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The ‘Great Reset’: Globalization has had its day, but not in the way WEF thinks

Updated: Mar 31, 2023

For two years the world has struggled to get to grips with the impact of COVID-19 pandemic and its tragic consequences. The focus of many governments and business leaders has inevitably been on the short term political, societal, health and economic implications of the crisis. However, from the outset there were others who believed the pandemic could be a catalyst for re-structuring the entire functioning of the global economy. The World Economic Forum (WEF), the non-governmental lobby organisation under the leadership of Klaus Schwab, has led the calls for change and dubbed this proposed transformation ‘The Great Reset’.

According to the WEF, the pandemic offers an opportunity to ‘improve’ the economic system and replace it with ‘responsible capitalism’. The aspiration has three main themes:

1. The encouragement of stakeholder capitalism i.e. a system which delivers ‘fairer’ outcomes

2. Underpinning economic development with sustainability and

3. Harnessing the innovations of the Fourth Industrial Revolution.

One commentator described the initiative as refocusing the world’s economy on ‘values’ rather than ‘value creation’. A number of world leaders and former politicians have embraced the concept, including Prince Charles and John Kerry. The slogan ‘Build Back Better’ was adopted by many, including UK Prime Minister, Boris Johnson and US President, Joe Biden, to communicate their political aims which directly or indirectly have been influenced by the thinking behind ‘The Great Reset’.

The phrases ‘Build Back Better’ and ‘The Great Reset’ are underpinned by the belief that global economic, financial and trading systems need improvement and, in some cases, complete root-and-branch overhaul. In fact, many people believe that ‘globalization’ is no longer fit for purpose citing recent failings including:

· The backlog of ships at US ports and the high levels of air and sea freight rates

· The way in which many emerging markets were effectively excluded from global supply chains at the height of Covid when shipping capacity was switched to more lucrative trade lanes

· The inability to supply PPE at critical periods of the pandemic

· The difficulties which many small and medium-sized exporters in Asia, Latin America and Africa have found in accessing trade finance

· The role which international logistics and transport companies play in the generation of carbon emissions.

At times over the past two years it has seemed that globalization has been in an existential crisis due to the systemic vulnerabilities exposed by the pressures of COVID. In fact, globalization has been under threat for many years, not least due to the economic repercussions of the worldwide recession of 2008-9. In the aftermath of the financial crisis, many governments in the emerging world complained bitterly at their treatment at the hands of Western financiers and looked towards an eager China to fill an investment void. China’s Belt & Road Initiative led to a pivot of supply chains towards the East, long before there was any talk of a reset, ‘Great’ or otherwise.

Globalization has also long been accused of fostering a world of ‘haves’ and ‘have nots’; of millions of people working long hours for meagre pay in dangerous conditions. Disasters such as the Rana Plaza factory collapse in 2011, in which over 1000 Bangladeshi textile workers died, helped bring this issue to the attention of Western consumers. Despite protestations from organizations such as the World Bank that globalization has helped to raise over a billion people out of poverty, such events have overwhelmingly shaped public opinion.

Perhaps one of the fundamental changes of the past five years has been that the benefits of global supply chains have been increasingly called into question by the governments which had previously been their strongest proponents. For example, populists, such as Donald Trump, have challenged the inevitability of the loss of manufacturing jobs to Asian or Mexican markets. Whilst many consumers in North America and Europe have benefited from the lower prices that have resulted, it is undoubtedly the case that many workers have lost their livelihoods, with their jobs transferred to often highly subsidised and/or state-backed competitors on the other side of the world. In many cases, ‘global free markets’ have turned out to be anything but. Multinational Corporations have often benefited from being able to tap into these subsidies, either directly from setting up their own off-shored operations, or indirectly through a lower cost supply base. Instead of educating and training European and US workers to take advantage of a shift towards high value manufacturing or services, Western governments have allowed parts of society, especially in previously industrialized regions, to become disaffected. In the minds of many, governments and multinationals have conspired in this decline, a situation only recently being addressed by so-called ‘levelling up’ policies.

What’s more, in terms of international relations, supporters of globalization have been accused of unwittingly facilitating the rise of China’s soft power. Years of off-shoring of manufacturing has left the West denuded of production facilities and know how. Moreover, China’s investment in Africa and Latin America has allowed it access, sometimes exclusively, to strategic raw materials, many of which are critical to future alternative propulsion technologies, such as those used in battery electric vehicles. In some cases, tech companies, such as Huawei, have achieved market leading positions in the supply of electronic components, raising security fears over the potential for Chinese agencies to gain access and compromise information and communication networks.

Besieged from all sides of the political spectrum, there is no doubt that globalization is at risk. This is despite the fact that many of the issues highlighted above cannot be laid at its door. The recent chaos seen in the shipping sector resulted from a surge in consumer spend driven by government stimulus packages, not from an organized attempt at profiteering by the carriers (although they didn’t turn away the money, obviously). Global finance and technology sectors are fundamental to many of the initiatives to reduce carbon emissions and could ultimately be responsible for slowing climate change. And, as already mentioned, throughout the emerging world a billion people have been raised out of poverty, with access to better healthcare and with better life prospects.

However, that is not to say that no ‘reset’ is needed. The world has changed significantly since the establishment of institutions such as the International Monetary Fund and World Bank at Bretton Woods in 1944 and General Agreement on Tariffs and Trade (GATT), the forerunner of the World Trade Organisation, in 1947. These institutions have overseen the development of globalization, with all its attendant benefits and disadvantages, but now need to adjust to the perils and pitfalls of the market environment they have helped to create. For example, as highlighted above, China is undoubtedly using the economic and political muscle which globalization has gifted it to extend its influence throughout the world. What it does and what it is allowed to do by global institutions with its relatively recently acquired power will probably define the geo-political and economic environment of the next 50 years.

Domestic policy is also increasingly being dominated by issues related to the ‘fairness’ of globalization – although perhaps not in the way that the WEF had in mind. For many politicians and their electors, both in developed and developing markets, ‘fair’ outcomes can only be achieved by protection of markets and not from liberalization. This is a shame as the potential exists for value to be created for all stakeholders, but this will only be achieved by sharing the benefits of globalization across the whole of society. To a greater or lesser extent, Western economies have failed to pivot to a high value manufacturing model focused on intellectual capital and this has created disaffection. This, combined with the unwillingness or inability to address market subsidies and rigging, is the real failure, not globalization.

So, what would the implications for a ‘Great Reset’ be for the logistics and supply chain industry? Very little in my view. Innovative and disruptive technologies (the Fourth Industrial Revolution) are already transforming the sector on many levels – automation, market platforms, the Internet of Things, for example. Sustainability and carbon emissions are already front and central on corporations’ list of strategic imperatives. ‘Fairness’ of outcome will always be subjective and very difficult to measure.

That is not to say that in the long term there will not be major changes. The world’s markets will start to fragment as political, economic and security priorities unravel decades of liberalization. Re-shoring of manufacturing from low-cost labour markets will gather momentum in strategic industries as the world bifurcates between the West and China. This trend will be reinforced by the likely imposition of carbon taxes and rising oil prices making international transport less attractive to shippers. This will result in regional and even local rather than global supply chains.

A ‘Great Reset’ may be on the way but, in my view, it will bear little resemblance to that proposed by the WEF.

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