The great globalisation slowdown mystery

Here’s something I only noticed while writing a short piece for INTHEBLACK magazine: the rise of globalisation is not only slowing down almost to a halt, but in some places (like the Netherlands) may have been slowing down since around the turn of the century. That’s well before the global financial crisis and indeed before the global economic boom of the early 2000s.

It’s obviously very hard to measure globalisation; we don’t even have a clearly accepted definition of the phenomenon. The best measure may come from the KOF Swiss Economics Institute, which tries to incorporate social, economic and political data. The figures in the graph below come from there.

What’s going on here? I really don’t know, and expert commentary seems to be thin on the ground. A few observers have suggested a post-GFC increase in trade protection, but that doesn’t fit the timing shown in the KOF data – and anyway, the post-GFC protectionist surge hasn’t really happened.

Feel free to read the more detailed piece at INTHEBLACK.com, and make suggestions (and/or point to relevant research) in the comments section below.

Globalisation slowdown graph

The globalisation slowdown began as early as the start of this century

About David Walker

David Walker runs publishing consultancy Shorewalker DMS (shorewalker.net). David has previously edited the award-winning INTHEBLACK business magazine, been chief operating officer of online publisher WorkDay Media, held policy and communications roles at the Committee for Economic Development of Australia and the Business Council of Australia, and run the website for online finance start-up eChoice. He has written professionally on economics, business and public policy since 1987 and spent three years in the Canberra Press Gallery for News Limited and The Age.
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23 Responses to The great globalisation slowdown mystery

  1. GrueBleen says:

    This appears to present “globalisation’ as some kind of ‘silver bullet’ or ‘wonder drug’ that must be pursued regardless of its actual (or contrary) utility. Why so ?

    Isn’t it more rational, as the IntheBlack article states, to assume that there is, at any given stage of international evolution, a limit as to how useful ‘globalisation’ actually is ? In short: “…perhaps nations have simply wrung all the easy gains out of global supply chains, which boomed in the 1980s and 1990s…” and “Advanced economies may have globalised as far as they can for now…” Note: not as far as they want to, but as far as they can !

    What is so very hard to grasp about that ? That any idea, practice, technology or whatever has a ‘natural limit of utility’ ? Hasn’t that been the case with every little thing the human race has ever undertaken ?

    Even “democracy”, that wonder child of political union, finally comes into its ‘vox pop’ stage and cannot be further advanced (as Nicholas has pointed out many times).

    In short, everything always slows down once all of the low-hanging fruit has been picked.

    • David Walker says:

      GruBleen, I’m not really trying to characterise globalisation at all here, or in the INTHEBLACK article (which I also wrote). Sorry if that’s the way it comes across. I agree with pretty much everything in your comment after your first sentence.

      In particular, “everything always slows down once all of the low-hanging fruit has been picked” is a pretty good candidate explanation for what’s (probably) going on here. I can think of other possible explanations too, though.

      • GrueBleen says:

        My misunderstanding, then, but perhaps I was a little confused by statements such as “Despite the fretting, that doesn’t mean more trouble for the world economy.” I should have taken more notice of the fact that it wasn’t you doing the “fretting”.

        Paul Frijters (below) has some sensible cautions to note – after all a falloff in “globalisation’ could be not unlike a falloff in Australian NGDP, as expressed in US$, simply because our dollar has depreciated. However, unless there’s one single falloff factor that can be isolated which accounts for the whole decrease, then I would continue to contend that a multi-factor globalisation falloff – especially given the length of time that, for instance, the Netherlands has experienced a decrease – is likely due to ‘fulfillment falloff’ (as in, we’ve got just about all we can get from this, at least at the present time).

        After all, in time everything becomes ‘commoditised’ as basically most or all of the people who are going to take up something (eg motor cars) have done so and future increases in sales are tied to population increase rather than increasing market spread. “Globalisation” may just be behaving like a “commodity”.

  2. john Walker says:

    David
    On the graph is 100 a absolute maximum ?

    • David Walker says:

      John, 100’s just an index number; I don’t think it has any special significance in the KOF scheme of things.

  3. paul frijters says:

    from the code-book that reveals how this thing is constructed: “In constructing the indices of globalization, each of the variables introduced above is transformed to an index on a scale of one to hundred, where hundred is the maximum value for a specific variable over the 1970-2012 period and one is the minimum value.”

    So 100 indeed appears to be the maximum, but they seem to re-do the graph every year so the tailing off has to come from some of the underlying variables tailing off.

    There is a lot of voodoo in this index, such as the number of McDonalds, the flow of books between countries, the number of embassies, and the number of tv’s, rounded off by the magic of principle components analysis. Makes it hard to know what is driving the supposed ‘slow-down’. Could be as simple as embassies amalgamating because the services are online, or books being replaces by youtube songs. You’d have to go over the weights and data changes to nail it down.

    • john Walker says:

      Would I be wrong to think that the volume of trade through ports like Singapore and trade through London could be a good indicative measure of the ups or downs of globalisation ?

      • paul frijters says:

        Hi John,

        trade is in the index, as a % of GDP, so if trade goes up and the rest doesnt, globalisation goes up. There is a natural limit to international trade though, where regions trade with regions both inside and outside their own country to the same degree (and hence where the notion of a country is no longer relevant from a trade point of view. How more globalised can you get than that!).

        • john Walker says:

          Thanks , was thinking changes to the volume of parcels going through a few key points- e.g The straits of Malacca , would be a more reliable indicator of up-down, than the number of embassies and the like.

        • paul frijters says:

          yes, one can argue that. The authors wanted an index that picked up things like cultural proximity and exchange, such as inter-marriages and flows of ideas. Not easy to capture that with existing statistics, so the authors have ended up with a mish-mash of stuff they gave the fancy label of globalisation. Nothing unusual about that in this line of work, really, with lots of country indices on fancy sounding things, like freedom or democracy. Producing these things is now an industry. Its important to unpack them though when you want to interpret them.

  4. Barry White says:

    The cause has been known for sometime and predicted quite accurately.
    When peak oil occurred at the end of 2005 the price of oil started to rise peaking in 2008.
    This caused the GFC indirectly, but since then the decline in crude oil production, which has been cancelled out by expensive tight shale oil, has because of the high cost of the mixture decreased GDP and the funds available to spend on imports.
    The high cost of oil up to last August 2014 has reduced demand and so caused the current glut in oil. All this was predicted in the 1990s.
    So naturally all this explains decreasing GDP, decreasing growth, decreasing global trade, decreasing revenue for governments etc etc.

  5. john Walker says:

    Paul
    The authors wanted to measure something interesting, “such as inter-marriages and flows of ideas” (hard to do) so they settled instead on measuring a ‘mishmash’ ?

    • paul frijters says:

      yep, welcome to the world of indices….

    • dahl says:

      Some of the data appears to be a pretty poor proxy.

      Information flows uses rates of television ownership, news paper sales and Internet connections.

      This misses a huge trade in information now available because of the Internet. And only recent in the scheme of things.

      So while the medium might be being measured, i wouldn’t be confident that the information flows are.

  6. John Walker says:

    Sorry this galaxy phone ks crap

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