Banking became Balkanised after the financial crisis; expect the same fate for manufacturing
Globalisation has brought many benefits, lifting millions out of poverty in emerging markets and bringing down prices of consumer goods in the developed markets. But if it was creaking after the financial crisis, and under more strain with the rise of populism, it will require a complete rethink now.
One analyst has said that the coronavirus pandemic is a global crisis not a crisis of globalisation but it’s hard to see political leaders seeing things that way when the emergency is over and the big questions start to be asked – such as how to be better prepared next time.
It will be insufficient any longer to see globalisation as purely an economic phenomenon that does not have political and social implications. Put more bluntly, having all the world’s production of cheap manufactured goods concentrated in a handful of countries, of which China is the largest, involves huge risks.
In the current lockdown situation with airlines grounded, it’s clear that countries need multiple sources of supply for essential goods such as food and medical equipment and that they need an updated plan on how to get back up supplies moving fast in a crisis situation.
But there is more to this than just surviving through a crisis important as that is. The coronavirus pandemic will simply accelerate changes that were happening anyway.
Technologies (such as artificial intelligence, big data and 3D printing) have reduced the labour element in manufacturing such that it is becoming economic to locate plants nearer to the end consumer rather than ship low-value items halfway across the world. The emphasis on reducing carbon footprints for climate change reasons also supports this approach as does the politics of having some of the few higher paid manufacturing jobs that this will create located in the consuming countries.
This is not to deny frontier markets the chance to industrialise. But before all this happened, it was likely that China would be the last country to develop through the cheap labour manufacturing route. I wrote a blog about it back in 2017.
So development economists and development banks need to be working out now how the benefits of these technologies can also be provided to emerging markets. Since the financial crisis, most commercial banks have been retreating to their home and regional bases in response to stricter regulation. They may now see some of the overseas business they had to give up come back into their sphere of operation. But they also need to be alert to the companies that will grow as a result of the post-coronavirus global restructuring and make sure they are supporting them as clients.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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