The Global Economic Crisis of 2008 and the Retreat of Globalization
The Retreat of Globalization
The global economic crisis of 2008 not only resulted in contraction of global growth but also induced a retreat of globalization from its highs of the previous two decades. If the 1990s were the high point for globalization and the period leading to 2008 was the continuation of globalism, the years that followed 2008 were indeed witness to the retreat of the globalization process.
The reason for this is that the integrated and interconnected global economy was rattled with economic and financial shocks in 2008, which meant that the global shocks produced a contraction of global trade and global growth.
As global and international trade underpins globalization, any contraction in the volumes of international trade has a knock on effect on the global economy and by extension the globalization process.
For instance, the Baltic Dry Index which is a measure of the worldwide shipping activity fell sharply and even halved in the period following 2008 which indicates the extent to which globalization retreated in the years following 2008. Further, as global growth slackened and global trade slowed down, countries began to cut back on international trade and turn to domestic consumption led growth instead. All these factors had the effect of slowing down the processes of globalization from its highs of the 1990s and the early 2000s.
Some Indicators about the Highs and Lows of Globalization
The other aspect about how globalization retreated in the period following 2008 can be seen in the way the cross border mergers and acquisitions witnessed a sharp drop in absolute volumes as well as the number and size of the deals.
If the decades starting with the 1980s were the golden period for cross border mergers and acquisitions, the years following the global shock of 2008 were the low points for the cross border mergers and acquisitions. This meant that the networks of relationships that were built up between global corporations and the domestic players in markets across the world began to come apart and instead, these companies increasingly began to look inward rather than outward for growth. This resulted in greater emphasis being placed on internal factors and internally driven consumption led growth instead of reliance on global trade that was the norm until then.
All these factors can be directly linked to the fact that the global economy resembles a place where the networks are so interconnected and integrated and at the same time vulnerable to the economic shocks or the so-called global shocks which transmit the effects instantaneously across the system and result in alarming contractions when the conditions are bad and dizzying growth when the times are good.
Dont Write off Globalization Yet
Of course, it would be premature to write off globalization as signs of recovery in the global economy or the green shoots are appearing in some western countries. The point here is that globalization has weathered many storms in the past and many experts believe that this temporary blip can be surmounted as well. However, not all experts are sanguine about the recovery and the resurgence of globalization as the engine of globalization, which is China, shows alarming signs of impending crises.
For instance, the economic indicators all point to the fact that China is slowing down and with the chief trading partners of the US and Europe are reluctant to import at the same pace that they did earlier, it is evident that globalization might not make a comeback soon and that the center of gravity of the global economy would shift from the traditional centers and the powerhouses like China to other countries that show promise for international investors.
Finally, the contention here is that globalization is neither over nor at its high and the present situation resembles an impasse in the global economy where low growth and stagnation are the defining characteristics. How long this impasse would persist and how much it would affect the main players remains to be seen.
- Drivers of Globalization
- Globalization and its Discontents
- A Global Perfect Storm in 2013
- Lack of Regulation and the Crisis
- Global Recession and Finance
Authorship/Referencing - About the Author(s)
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