalisation that began in the 1940s was surpassed in the 1990s by what the authors call “hyper-globalisation”.
Global cross-border trade in goods peaked at about 15 per cent of world GDP in 1913 (the era of Keynes’s tea-sipping). It fell to only 5 per cent in 1939. By 1992, the value added of cross-border merchandise trade had returned to 15 per cent: the story of reglobalisation was complete.
But, driven by technological advances, the entry of China into the global economy and a series of post-Cold War trade agreements (including the creation of the World Trade Organisation) it took off again. It hit about 25 per cent of global GDP between the early 1990s and late 2000s.
Cross-border investment tells the same story. The global stock of cross-border foreign direct investment stood at about 10 per cent of global GDP in 1913. It fell in the 1920s and 1930s and gradually returned to circa 10 per cent by 1993. Then, in the next 15 years it grew to 30 per cent of global income. A completely unprecedented number.
The slowdown in recent years has felt jarring, but the global trade in goods and services is now in line with the size of the world economy. So these numbers are not falling back – they are just not increasing any more.
If globalisation is defined as the process of increasing global economic integration then it may have stalled. But it has stalled at an historically elevated level. We remain an intensely interconnected world in a way that has never existed before.
For all the fretting in Alpine ski resorts, global tariff levels remain exceptionally low and global openness to trade remains exceptionally high. The pace of global integration seen from 1993 to 2008 was unlikely to be recovered under any occupant of the White House. Maybe the Davos crowd should cheer up, and enjoy the skiing.