The front page of last edition of The Economist grabbed my attention: “Goodbye globalisation – the dangerous lure of self-sufficiency”. This is an issue that has been preying on my mind for some time now. In this blog I want to explore what this means and the implications for us – from two perspectives: the personal and financial.
I grew up in the Isle of Man, a small island in the middle of the Irish sea. In those early years the perimeter formed by the blue-green swell of the Irish sea reflected the horizon of what mattered to me. Local issues were important; they were tangible and influential. As I ventured into further education and university in England, those horizons were widened and my perspective on issues became broader, yet more equivocal. And as I embarked upon my career – and travelled globally – the breadth of cultures, attitudes and view-points I experienced made my interpretation of news and events ever more ambiguous. Whilst this growing uncertainty formed by new experiences might seem a negative attribute, I believe it has made me more open to accepting new ideas and contrary viewpoints: a tolerance for the unknown or even the opposite.
In parallel with my personal experience, the world was experiencing its own broadening of horizons, through what is considered the “third wave of globalisation”[1]. Using the words of the economist Joseph Stigliz, globalisation is defined as “the closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders.”
Stigliz’s definition suggests a gentle, evolutionary path towards globalisation but we have witnessed some unimaginable events that would have escalated that growth. The breakup of the Soviet Union and the fall of the Berlin wall would have been unthinkable even a few years prior to happening. The images of men and women celebrating on top of the wall as parts of it were brought crashing down evokes such strong memories of nations coming together. Along similar lines, could we have foreseen such a symbol of America as Starbucks opening within the Forbidden City – even if it was subsequently forced to close due to objections of it “trampling over Chinese culture”. Perhaps the most impactful and some would argue insidious is the establishment of the internet and with it the growth of the transfer of information, as illustrated by the graphic, courtesy of the Harvard Business Review.
From the nineties up until recently our global nations have become closer, our people more aware, we have seen a decline in global inequality and a reduction in the number of people living in extreme poverty. But, if the leader in the Economist is to be believed, are we really waving goodbye to globalisation and, if we are, does that mean a reversal in what I believe are some very positive trends?
The signs of retreat from globalisation are certainly there and some point to 2017 as the zenith of its progress. Perhaps no coincidence that it is the year that Donald Trump assumed the Presidency: elected on a ticket of ‘putting America first’, with promises of building a wall between the US and Mexico, subsequently introduced travel bans on individuals from Muslim countries, withdrew the US from a number of multilateral treaties and entered into a trade war with China . But this is a phenomenon seen not just in the US particularly if you assume a linkage between the decline of globalisation with the rise of populism, there are many examples of countries closing down borders and implementing protectionist policies – the UK among them with BREXIT.
So I fear The Economist is right with its concluding sentence: “Wave goodbye to the greatest era of globalisation – and worry about what is going to take its place.” And worry I do. From a personal perspective I worry that we are entering an era of increased intolerance; of greater prejudice and bias, leading to a more fearful society.
From an investment point of view I am concerned too. Free flowing capital and ideas across borders leads to more opportunities, greater innovation and more significant scope for growth. Moreover, if we act in unison there is increased potential to create harmonised rules and regulations in areas such as governance, the environment and protection of workers and broader society.
The silver lining, if there is to be one, is perhaps in respect of diversification of investment. With globalisation we have seen the increased correlation of returns of developed and emerging economies. As that breaks down we may see a greater variance in the returns of different economies offering opportunities from a stock picker’s perspective.
[1] Institute for Public Policy Research, “The Third Wave of Globalisation. The first wave started around 1870, characterised by the industrial revolution and colonial empire building. The second wave followed the second world war, characterised by Bretton Woods institutions and Keynesian economics.
