Could Globalization Be Going In Reverse?

Alex Steffen
August 4, 2008 11:19 AM
http://www.worldchanging.com/archives/008313.html
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