Thoughtful / 02-07-2020
It was some time in February or March, when people here in Germany suddenly realized that there was a serious problem with the protective equipment for doctors and nursing staff needed to treat Covid-19 patients: there was not enough to go round. And, more seriously, it could not be upgraded. Because protective equipment such as masks or aprons generally came almost entirely from China, and China was sold out, so to speak.
Germany was thus all of a sudden confronted with a downside of global supply chains: The production of protective equipment had long since been outsourced because that was more economical; albeit with the unfortunate side effect that in a period of increased domestic demand, production could not be ramped up because it was not produced here. The practically already decided consequence of this unfavorable situation will be that the production of certain essential goods will in future be repatriated from China to Germany.
Local instead of foreign production, in other words, – is that already a sign of the pending end or at least of a toning down of globalization? Assuming that globalization leads to wealth and growth – especially in export-dependent Germany – that would ultimately be a development which could have a dramatic impact on the real estate market.
⇑ Pro: Globalization has long since been on the retreat
There are quite clear signs for a decline in globalization, also above and beyond the production of medical protective equipment. Even before the corona crisis, this was apparent: For example, from President Donald Trump’s trade policy of imposing punitive tariffs on China and other countries and also repeated threats by complaining that there are so few US-made cars on American roads.
This type of economic and political nationalism has been enjoying an effective comeback over the past years, symbolized naturally also in particular by Brexit. Free movement of persons and goods, key pillars of globalization, were regarded with skepticism or increasingly as detrimental.
And then came Corona to add to the mix.
One of the first measures to tackle the pandemic, not only in the USA, but also in Germany, was the closing of borders. Countries went into barricade mode, and even inter-state cooperation functioned, if at all, only very sluggishly. The overriding principle: everyone for themselves first.
Not only among politicians, but also business people. Since supply chains were collapsing due to border and factory closures during the pandemic, the economy had to reconsider, and is still doing so. Ernst & Young recently conducted a survey of companies worldwide which showed that half of the companies surveyed are planning to change their supply chains. 40 percent are actually looking askance at their global trading relationships.
This is a trend which economists have also already noted. In the taz daily newspaper, the head of the Institute for the World Economy in Kiel, Gabriel Felbermayr, said that the structures are becoming more regional: “As a consequence of the corona crisis significantly more production facilities are being built directly in buyer countries.”
And even the French president assumes that the world after Corona will be a different, less globalized one. The corona crisis was changing “the nature of globalization, which we have lived in the past 40 years,” said Emmanuel Macron in the Financial Times in mid-April. In the last few years globalization had led to increasing inequalities, he stressed. “And it was clear that this form of globalization would reach the end of its cycle.”
If he is right, that could be a problem particularly for the German economy. Because, in the words of Marc Saxer of the Friedrich-Ebert Foundation: “In a deglobalized world there cannot be a world champion exporter.”
⇓ Contra: Globalization leads to wealth and cannot be reversed
As an argument against increasing globalization, the economic factor is a particularly important one. When Macron says that globalization has recently led to increasing inequality, that may well be the case. But nevertheless, it is relatively undisputed that globalization leads to rising general prosperity. And if we assume that the corona crisis will lead to a worldwide recession, we can hardly afford to slow the economy down even more by reversing positive factors such as globalization.
Or, as Michael Zürn, Director of the Global Governance Department at the Social Science Research Center Berlin, puts it: “When normality returns, mountains of public and private debt will have accumulated everywhere. […] This is not an environment in which the probability of globalization declines.”
That the production of protective equipment and medicines is now being nationalized due to the corona crisis, is for him an “exceptional circumstance that does not warrant generalization”. Zürn therefore assumes that the degree of economic globalization after the crisis will return to the – already very high – level before the crisis.
Besides the economic factor, globalization also has other advantages to offer, says the economist Karl-Heinz Paqué. For example, tackling a pandemic, like now in the case of Corona, is also much more effective thanks to globalization. In the Middle Ages, when the world was far less networked, epidemics killed millions of people. That this no longer happens today was “not the consequence of national-state solutions. Just the opposite: It is the success of a global cooperation among companies, universities and supranational organizations like the WHO.”
A total renunciation of globalization is actually not imaginable. Too networked is the world in all conceivable fields. But the corona pandemic has to led to political, social and economic changes which only a year ago would not have been deemed possible. That the border between Germany and France is closed? In 2019 still inconceivable. In that light it is practically impossible to predict how the world will look in the coming years.