Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
There is a growing feeling around the world that globalization has come to an end and that a new order is coming. To support this idea, skeptics point to manifestations, such as the slowdown in financial and investment flows, the rise of nationalism and protectionist policies, trade wars, disputes over control of foreign investment, and anti-immigration policies. Other factors include people’s discontent, based on rising unemployment and inequality in the globalization era.
But is globalization actually receding? If we measure economic integration and interdependence among countries—the main features of globalization—against trade flows of goods and services and against financial and investment flows, as is often the case, we may be witnessing a hiatus. However, if we use metrics that are more in line with the economic dynamics of the 21st century, then there would be signs that globalization is accelerating rather than subsiding.
And what are these metrics? These are indicators of economic integration and interdependence among countries that transcend trade and financial flows. Consider the field of technical and regulatory standards. In recent decades we have seen true globalization of standards, protocols, certifications, processes and control and monitoring in relatively simple areas, such as container transport, and in more complex areas such as the production of goods and services, communications and phytosanitary, safety and quality issues, among others.
This standardization reduces time, increases predictability, allows the identification of risks and mitigators, streamlines value chains, thus expediting processes, stimulating investments and flows of factors, and allowing the integration of production and markets. The prospects for the future are a larger scope and more intense standardization.
Take, for example, the case of digital services and e-commerce platforms and networks, as well as mobile telephony and computer operating systems. We are witnessing an unprecedented massification of access to digital services that connect everyone and everything. This connection is possible through standardized operating systems and internet protocols that allow billions of users to communicate at near-zero cost, have simultaneous access to digital content, and do business from virtually anywhere in the world.
Expanded connectivity, falling computing and sensor costs, and relatively low regulation in digital markets are accelerating the adoption and use of digital technologies, allowing the emergence of a new generation of business models and economic integration promotion. The trend shows that this digital commercialization can only increase.
But there is still other evidence pointing to an escalating globalization. Think of the financial and capital markets, which are increasingly united by products and services. This is possible thanks to the standardizing of routines, processes and standards of financial, risk management and payment systems policies. This all promotes economic integration and growing interdependence of economies.
Consider also the unprecedented consolidation of the goods and services markets, where an increasingly smaller group of borrowers are progressively influencing global markets and investments. Evidence suggests that market consolidation will continue to grow in the coming years.
Finally, despite recent policies mainly based on bilateral economic relations between countries, a number of multilateral trade agreements that promote the technical harmonization and regulatory frameworks and benchmarks in areas as varied as services, government procurement, digital economy, intellectual property, working conditions, phytosanitary standards, state-owned company governance or the environment have been approved or are being negotiated. This harmonization is also providing for closer and more integrated markets.
With quantum computing, 5G technology, and the Internet of Things, there are even greater opportunities to collaborate and share. Economic activities will become even smoother. In fact, we are in an era in which intangible assets have gained prominence in value creation, while global value chains continue to integrate economically.
Therefore, inferring that globalization is coming to an end may be hasty, as skeptics generally do not take into account more sophisticated dimensions of market integration and economic interdependence. It seems that globalization is not receding, but changing.
The problems that can jeopardize globalization include social tensions associated with the impacts of new technologies, cyberattacks that interfere with data and system integrity and security, and failures of deliberate use in digital platforms, operating systems, payment systems and protocols, creating walls and separating people, companies and even countries.
