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COMMENT BEYOND20


Globalisation’s future in the realeconomy


THEWORLD IS AT A JUNCTURE, WITH PROTECTIONISMAND GLOBALISATION BOTH COMPETING AS THE WAY FORWARD


US; and then a global explosion after 1980 (the “second globalisation”), which ended with the global financial crisis in 2007. The third is that the real side of the world


economy was far more integrated at the peak of the secondglobalisation than it was at the peak of the first.


The rise of globalisation In brief, the story is one of increasing globalisa- tion over time, punctuated by a collapse in the early 20th century and a slowdownsince 2007. Improving opportunities have driven the


MARTIN WOLF


it just how the economy globalises that will change? The answer is a bit of both. The history of globalisation of the real econ-


H


omy (trade and foreign direct investment [FDI]) has three features. Thefirst isthat foreign direct investmentand


trade are correlated: as trade rises, so does FDI. The second is that globalisation has gone


through huge cycles: a big upswing in the late 19th and early 20th centuries (sometimes called the “first globalisation”); a collapse between 1914 and 1945; a recovery after the sec- ondworld war,mainlyamong close allies of the


Politically, the globalisation of the 20th and


21st centuries was driven by the opening up of China,the fall oftheSovietempire,the liberalisa- tion of India, the Uruguay Round of trade liber- alisation, and the creation of the World Trade Organization (WTO) and China’s accession to it. Economically, the opportunity was to incor-


porate billions of cheap workers into the global economy via trade and FDI. Radically improved communications technology and speedy and cheaptransportation allowedsuccessfulmanage- ment of supply chains across frontier. This drove


22 www.fDiIntelligence.com December 2020/January 2021


ave the financial crises of 2007–2015 and Covid-19 ended the earlier era of rapid global economic integration? Or is


long-run tendency towards globalisation. The crucial force has been falls in the costs of trans- port and communications. In the 19th century, it was railways, steam ships and telegraph cables. In the 20th century, it was container ships, lorries, commercial jets, telephones, computers and the internet. Opportunities propose; politics dispose. In


some periods, policymakers have adopted what the late Chinese politician Deng Xiaoping called “reformand opening up”.During others, policy- makershave chosen the opposite.These political shifts are not random: they reflect the impacts of globalisation, macroeconomic instability, great power conflict and nationalist sentiment.


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