For the last three decades, it's been more or less assumed that globalization was a force that moved in only one direction -- towards ever-greater integration.
And due to the logic of global trade, the assumption of ever greater integration led to the prediction that manufacturing would continue to move from countries with low labor costs to those with even lower labor costs and even looser laws, while supply chains would tend to grow ever-longer and more complex. The world would grow flatter.
So far, these predictions have held true, but will they always? For the first time in recent decades, it seems there are now real reasons to question the logic underlying the official future of ever-increasing global trade.
The biggest, of course, is the rapidly mounting cost of transportation. As oil prices rise, reports the New York Times, shipping costs are driving decisions to shorten supply chains:
When Tesla Motors, a pioneer in electric-powered cars, set out to make a luxury roadster for the American market, it had the global supply chain in mind. Tesla planned to manufacture 1,000-pound battery packs in Thailand, ship them to Britain for installation, then bring the mostly assembled cars back to the United States.
But when it began production this spring, the company decided to make the batteries and assemble the cars near its home base in California, cutting more than 5,000 miles from the shipping bill for each vehicle.
“It was kind of a no-brain decision for us,” said Darryl Siry, the company’s senior vice president of global sales, marketing and service. “A major reason was to avoid the transportation costs, which are terrible.”
But transportation costs are not the only reasons why globalization as we know it might be in for some rapid evolution. Consider:
*Far-flung supply chains may drop costs (even with higher oil prices), but the multiply climate change emissions. That already presents a marketing challenge as consumers grow more aware of their carbon footprints. And if political consensus emerges on pricing carbon (as seems likely), some of the price advantages of global complexity could vanish overnight.
*Manufacturers and others are already increasingly aware of, and worried about, supply chain diversity. When the entire supply of a critical part or material comes from a distant factory or mine, every company that depends on that part or material is at risk. Increasingly, companies are trying to find multiple sources (and alternative sources), preferably close to home.
*Some of the economic advantages of globalization have come from companies gaining the ability to skirt labor and environmental laws by doing business in countries with high levels of political corruption (corruption they have often helped create). But now, transparency activism has blown the cover of secrecy off these practices; now it is easier than ever to cause enormous brand damage simply by revealing an unsavory backstory.
*Much of the logic of globalization assumes a one-way flow of materials, mined and grown in the poorest countries, manufactured into consumer goods in China, Brazil or Mexico, sold on the shelves of megastores in Europe or North America, then shipped away to the landfill. But as we move into zero waste and closed-loop systems (where there is no "away"), reverse logistics start to become a real concern. Producers become responsible for their products, meaning that running their current supply chains in reverse doubles (at least) their already mounting transportation costs. This alone could drive more local manufacturing.
*Globalization suffers from some big disruptive vulnerabilities. An extreme act of terror, say a dirty bomb in a shipping container, could easily bring the whole system screeching to a halt. Ditto bird flu. Same with mass migrations triggered by environmental degradation and climate change in already desperately poor countries. Heck, even the right kind of invasive species scare could put a hiccup in the system, but some of these could stop trade altogether for quite some time.
Now, none of these mean that industrialization itself is likely to stop or even slow down (though the disruption of trade could mean that prices on some things we're used to thinking of as cheap, like clothes and minor electronics, grow suddenly more expensive). Especially in the developed world -- where we can draw on a huge basin of wealth and a huge capacity for innovation -- even a dramatic reversal in globalization would not fundamentally undermine our civilization (though it would certainly contribute to a number of real changes already underway, like greater urbanization, local food movements, cradle-to-cradle design and so on). We won't be headed back to de-industrialized farming any time soon.
But if the scenario of a reversal in globalization in fact comes to pass, there will be some economic upheaval, and that upheaval will create winners and losers -- an effect that will be magnified if economic chaos occurs at the same time that the impacts of climate change begin to be felt in earnest. Some regions will plan ahead and do well. Others will suffer.
What might regional or local economic policy in a time of de-globalization and climate impacts look like? What key industries or capacities should regions be looking to foster? What sorts of infrastructure development should they subsidize? What sort of agricultural capacities and ecosystem services should they aim most to preserve? If you were planning your region's economic future, what would you be looking to do?
One point is probably worth making in conclusion: because communications technologies are (comparatively speaking) dematerialized, a reversal in material trade patterns almost certainly would not also mean a reversal in intellectual trade patterns -- rising oil prices or climate change won't shut down the web or stop Bollywood from making movies or prevent innovators from licensing their ideas in other countries. In fact, it might be that expertise, innovation and culture will flow more freely in a world where goods flow more slowly. We might actually grow more interconnected in a world where supply chains shrank.
The kind of globalization you describe in the first few paragraphs of this thought provoking post represent the fruits of the last 30 years of relentlessly anti-labor thinking in the US. It seems that sort of thinking may be grinding to its close right now. Not that we are going to start eating the rich any time soon, but that the continual downward spiral of the US economy has no options for recovery that do not include substantial increases in the direct labor and real income of working Americans. In the face of this trend, the more likely re-centering of globalization will be the export of cultural possessions you allude to in the last paragraph. This has already been wildly successful for Japan. The main components of American youth culture are already made in Japan in the form of games and anime. The bulk of the profitable music and video industry is also located and operated out of Tokyo while American artist busk for spare change on the internet. Columbians and Afghanistanies dominate the most profitible import industries of the big American cities. It is reasonable to assume that the same process of cultural globalization will continue and accelerate.
What a great post. I have been having this discussion with folks in my town - as globalization reverses how do we keep ourselves from becoming isolated within our communities again? How do we gain the best of both worlds - supporting thriving local economies without sacrificing our needs and wants and without reverting to the "city vs. country" or "us vs. them" mentality of the past.
The idea that once "commodities" are dealt with locally "culture" will be our new global trading post is quite exciting.
I rather miss the times when going to another place meant finding something new - product or culture. Is a Philadelphia soft pretzel the same when you get it shipped to you in Ireland as it is when you buy it at 9th and Arch? Is step dancing the same at the Kimmel Center as it is in the common area of a Dingle Peninsula Inn? I think not.
But sharing ideas is very different and the opportunity to hear how other places have solved problems etc. and then being able to implement them in our own hometowns sounds like what we really wanted when this whole globalization thing started!
Reading this, it occurs to me that there is another factor at work here.
Goldratt's view of productivity is that it equals throughput - inventory - overhead.
As mentioned, the rise in transportation costs increases overhead. However, the increased length of the supply routes in a globalised economy also effectively increases inventory (ie materials and goods in transit that haven't been sold yet... not to mention quarantine regulations. How many paid for batteries would Tesla have had in transit at any time if they had stuck to the old plan? What do you do if a quality issue is unearthed which requires a design change?)
Inventory can be lessened either by reducing the travel time (either by reducing distance or increasing speed), and reducing transfer times (a major issue with ports)
great post... very urgent stuff. Too big a topic for a comment field, but here are my initial thoughts anyway, much of which will be familiar to this audience. Sorry it's a little long.
Focus on resilient systems.
Economic diversity; question over-promised sectors, such as goods movement; preservation of industrial facilities (question industrial obsolescence).
Investment and systems maintenance.
New rail capacity for both people and goods, including high speed rail; distributed energy systems; modern manufacturing capacity; multiple transportation modes (redundancy is important in the movement of people & goods and in energy provision – modern life support); local water recycling facilities; and (peri-)urban agriculture.
Regionally appropriate technology.
Solar in the SW, wind in the plains, and regionally appropriate crops. (The impacts of this would be more than just local resilience and climate adaptation – they also reintroduce the whole idea of regional difference, which – as one commenter pointed out – is half the reason to travel and exchange goods.)
Invest in green infrastructure – focus on water.
Design a system of green spaces and ecological building techniques that reduce consumption, especially fresh water. This serves as flood control, coastline protection, stormwater (water quality), and habitat. Plays a part in keeping regional economies based on marine life alive.
Re: your almost aside on invasive species… Last year, southern California’s Metropolitan Water Department appropriated $5.9 million for chlorination facilities, isolation barriers, and increased boat inspections, to protect the fresh water supply of 18 million Californians. The threat? Quagga mussels.
See also a recent LA Times article about the destruction of the great basin sage ecosystem in Nevada and Utah. Cheatgrass burns easily and repopulates quickly, meaning that after the burn, the range of the cheatgrass grows even larger. The entire ecosystem may soon be destroyed.
Nice post, Steffan. A different perspective of this phenomenon, especially with respect to developing world, can be read here.
Great post Alex.
Play this scenario out. Over here in the UK we now manufacture even less 'locally' than the US to the extent that our economy is skewed toward financial services or the public sector (with some small peaks in between).
The results are 1) that we don't have the skills to manufacture things anymore 2) we don't train the engineers or manufacturers of the future in any quantity anymore 3) many of our young people would not recognize this as a career option anyway 4) we have gotten used to having no industrial facilities around and therefore getting planning permission (even for something as benign as a small wind turbine on an existing facility) can take years.
Therefore, we have a Catch 22 between smaller carbon footprints through local supply chains or protection of local communities from unwanted industrial development.
It will take some major reversing of globalization to overcome this.
It's amazing to me that we are officially just discovering a simple fact: diversity is the only way to make large and complex systems robust. We've known it culturally for some time, it's been recognized as good for crops and local ecosystems. Diversity having relevance in the global economy was only a matter of time.
Something as simple as "having options" is so critical, and so overlooked.
Great article and responses. It's encouraging to find a community which embraces resilience and systems thinking as a means to understanding and tackling complex issues like this.
My take from an Australian standpoint - In Australia the government is about to go down the path of an emissions trading scheme on carbon, which will drive some of the impacts that you mention here.
It is difficult at this stage to see what carbon price will be, but my early guess is that some of these shifts are more likely to be driven by energy prices than they are by carbon prices or concious consumers. In the medium term increasing energy prices by 5-10% as a result of a carbon price is immaterial in the context of a doubling or tripling of energy prices as a result of supply and demand. Industry is very focused on the CPRS, but I suspect they may be missing the bigger picture. I suspect some will be caught flat footed.
Unfortunately I haven't had time to blog on this in detail yet, but will aim to do so in the coming weeks.
Keep up the great work,
I hope you and the article are right BUT having just retired from 28 years in the container shipping business, the intitial factoid that has triggered this all off is a CIBC( investment bank) claim that freight rates have risen from $3000 /40' container to $8000-- this is flat out very wrong. yes ocean freight is rising as carriers get some pricing power due to fuel issues but the increases are much much smaller and come off a lower starting number, Maquilladora production continues to largely stagnate as overland freight costs are more than over compensated by efficient ocean transport and willingness of Eastern Hemisperhe countries to do complex work at subsisdance wages.
I fully agree with your views. Globalization has and will definitely create more serious problems than it has or will solve.
It is creating un-necessary problems for millions of people especially in poor or so-called 'developing countries'. And ultimately it will create even bigger problems for the so-called 'rich' or 'developed' countries because on the whole this globalization is disturbing environment, ecology of this Earth itself.
I also keep writing and warning against this blind pursuit of globalization and other emerging global problems at my blog http://kadvinod.blog.com
I request you to spare few moments (whenever possible) to read those as we may spread our common message more effectively.
You can make a decision that you will not become a parent unless you have $10,000 in total assets. If the whole world did that, there would be no poverty, human rights violations or environmental issues. Make the decision at www.theperfectworld.org and tell your friends to do the same.