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How the pandemic could globalize the economy even more — not less

Closed borders, trade conflicts and supply-chain problems raise the specter of nations turning inward and disconnecting from one another. But Princeton’s Harold James thinks Covid-19 may well push us all closer.

Eryn Brown • knowable
Nov. 5, 2020 17 minSource

How the pandemic could globalize the economy even more — not less

Closed borders, trade conflicts and supply-chain problems raise the specter of nations turning inward and disconnecting from one another. But Princeton’s Harold James thinks Covid-19 may well push us all closer.

11.5.2020

Harold James has been writing about globalization, and its oft-expected demise, for the better part of 40 years. The economic historian at Princeton University has examined the effects of financial crises old and new, from the Great Depression of the 1930s to the collapse of financial markets in 2008.

His 2002 book, The End of Globalization, examined how the Great Depression upended globalism: Faced with an acute financial crisis, nations backed away from cultural and economic ties abroad. Ominously, James suggested then that the forces that turned societies against globalism in the 1930s were likely to emerge again as the 21st century progressed — even though nations have forged ever-closer connections through trade, migration and technology in the intervening decades. “One of the lessons of the Depression is that globalization is inherently vulnerable, and can be disrupted by pandemics, terrorist attacks and different crises,” he says today.

Indeed, as the aughts wore on, “different crises” emerged to prove James right. When real estate and financial markets collapsed in 2008, for instance, many politicians began disparaging global markets and erecting trade barriers, James wrote in the 2018 Annual Review of Financial Economics, part of a special issue and conference about the Great Recession and its consequences. These globalization foes were only partially successful, he noted: The pace of trade fell behind the pace of production for the first time in decades, but money and people continued moving freely between nations.

Careful observers of politics and business in 2020 couldn’t be blamed for wondering if Covid-19 — a dark side of interdependence, transported in a tiny bit of viral RNA — will usher in a new deglobalizing backlash. With needed swabs and syringes in short supply, wouldn’t nations turn inward to take care of their own people first, mobilizing to manufacture the medical supplies that they once purchased from China or India? With so many citizens out of work, wouldn’t governments start “reshoring” manufacturing jobs closer to home?

On the contrary, says James; the opposite could happen. The pandemic will almost certainly revolutionize how the world interacts, but not in the dire way some prognosticators think. James spoke with Knowable about why Covid may end up expanding globalization, rather than destroying it.

This conversation has been edited for length and clarity.

What is globalization, and why is it important?

I think of globalization as the mobility of goods, people and capital — and involved in all of that is the globalization of ideas, linking the world together. It has gone on throughout history — in the last decade archaeologists were stunned to discover that skeletons of people who had been buried in southern Italy during the Roman Empire had Asian DNA.

At various stages there have been new intensities in the process. The development of sailing ships in the early modern period enabled longer distance voyages, and in the 19th century railroads opened up the interiors of continents. The airplane and later the Internet in the 20th century also really opened up globalization to new areas.

Globalization is driven in part by material needs, and by efficiency: It doesn’t make sense, and isn’t even possible, for every place to produce every kind of good. But I don’t think it’s just a matter of obtaining a desired item that you can only get somewhere else. It’s also a question of curiosity. We find our environment constraining, and we want to restart our lives. Migration and interaction with others are often fueled by people fleeing adversity, but sometimes also by adventurousness.

In the 1920s and 1930s, globalization was also a phenomenon of ideas. Cadets at China’s Whampoa Military Academy decided they needed a fascist party because Italy had moved that way. The movement of goods and capital around the world hadn’t reached late 20th century volumes back then. But a banking crisis in Austria was still able to produce a domino effect around the world, just as the US mortgage market meltdown devastated the global economy in 2008. The awareness of the impact was the same in both cases.

In my 2018 review, I looked back at 2008 and measured globalization and deglobalization in terms of flows — of goods, of people, of capital and of data. What I found was that the evidence didn’t fully support the notion that deglobalization had taken over.

So rumors of The End of Globalization have been greatly exaggerated.

Other people have invented slogans like “slobalization.” I think that’s more like it. The financial crisis of 2008 certainly produced some kickback against globalization and a much wider discussion about whether it is desirable, whether it’s compatible with democracy or not, and the conditions under which globalization is working. Many opined that globalization was over, but conditions on the ground didn’t change dramatically.

What changes did occur?

There have been more trade conflicts since 2008. There’s been more resistance to migration, and there’s been some nationalization of financial systems, particularly in Europe.

Trade patterns shifted, with some production moving closer to home. A lot of this had little to do with global competition, and was instead driven by consumer demand and impatience. The trendy styles of fast fashion, for instance, were easier to deliver if you produced more locally, and not far off in Asia. A small amount of American production went back to the United States. Some European production went to southeastern Europe — to Romania or Ukraine, instead of China. These are not enormous in terms of volume, but still an interesting and important trend.

Obviously I think the 2016 Trump election and Brexit, which share a core opposition to globalism, both fit into the narrative of the backlash to globalization. But up to 2020 it was a very mixed picture in terms of any actual changes. This year has added a new dimension.

Because of Covid?

Yes. Predictably, many people, including Trump adviser Peter Navarro, have said that globalization was the original sin that produced the Covid crisis. The coronavirus first appeared in places that were very internationally connected — northern Italy, New York City. It was easy to blame global travel. It was also easy to think that the crisis was exacerbated by dependence on distant producers for medication. One rather amazing statistic is how much of American pharmaceutical products are made in China or India, or made with Chinese materials. Around 97 percent of US antibiotics, for instance, come from China.

Efforts to control the spread of Covid have drastically impacted the movement of people from place to place. It’s produced big restrictions on travel and made international migration more difficult. So that aspect of globalization is under new stress.

But there’s also a more positive picture of what’s going on. The Covid crisis is coming at an odd moment when there’s an enormous amount of technological change afoot — particularly, the rise of the Internet — and some of it actually increases globalization. It’s really a radical shift in what globalization is about.

So, you can think of lockdowns as a globalizing force?

Think of housing, education and medical services, three expensive areas of life which have remained intensely local, up to now. During the coronavirus crisis all three began to pose real dangers: Sharing living and working space with lots of other people, going to your doctor or the hospital, or showing up at schools and universities all increased one’s chances of infection.

Covid showed us that all three of these can be managed better through remote interactions — and these, by definition, make our lives less local. National borders are no longer an obvious restriction.

It’s clear that the expensive global megacities are losing their attractiveness. You don’t need to live in the center of Manhattan, or in the center of London. You can live somewhere more pleasant and less expensive and work remotely. I think in the future we’re going to see a mixture of people working from home and going physically to a place for some days a month — a kind of hybrid model.

Similarly, if I have a fever and I feel unwell, I don’t need to go physically to see my doctor. I can talk to the doctor on the telephone, or by video. I can hook up to devices that measure my blood pressure or blood sugars and transfer these data to my doctor. He or she doesn’t have to be in New Jersey, where I live.

School, too. I’m not convinced that Zoom is the answer to everything, but some things have gotten better with it — including academic conferences, which have been a real delight the past six months. My students who are enrolled at Princeton are sitting at computers in Jakarta and Buenos Aires and Berlin. In the future, education will combine long-distance sessions with personal meetings. It will be cheaper and more effective, and will mean that students will be able to learn from anywhere in the world. A lot of colleges are already worrying that their basic business model is broken.

“The Covid crisis is coming at an odd moment when there’s an enormous amount of technological change afoot … and some of it actually increases globalization. It’s really a radical shift in what globalization is about.”

Harold James

That’s my deglobalization reversing story. I should add: There was never any deglobalization in the exchange of data. Every day, people transfer more and more bits of data around the world. When we’re doing Zoom, we’re moving incredibly large amounts of bytes. That is an important metric of interconnectedness.

How about physical stuff? There’s been a lot of talk about “reshoring” essential businesses like the manufacture of medical equipment. Has that started to happen?

Yes. Medical supplies are an obvious case, and production is ramping up domestically. But we are still going to be dependent on what happens elsewhere. The race for the most effective Covid vaccine is taking place all over the world — in China, in Russia, in Europe, in the United States. In a few months’ time, we’re going to see that one vaccine is better than the others, and it will become the model.

Will such a vaccine be produced locally? Perhaps, in the United States. But it won’t be produced locally in every European country. There’s no point in producing a whole range of pharmaceutical goods in, say, Estonia or Slovenia.

This highlights another need, which is to make sure goods like a vaccine are distributed equitably between countries. There will be demand for a multinational approach, built on the foundations of globalization that have been built over the last century. The World Health Organization probably has a role to play.

Countries began turning inward and embracing populist politics after the 2008 financial crisis. Has Covid-19 ramped up this “psychology of deglobalization,” as you’ve called it?

I think it’s really mixed. The immediate psychology is indeed to think, let’s not do anything that requires widespread contact with the world. That’s clearly been accelerated by the pandemic.

But then when you begin to look at the actual outcomes for health and the economy, it changes the discussion very quickly. Saying “America First” and just cutting everything off really doesn’t work. Medical supplies are a nice example. At the moment, the US is still dependent on international supply chains for these products, and we’re likely to be dependent for quite a substantial period of time. In the end that’s probably a good thing. Even if the country managed to produce equivalent goods on its own, it would be cutting itself off from innovations in the future.

How have pandemics impacted global trade and interactions throughout history?

The two really, really big pandemics that historians are aware of are the Plague of Justinian in 6th and 7th centuries and the Black Death — particularly the first round of the Black Death, from 1348 to 1350 or 1351. The Plague of Justinian is said to have killed about a quarter to a half of the population of Europe and played a role in the story of the decline and breakup of the Roman Empire, so it was a deglobalizing force.

The Black Death, on the contrary, occurred at a moment when Europe was showing signs of overpopulation. Populations had expanded and moved into marginal lands, yields fell, food supplies become more precarious and wages fell, too. The immediate aftermath of the Black Death, which killed about a third of Europeans, was actually to increase wages and make living conditions better. As a consequence, people could spend more on other things, and it produced a tremendous flowering of culture and trade.

The Covid pandemic is not anywhere in the league of these pandemics in terms of mortality, and it’s not going to affect wages that dramatically. The estimate of deaths during the Spanish Flu a century ago is as many as 50 million. And even that was not enough to have a significant impact on wage levels.

What globalization and deglobalization trends will you keep an eye on as Covid winds down over the next few years?

I’ll be watching the move away from big cities and the application of technology to education and to medicine. If people are paying less for these essential services, they’ll have more disposable income and new opportunities, and you could get something like the plague effect — increased purchasing power that makes people feel better off.

Covid will also increase the pace of changes that were already underway, like the move away from conventional money and toward electronic currency. Many places don’t want to take bank notes anymore because of the risk of infection. The European Central Bank has just announced a big e-currency study.

I think quite quickly you’ll see private currencies — money issued by non-state entities — playing a role as well. The old world in which currencies are associated with states isn’t going to last. This is a change that was taking place anyway. It’s accelerated by the delegitimization of physical, old-fashioned money.

Will Covid have an impact on political nationalism, too?

The 2008 crisis was a powerful driver of nationalism and populism. But most populist governments haven’t done well in handling the Covid crisis. Some elements of the populist mélange are mistrust of experts, making hasty gut decisions and jumping from one thing to another thing. Their policies are usually inconsistent. Competent governments like Germany’s, on the other hand, have handled this crisis quite well, which makes populist complaints about those governments look invalid.

So I think Covid will tamp down populism. The steam was going out of the movement anyway.

This article originally appeared in Knowable Magazine, an independent journalistic endeavor from Annual Reviews. Sign up for the newsletter.

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