Conference told globalisation could reverse

John Micklethwait

The business community is not aware enough of the fragilities of the globalisation process, according to The Economist editor-in-chief.

There is a real danger of globalisation going sharply into reverse, according to John Micklethwait, editor-in-chief of The Economist.

Speaking at the CIMA Annual Conference 2007, he said that many people, both rich and poor, had benefited from the latest wave of globalisation over the last two decades. But 'the process is heading for an increasing number of dangers' and many of the winners are not aware enough of its fragility.

He noted how, for the first time in over a century, half the world’s economy will be made up of what we used to regard as the emerging markets. They already consume over half the world’s energy.

Great economic comeback

'This is spread far more widely than people give credit for,' said Micklethwait. 'It’s not just Brazil, Russia, India and China. They only account for around 40% of the developing economies. If you assume that the growth rates over the last five years continue, by 2040, the leaders in the league table will have become China, the US and India. That is a great step forward.

'The fact that millions of people have been dragged out of poverty is one of the great economic comebacks. That’s the way to think about it, as a comeback, a re-emergence rather than an emergence.

'Until the late 19th century China and India were the world’s two biggest economies. That was before Britain gained its industrial lead. In 1820 the developing economies produced 80% of the world’s GDP but they were left behind by the first wave of globalisation.'

Wonderful background

'The latest wave has ushered in the perfect conditions to run a business, which is a wonderful background to strategise and think about companies’ performance,' said Micklethwait.

'Private equity people may hate it. But it's opened up a huge source of capital. There are now nine million people with stock market access above one million dollars. Altogether they control the first five trillion, and an ever-growing number of those are coming from emerging markets. China now has the second greatest number of billionaires in the world. But it’s not just competitors and bankers who have reason to celebrate.

'I don’t think any developed country has adapted better to globalisation than Britain. This is partly because we have reason to lose. It’s easier for us to lose high end manufacturing and services. I think it’s also to do with attitudes and skills. London in particular has done amazingly well, most notably in competition with New York. Though I’m not saying Britain is perfect. There are all sorts of problems, such as lousy education.'

Contradictory process

Most conference delegates had done very well in the past two decades. But rather than being smug about that, Micklethwait said, we should feel worried because of the fragilities of the globalisation process.

'The problem in this community is complacency. There is a huge underlying assumption among business people, even allowing for the credit crunch, that globalisation is unstoppable. Surely an economic revolution cannot be reversed? But globalisation is a process, not a fact. It’s a highly unstable and sometimes contradictory process that goes backwards and forwards.'

One hundred years ago the world, on an economic level, was much more global than it is today. Micklethwait quoted from John Maynard Keynes in 1913 who said 'this is a world where you can travel without a passport…the car, the train and the telephone is making the world enormously smaller.' Everyone expected it to stay that way.

'Another author argued that the War in 1911 was an impossibility and yet it happened,' he said. 'I am not predicting two world wars and a depression, but I do think there is a real danger of globalisation going sharply into reverse, especially if regional trades develop at the expense of the global ones.'

There is a chance of something terrible happening in London, for example. It is no accident that terrorists attacked the world trade centre, as Al Quaeda is a fundamentally antiglobal organisation. 'Or think about our neglect of the environment,' said Micklethwait. 'Things go round in circles. If any of these crises emerge, traders will demand more restrictions to protect the environment and so on.'

Also, in a panel session at the conference, delegates were told that the private equity model is heading for significantly lower returns in the current credit crunch.

December 2007

Back to Insight front page