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The overall sentiment at the conclusion of the World Economic Forum in Davos last Friday was lukewarm. Most countries exceeded expectations from a year ago, but there was no outstanding success. Despite concerns about rising interest rates, major economies like the US, the eurozone, and the UK did not experience a recession. Additionally, the conflict between Israel and Hamas did not cause oil prices to skyrocket above $100 a barrel.

The situation is not ideal as central banks must carefully balance reducing interest rates too rapidly, which could lead to an increase in inflation, or keeping them too high and causing a recession. Additionally, the start of 2024 has seen an escalation of tensions in the Middle East, which could impact one of the major trade routes. Furthermore, the global economy remains divided, as evidenced by the recent Davos conference.

Unfortunately, there is a chance that events in 2024 will not go well. According to a prominent international decision-maker, who wishes to remain anonymous, the series of challenges since 2020 suggests it would be prudent to prepare for another unexpected setback. Even the most stubbornly optimistic person at Davos would have a hard time disagreeing with this.

Washington and Beijing are in a grim struggle for economic supremacy. The gap between north and south is widening, and liberal democracy is being challenged by a new breed of autocrats. The planet continues to heat up. In a week that marks the 100th anniversary of Lenin’s death, there are once again competing visions of what constitutes progress and success.

However, the demise of globalisation has been greatly overstated. The presence of multinational corporations and financial institutions at the World Economic Forum serves as proof of this. Additionally, the rapid advancement of artificial intelligence (AI) as part of a borderless technological revolution has left national regulators struggling to keep up. Just a year ago, ChatGPT was in its early stages, but now AI was a prominent topic of discussion at Davos. Some praised its potential to address urgent issues like the climate crisis, while others cautioned against its dangers.

Globalization is still alive and well, contrary to popular belief. The idea of western liberal democracy being in decline is also not true. While productivity has been low and living standards have been affected in recent times, it does not mean that these concepts are dying. Germany’s finance minister, Christian Lindner, caused a stir when he referred to Germany as the “tired man of Europe”. However, there are logical explanations for why there are no images of refugees trying to enter Russia or China on television.

What is true is that having been pushed on to the defensive, global capitalism is morphing into something different. Peak globalisation – along with peak Davos – happened a while ago, around the time of the global financial crisis of 2008, but it has been the repeated shocks since 2020 that have changed the dynamic.

The Covid pandemic has led to a shift in thinking, with some referring to it as de-globalisation while others view it as “glocalisation”.

Glocalisation, an unappealing term, does not refer to either the global free market or autarky (a self-sufficient nation), but rather lies somewhere in between. It entails shorter supply chains, prioritizing the development of domestic manufacturing, and a more deliberate involvement of government. Similar to any type of mixed economy, the level of glocalisation differs among nations.

In the past, Davos praised smooth supply chains that extended from China to developed countries in Europe and North America. However, there is now a realization that cost is not the only important factor, and governments recognize the value of ensuring a steady supply of vaccines, protective equipment, computer chips, and energy. Recent attacks on cargo ships in the Red Sea, which require longer routes around the Cape of Good Hope, highlight the vulnerability of lengthy supply chains. As Christine Lagarde, president of the European Central Bank, stated during the final Davos session: “We may have relied too heavily on efficiency at the expense of security.” Lagarde correctly pointed out that it is necessary to rebalance and prioritize security.

The long-term causes of glocalisation lie in the increasingly fractious relationship between the US and China – a relationship that has been deteriorating since Washington woke up to the threat posed by China’s rapid growth and its clearly signalled plan to use its economic power to challenge the US’s global hegemony. The US Chips Act and the Inflation Reduction Act are both examples of American determination to rebuild its industrial base through active government intervention.

However, the movement towards bringing back production that was previously outsourced would have occurred regardless. The recent events of the past four years, such as the pandemic, supply chain issues, increased inflation, and the Ukraine conflict, have only hastened this shift.

The bottom line is that industrial policy is now more accepted, even at the Davos conference. In fact, there was significant curiosity at the World Economic Forum about Labour’s strategies to enhance the UK’s supply side.

According to Nick Stern, who wrote a significant report on the economic impact of climate change, there may be a beneficial balance between promoting economic growth and tackling global warming. He believes that AI has the potential to accelerate efforts in both mitigating and adapting to climate change in developing countries. While he acknowledges the resistance from fossil fuel companies towards combatting global warming, he believes the benefits outweigh any drawbacks.

Stern argues that investing in environmentally-friendly projects would benefit economic growth and demonstrate fiscal responsibility. This can be seen as an endorsement of Labour’s plan for green growth, and an example of glocalisation in practice.

Source: theguardian.com