The economic costs of pandemic globalization and growing geopolitical tensions are slow but coming. Supply bottlenecks with important equipment such as chips primarily affect production in industry and thus economic growth in rich countries. And where goods arrive, they become significantly more expensive. In June, producer prices in Germany rose by 8.5 percent; Experience has shown that at least part of this increase will also be reflected in consumer prices in the coming months.
Many companies are beginning to doubt the reliability of international supply chains and therefore want to keep larger stocks again, which will also drive up costs. Geopolitically understandable, tempting in terms of industry and location, but generally economically inefficient and not necessarily advantageous from an ecological point of view, tendencies to relocate industrial production from cheap emerging countries to the more expensive industrial nations are. Economists working with Gabriel Felbermayr, President of the Kiel Institute for the World Economy, recently showed in a paper how much a dismantling of global supply chains would damage everyone involved in the long term.
It is often heard that serious worries about globalization are unnecessary.
Sooner or later the pandemic would lose its horror, and while the duel between the United States and China encouraged protectionist tendencies in Washington as in Beijing, in the end the two superpowers would remain reasonable enough and shy away from the considerable costs of unrestrained economic war.
That sounds plausible, but a look at history suggests caution.
In the decades before the First World War, the world economy profited impressively from an initial phase of globalization, although the leading powers of the time saw themselves as increasingly bitter rivals, both politically and economically.
Cooperation requires constant care
This first globalization came to a brutal end with the First World War, and all attempts to reestablish it in the interwar period failed. Instead, three decades of political, economic and social upheaval began; It was not until after the Second World War that a new liberal world trade order was established under American influence. The result was decades of economic prosperity.
Getting used to the prevailing conditions is a special characteristic of people, stated John Maynard Keynes after the First World War in a wistful look back at the first globalization, which now seemed "unusual, unstable, complicated, unreliable and temporary" to him. The Keynes quote can be found in a current outline of the ups and downs of globalization by the economic historians Michael D. Bordo and Catherine R. Schenk. They recognize the will of politics in the past decades to guarantee international cooperation and avoid serious conflicts, but they warn against taking the success of these efforts for granted. Cooperation requires constant care.
Overall, globalization is economically beneficial, but it is not for every individual. Especially in rich countries and in times of technological change, globalization also has losers when industries migrate from the aging rich to poor but dynamic countries. For decades, liberal economists have also known about the need to take on these losers and give them opportunities to find work in other branches of the economy. Indeed, in many countries politics has often failed to take care of these people; it has sown negligence and reaped populism.
Today globalization and with it the long-term economic growth potential appear to be seriously threatened for the first time in decades; At the same time, the economic change initiated by climate policy will cost many people, especially in industry, attractive and properly paid jobs. It would be good if politics did not discover the economic, social and political consequences of these changes until it is too late.