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Slowing Down Or Changing Track? Slowing down or changing track? Understanding the dynamics of 'Slowbalisation' IN-DEPTH ANALYSIS EPRS | European Parliamentary Research Service Authors: Jana Titievskaia, Vadim Kononenko, Cecilia Navarra, Carla Stamegna, and Klemen Zumer PE 659.383 – December 2020 EN Slowbalisation – understood as the slowdown in global integration – is said to have started in the aftermath of the 2007-2008 global financial crisis. The coronavirus pandemic brought about a further dramatic fall in cross-border movement of goods, services, capital and people, to the extent that commentators have proclaimed the beginning of deglobalisation. This paper examines whether the phenomenon described as slowbalisation is a myth or reality, by looking at five different pathways of globalisation: international trade, financial openness, increasing inequality, cross-border social movement, and digital exchanges. The key conclusion is that slowbalisation has not been a uniform trend. While international economic globalisation has indeed slowed down, the digital leap and continued inequality suggest that globalisation is merely changing form, not disappearing. AUTHORS Jana Titievskaia and Carla Stamegna, Members' Research Service, Vadim Kononenko, Scientific Foresight Unit, Cecilia Navarra, European Added Value Unit, and Klemen Zumer, Linking the Levels Unit. Illustrations and graphics by Samy Chahri and Lucille Killmayer, EPRS. This paper is the result of a cooperative project involving staff from across the Directorate-General for Parliamentary Research Services (EPRS) of the Secretariat of the European Parliament. To contact the authors, please email: [email protected] LINGUISTIC VERSIONS Original: EN Translations: DE, FR Manuscript completed in November 2020. DISCLAIMER AND COPYRIGHT This document is prepared for, and addressed to, the Members and staff of the European Parliament as background material to assist them in their parliamentary work. The content of the document is the sole responsibility of its author(s) and any opinions expressed herein should not be taken to represent an official position of the Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. Brussels © European Union, 2020. PE 659.383 ISBN: 978-92-846-7543-2 DOI:10.2861/914072 CAT: QA-06-20-143-EN-N [email protected] http://www.eprs.ep.parl.union.eu (intranet) http://www.europarl.europa.eu/thinktank (internet) http://epthinktank.eu (blog) Slowing down or changing track? Executive summary The period from the fall of the Berlin Wall to the global financial crisis of 2007 marked an era of fast- growing interdependence between different economies and cultures, brought about by cross- border movements of people, goods, services, capital and data. Far from being the first 'globalisation' wave, it is considered to be a period of 'hyperglobalisation'. The decade which followed the financial crisis of 2007-2008 was marked by a slowdown in global interconnectedness. In 2019, the term 'slowbalisation' spread, to signify the waning of globalisation as we know it. For instance, international trade and investment relative to gross domestic product (GDP) started to decline. Supply chains began to contract after years of global outsourcing and offshoring. In terms of international cooperation and multilateralism, the pace of the world's economic integration waned. For some governments, notably the Trump administration in the United States of America (USA), it is no longer evident that international institutions such as the World Trade Organization or the World Health Organization are fit for purpose. Rising nationalist and populist leaders in several parts of the world began questioning the ideological doxas of globalism and, in some cases, neoliberalism. Nevertheless, globalisation in other areas, such as international data flows, migration and tourism, continued to expand, indicating that perhaps globalisation was merely changing shape. In 2020, the coronavirus pandemic dealt a profound shock to global trade, investment and travel. The disruption to the physical movement of people, goods and services brought about by the pandemic has been so severe that the thesis of 'slowbalisation' merits thorough analysis. Globalisation has been evolving over time, becoming increasingly complex and multi-faceted. In this paper, five pathways of globalisation have been selected to illustrate the contrasting ways in which global integration has been slowing down, accelerating or continuing. Each exhibits a different development pattern: Cross-border trade in goods and services slowed in terms of volume and relative to GDP, in spite of record low average tariffs. This slowdown can be traced to variation in supply chains, accounting principles, escalating protectionism, and most recently Covid-19. Global financial openness slowed after the financial crisis in terms of cross-border capital flows and bank lending. However, international regulatory cooperation in the realm of global finance continued to increase, only recently showing a trend towards some reversal. Deepening inequality has been a by-product of hyperglobalisation, has continued during the slowbalisation phase, and is likely to continue after Covid-19. The causes are rooted in government policies affecting income distribution, including taxation and the strength of multinational corporations. Globalisation of social interactions, reflected in rates of tourism and migration, did not slow until the sudden arrival of the Covid-19 pandemic. International digital exchanges, measured by cross-border data flows, have continued expanding throughout the 'slowbalisation' period. Social distancing and restrictions on international travel are likely to accelerate globalisation in the digital realm. As a result of the Covid-19 crisis, the future could be one of patchy globalisation, characterised by more immaterial exchanges, and posing further challenges to the future of global governance and international cooperation. The EU could lead the way towards a more sustainable and considered form of globalisation in each of these realms. I EPRS | European Parliamentary Research Service Table of contents 1. From 'hyperglobalisation' to 'slowbalisation' ____________________________________ 1 1.1. Hyperglobalisation _________________________________________________________ 1 1.2. Slowbalisation _____________________________________________________________ 2 2. Five pathways of slowbalisation _______________________________________________ 5 2.1. Slowing international trade___________________________________________________ 5 2.2. Discrepancies in financial openness ____________________________________________ 8 2.3. Continuing rising inequality _________________________________________________ 12 2.4. Cross-border social movement _______________________________________________ 16 2.5. Digital exchanges on the rise ________________________________________________ 18 3. Conclusions ________________________________________________________________ 21 Table of figures Figure 1 – Growth in trade in goods (yearly % change) _________________________________ 5 Figure 2 – Applied weighted mean tariff rates on all products (%) ________________________ 6 Figure 3 – Trade in goods and services as a proportion of GDP ___________________________ 7 Figure 4 – Ratio of financial openness to trade openness, advanced and emerging economies _ 9 Figure 5 – Waves of globalisation in the course of history, external financial assets and liabilities and trade ________________________________________________________________________ 10 Figure 6 – Average corporate income tax rates by country income group _________________ 14 Figure 7 – Global functional income distribution and the declining labour share ___________ 15 Figure 8 – World international tourist arrivals (millions) _______________________________ 17 Figure 9 – International migrant stock (millions) _____________________________________ 18 Figure 10 – Growing cross-border bandwidth _______________________________________ 19 II Slowing down or changing track? 1. From 'hyperglobalisation' to 'slowbalisation' Globalisation refers to the growing interdependence of different economies, people, and cultures brought about by cross-border movement of people, goods, services, capital and data. Economic globalisation refers to the interdependence of nations through international trade and investment. Globalisation has brought about economic growth, raised millions out of poverty, fostered productivity gains for firms, and facilitated the spread of people, technological development and new ideas. Globalisation has also been accompanied by rising inequality, encouraged production offshoring, citizen dissatisfaction, disease transmission and challenges to democracy. 1.1. Hyperglobalisation The end of the Cold War set the scene for a period that is sometimes referred to as the golden era of globalisation, or hyperglobalisation.1 Far from being the first 'globalisation' wave, it has some specific characteristics.2 One of the most influential contributors to this narrative, the economist and New York Times columnist Thomas Friedman famously declared the post-1989 world 'to be flat'. According to Friedman, various 'flattening forces' (e.g. new technologies, such as the internet, global supply chains, offshoring) converged into a sort of open global platform for economic competition. This was 'the inexorable integration
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