World Economy

World Shifting From Globalization to Multi-Polar

World Shifting From Globalization to Multi-PolarWorld Shifting From Globalization to Multi-Polar

A new research has signaled a shift away from globalization to a multi-polar world. The Credit Suisse Research Institute’s ‘The End of Globalization or a More Multipolar World’ report, presents three scenarios - ‘globalization thrives’, ‘a multi-polar world emerges at economic, political and social levels,’ and ‘globalization comes to an end.’

Michael O’Sullivan, chief investment officer for the UK and EEMEA, Private Banking and Wealth Management, Credit Suisse: “Globalization has been the most powerful economic force of the past 20 years, resulting in the rise of global cities, the successes of small states and growing wealth in emerging economies, TradeArabia reported.

“But, its continuation is not a given and the direction that it is going is therefore one of the most important macro-economic issues of the next 10 years.”

The report aims at measuring and quantifying globalization and its many facets, also to quantify ‘multipolarity’.

Credit Suisse has taken many of the indicators and data used throughout the report and constructed a ‘Globalization Clock’, which plots the development of globalization and multi-polarity, scaled against their long-term averages.

The figures showed that in the early 1990s globalization was dominated by the US and European countries, followed by a phase of lower globalization and low multi-polarity during the period of 2000-2005, driven by the growth of information technology and the consolidation of military power by major advanced countries during the Iraq and Afghanistan wars.

Since then, the world has moved into the first quadrant of the clock–a sweet spot–to become more globalized and more multi-polar at the same time, accentuated by the economic weakness of developed economies and stronger emerging market economies.

 $ First Among Equals

The first scenario is that globalization continues. This means the dollar will continue its role as first among equals in the forex world, generally western multinationals dominate the global business landscape and the fabric of international law and institutions are still western in nature.

In economics, macroeconomic volatility is low, trade grows with few interruptions from protectionism and the internet economy grows, across borders. Socio-politically, the significant development is that human development improves, characterized by more ‘open societies’.

This second scenario is based on the rise of Asia and a stabilization of the eurozone so that the world economy rests, broadly speaking, on three pillars–the Americas, Europe and Asia (led by China).

In detail, the report expects to see the development of new world institutions that outgrow the likes of the World Bank, the rise of ‘managed democracy’ and a more regionalized version of the rule of law, migration becomes more regional and rural to urban led rather than cross border, regional financial centers rise, and banking and finance develop in new ways.

 Rise of Corporate Champions

At the corporate level, the significant change would be the rise of regional corporate champions, who in many cases would supplant global multinationals.

The report expects to see uneven improvements in human development leading to more stable, wealthier local economies on the back of a continuation of the EM consumer trend. In Europe, the EU halts its outward expansion and thrives as the restructuring of banks and companies makes for a leaner economy.

The third scenario is a more negative, though lower probability one that recalls the collapse of globalization in 1913 and the subsequent onset of First World War.

Though the world has been stressed by the global financial crisis and terrorist attacks in recent years, these developments have arguably led to more rather than less cooperation between nations.

The trends and developments the report looks for include slowing economic growth and trade with the added possibility of a macro shock (from indebtedness, inequality, immigration), a rise in protectionism, a geo-political/military clash between the ‘great powers,’ currency wars, a climate events, the rise of broad based ‘anti-globalization’ political movements and a backlash against global corporations, or a reversal in transitions to democracy.


 World GDP Shifting

The location of world GDP is shifting eastwards. For example, in the future, the top 50 cities will comprise Delhi, Shanghai, Mumbai and Beijing.

The Credit Suisse Globalization Index is based on economic, social and technological factors. The index shows that European countries dominate the list, while African nations tend to be the least globalized.

The world is most multipolar in terms of trade patterns and economic activity. Trade is becoming more regional, though there are signs of the erection of barriers to trade.

Financially, the world is highly globalized but less multipolar, with the US remaining at the center of the financial world in terms of the sway that US markets have over others internationally and the central role of the dollar compared to the euro and renminbi.

The analysis of corporate investment and revenue growth showed that globalization remains intact in terms of consumption and marketing patterns, there appears to have been a retrenchment in cross- border investment by corporates.

Together with the rise of emerging market companies in terms of both sales and investment, we read these results as pointing towards a more multipolar world where companies continue to sell across borders but are more cautious in investing across them.