by Merlin Hernandez

There are several trends which are certainly slowing down, if not reversing, the rapid pace of globalization. There is evidence of protectionism, nationalist sentiments and renewed economic regulations as a response to the recent economic crisis as well as other risks involved in operating in a globalised world. Acting globally has become the norm for most companies and there are benefits to be derived from a global reach. When faced with some of the risks associated with a globalised economy, however, government and companies are increasingly reverting to a more nationalistic and protectionist stance.

The recent economic crisis has certainly heightened the strength of some of anti-globalization trends as we see moves toward insourcing, more vigilant tax regimes, and tighter immigration oversight. While these types of reactions are unlikely to reverse globalization, they may well slow its development and can lead to more uneven development for the smaller, more vulnerable economies. Globalization has built deeply integrated connections between societies and economies that will not be broken easily and in many ways has become a defining and permanent feature of world economic relationships.

Attempts to temper economic and political fallout from global integration can roll back the gains of developing economies through job losses, reduced disposable incomes and spending power, lower GDP and economic stature – all of which will negatively impact the more vulnerable economic partners. As less developed economies shrink and people seek jobs and opportunities beyond their home ground, issues of immigration, national security, and strained social infrastructure become concerns of larger metropolitan economies.

Resurgence of Nationalism

As the global economy shrinks, economic nationalism is emerging as attractive to US and EU governments and business. But a globalized economy does not have to mean total integration with the world economy. The key will be strategic integration with the international economy as a factor of national planning in ways that seek to balance two critical factors – immigration and capital flows.

Recent nationalist policies have affected migration flows which can place additional strain on developing countries in the fight against unemployment. On the one hand there is the risk of a significant shift of much needed expertise away from developing countries to more established economies. Increasing unemployment, reduced entrepreneurship and expertise as well as lower spending power as a result of the new wave of protectionism by larger economies will exacerbate economic constriction in the developing world. Further unbalance in the world economy can have a negative effect on political stability and security interests. An increased demand for aid and crisis intervention can be expected.

Many developed countries are already restricting the supply of visas, except for the highest skills, and reducing immigration as a whole, which is a critical aspect of globalization. There is also the possibility that an overreaction in restricting migration (technical experts, migrant workers) may in fact lead to a further slowing of domestic growth in countries like the US, as well as a reversal of this element of the globalization process.

Monetary Rationalization

Following 9/11, nationalism also became the driver that threatened the flow of global capital. It is not new for global economic contraction to restrict capital mobility. But the historical effects of such policy on global savings and investment balances in the world economy would indicate a serious look at alternative strategies. The single currency idea which has been forwarded at different points in the debate might be revisited. Even with the dialing back of the globalization thrust, national currencies and global markets do make strange bedfellows. A multinational currency is worth consideration.

The US dollar is not only a national currency, it has become the primary international reserve and vehicle currency. With rising economic nationalism, capital management within the national interests of each economy would tend to lean toward more short term capital movements during periods of economic instability. But that does not factor depreciation that could drive capital out of individual currencies. Of course an appreciation of a particular currency will conversely attract capital into those assets. It is a scenario that may be characterized by wide swings in exchange rates which can only compound transnational financial instability. It does make the case for the need to operate under the umbrella of an internationally agreed financial framework to mitigate further global financial fallout.

Faced with these barriers and growing resistance to globalization trends at home, some multinational corporations are rethinking their outsourcing and offshoring strategies, giving more weight to nationalist reputation along with political and transport risks associated with widely dispersed supply chains. Furthermore, the current period of crisis and indebtedness in rich countries, along with rising reserves and assets in sovereign reserve funds from both developed and emerging economies have changed the nature of global investment supply and demand. Emerging financial players, such as China, now have the opportunity to buy global assets, more specifically assets in developed countries. These relationships will not be easily reversed. It all translates into globalization being here to stay but requires a strategy for global economic and monetary rationalization.

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