Will coronavirus reverse globalisation?

Will coronavirus reverse globalisation?



Globalisation has been one of the buzzwords of the past 25 years.

It may seem a rather strange concept, since any economic historian will tell you that people have been trading across vast distances for centuries, if not millennia.

You only have to look at the medieval spice trade, or the East India Company, to know that. But globalisation is really about the scale and speed of international business, which has exploded in the past few decades to unprecedented levels.

Easier travel, the world wide web, the end of the Cold War, trade deals, and new, rapidly developing economies, have all combined to create a system that is much more dependent now on what is happening on the other side of the world than it ever was.

Which is why the spread of coronavirus, or Covid-19 to be specific, has had such an immediate economic effect.

Professor Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, says that the pace of change in the global economy over just the past 17 years has been profound.

"When we look back at 2003, at the Sars epidemic, China accounted for 4% of global output," she says. "Now China accounts for four times as much, 16%. So that means that whatever is happening in China affects the world to a much larger extent."

Globalisation helps to explain while nearly every major car plant in the UK has shut down - they are dependent on sales and components from around the world. When both collapsed, they just stopped making cars.

China's wealth and health therefore matter to us all far more than they used to, but this is not just a matter of scale - there is also a deeper problem with globalisation.

Ian Goldin, professor of globalisation and development at Oxford University, and author of "The Butterfly Defect, How Globalization Creates Systemic Risks, And What To Do About It", says that "risks have been allowed to fester, they are the underbelly of globalisation".

That, he says, can be seen not only in this crisis, but also in the credit crunch and banking crisis of 2008, and the vulnerability of the internet to cyber-attacks. The new global economic system brings huge benefits, but also huge risks.

While it has helped raise incomes, rapidly develop economies and lift millions out of poverty; that has come at the increased risk of contagion, be it financial or medical.

So what does this latest crisis mean for globalisation?

For Prof Richard Portes, professor of economics at London Business School, it seems obvious that things will have to change, because firms and people have now realised what risks they had been taking.

"Look at trade," he explains. "Once supply chains were disrupted [by coronavirus], people started looking for alternative suppliers at home, even if they were more expensive.

"If people find domestic suppliers, they will stick with them… because of those perceived risks."

Source: BBC