Globalization, emerging markets, and covid-19

08:15 by Hubert Fromlet, Kalmar

Many economists are currently talking about deglobalization or even the end of globalization, caused or accelerated by the corona crisis. Of course, such a development cannot be ruled out completely. But I do not think this is the most probable alternative or scenario.

Globalization will look differently

My view is rather that globalization will change style, also affecting conditions for emerging market countries. Western dependence on production of (intermediate) goods in certain (emerging) countries will reanimate globalization at some point in the future, probably when the corona crisis more or less is over. Some of these reviving forces are briefly summarized below.

Global competition will remain in place.
It is hard or impossible to imagine that costs and prices will become irrelevant for companies in Western companies. Price competition will remain in place but may partly get a somewhat modified shape by giving goods and services a more environmental and ethical touch than so far. 

EU- and other OECD-countries are also part of globalization.
As indicated above, there will happen some geographical shift of production and purchases from countries with obvious major institutional shortcomings to countries with acceptable or good transparency and ethical standards. EU countries are certainly part of this second group. Also trade within the EU area contributes to globalization as long as the EU clearly supports free trade all over globe. We also know that the U.S. five years from now at the latest will have another president, possibly or probably applying less protectionism. The current number of countries with deeply and broadly rooted negative nationalism is not overwhelmingly high.

Reasonable institutions will favor certain emerging countries.
Emerging countries with reasonable institutions and transparency may benefit from future revised corporate purchasing processes in advanced countries. Not all goods or services can be redirected for production to (Western) home countries or to friendly-minded neighboring countries. This outlook will favor transparent and well-performing emerging countries and may give a (new) chance to historically lagging but in the meanwhile reform-minded emerging economies.

The environment, digitalization and virology will remain global issues.
In my view, it is hard to believe that improvements of the environment will disappear once the corona pandemic is over. This issue has to be set in a global context and can only be combatted successfully on two levels, the national and the global level. I also see digitalization as a global development in the future, maybe even more than it would have been without covid-19. Last but not least, the fight against epidemic and pandemic crises needs even much more future global readiness, co-operation and research.

Financial markets will continue to drive globalization.
Will financial markets work for less globalization or even the end of globalization? Nobody would believe in such a scenario because it would assume completely new conditions on earth. What could that be? I do not find a plausible answer.

Young people want to have a global lifestyle also in the future.
This last point contains both expectation and hope. Continued global lifestyle means continued global traveling, fashion, music and appreciation for internationally oriented jobs. The really nationalist political leaders will sooner or later be replaced by younger people who hopefully find it worthwhile to think and act globally. I think this will happen. But there are, of course, also impediments for such a positive development – impediments that the young or younger generations hopefully wants to get rid off.

Conclusion

There is quite a number of reasons that can explain that globalization will not come to an end as many economists believe these days. However, globalization will look quite differently in the future. All the environmental challenges and digitalization will remain very important driving forces. Quite a number of emerging markets certainly will have to redefine their role in the global economy. This includes for success more focus on transparency, ethics and other institutional standards. Future-oriented emerging markets will recognize this new opportunity.

Finally, this may even lead to a new positive wave of globalization.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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