The year 2022 will probably go down in history as a turning point. Against the background of the ongoing pandemic, there are significant geopolitical transformations, bringing volatility and uncertainty about the future. The Davos Forum experts shared their ideas about the prospects of globalization.
These new crises are a kind of stress tests for states and international institutions, which are now required to respond promptly and effectively to new challenges, as well as to recover as crises end.
Against the background of crisis processes, most states make a choice in favor of an inward political courses, looking for new strategies for the development and strengthening of national security and economic stability. All this leads to a rollback of the progress of globalization, which was achieved in the years preceding the crisis.
At the same time, for the last few years there has been a significant progress in technology development, which has partially blurred the borders between countries and made them closer to each other than ever before. The virtual space itself has turned into a full-fledged sphere of economic interaction and political decision-making. The development of these two factors can significantly influence the fate of globalization.
Experts assess the current state of affairs as a crisis period for the traditional driving forces of globalization. A new phase of increased economic instability and structural reset of the global system is beginning. At the same time, the widespread digitalization of the economy and society contributes to the transition from classical instruments to new ones. Based on this thesis, the forum experts presented 4 scenarios for the further development of globalization:
- Globalization 5.0: Reconnection
- Analogue Networks: Virtual Nationalism
- Digital Dominance: Agile Platforms
- Autarkic World: Systemic Fragmentation
Globalization 5.0: Reconnection
Physical and virtual integration will become the main trends of such a scenario. The deepening of socio-economic and technological integration will contribute to the strengthening of regional and global associations, the restoration and diversification of supply chains, high mobility of labor and data, as well as the spread of innovations in the field of goods and services. It is assumed that the consequences of the pandemic and the armed conflict in Europe will teach the world community a lesson that will contribute to strengthening the world order and tightening the rules for maintaining the status quo.
Nevertheless, the process of globalization is also being transformed by changing the structure of priorities for states: the economic and social sustainability of states will become a determining factor. Governments will invest in the development and support of national labor force to make them competitive in the global market. Supply chains will also be strengthened due to the localization of certain parts of the production process and the concerns of states and multinational corporations about excessive dependence on global processes. All this will lead to politicization of the process, but, at the same time, to a more cautious views of the course towards globalization, within which the priority will be to find a balance between diversified local, regional and global supply chains.
The technological aspect is expected to play an important role in this scenario. It is assumed that technology platforms will expand their reach, and uniformity will be achieved in the field of their regulation. This factor, coupled with the global tax agreement, should stimulate closer cooperation between countries and contribute to the establishment of common competition rules.
As a result, the development of events in this scenario may lead to:
- Diversification of supply chains of raw materials, including energy carriers;
- Technological growth;
- Accelerated transition to a green economy;
- Diversification of mining and production of metals: lithium, cobalt and nickel;
- Vertical integration for industries less inclined to diversification;
- Globalization of the labor market.
Analogue Networks: Virtual Nationalism
This scenario is characterized by physical integration and virtual fragmentation. The physical component will enter the growth phase largely due to the restoration of trade turnover in the conditions of the end of the pandemic, food, energy and metals will be a priority. Providing the population with access to food, fuel and other goods will become a priority for states after the pandemic, but in the technological aspect everything will not go so smoothly.
It is assumed that technologies will continue to develop unevenly and control over them will be carried out at the national level, global regulation will not be achieved, which will exacerbate the danger of cyber threats. The way out of this situation for some states will be the formation of autonomous, sovereign networks – analogues of the Internet, which will lead to increased state control over freedom of speech in the digital space, privacy violations, new restrictions and increased risks of disinformation. Technological progress at the national level risks falling into the hands of monopolists, and the spread of innovations, cross-border compatibility of technologies and international competition will be significantly limited.
Such an outcome of events is likely to lead to the following consequences:
- Development of international trade and deep integration of trade flows;
- Diversification of the supply of key goods;
- Lag of technological progress;
- The growing risk of cyber threats;
- Digital discrimination;
- Slowing down the transition to green technologies;
- Limitation of labor mobility.
Digital Dominance: Agile Platforms
The reverse side of the process described above may be a scenario in which virtual integration will significantly prevail over physical integration. This may happen if the consequences of the pandemic have the opposite effect and provoke a trend towards maximum localization of production. The consequences of such a decision will be economic protectionism, import restrictions, subsidies and competition for food, energy and other goods. At the same time, qualitative and quantitative growth of technological platforms and online services is possible. Their importance for the world economy will grow, which will lead to the need for their legal regulation at the international level. It is likely that major economic players will achieve agreement on the tax framework for digital services, develop rules for cybersecurity and confidentiality, and also form appropriate legal acts regulating labor activity on the network.
These conditions will lead to a new surge in the field of information technology and the growth of international cooperation in this area. Accordingly, competition will increase, in certain segments small and large players will compete with each other. However, in other areas there is a risk of the formation of large monopolies, the dominance of which may cause concerns about the lack of control of the ongoing processes.
The following trends are typical for such a scenario:
- Fragmentation of global supply chains between strategic allies;
- Supply shortage, export and import imbalance;
- Lag of innovation in production processes;
- The hard transition to green technologies;
- The growing role of human capital;
- Significant expansion of the service market;
- The growing influence of tech giants;
- Critical need for internet access;
- The increasing role of intangible assets, data markets and digital services;
- High demand for qualified specialists, coupled with limited movement of labor.
Autarkic World: Systemic Fragmentation
This is the most pessimistic scenario in which globalization threatens to decline due to complete fragmentation, both digital and physical. In this scenario, the lessons of the pandemic will provoke a decision to fully focus on domestic problems, which will lead to significant restrictions on trade, reduction of capital flows and investments. Production and sales will be localized or exist on a regional level.
In the technological field, the need to exercise control over the internet, information, technology and knowledge will become a trend. Excessive control is fraught with the establishment of Internet censorship in developed countries. Cooperation will continue only within the framework of political alliances and in areas that provide access to strategically important resources. The fragmentation of the world can also lead to the formation of several economic and technological "iron curtains" and militarization of economy and technology.
The possible consequences of the development of a pessimistic scenario are as follows:
- The lack of connections leads to a discrepancy in knowledge and perceptions;
- Stagnation of the world economy;
- Inequality at the state level;
- Increased default risks;
- Exploitation of small economies by large ones;
- Nationalization of production facilities;
- Degradation of production processes;
- Environmental degradation;
- Stagnation in the labor market;
- The rise of authoritarianism.
In the conclusion of the report, the authors emphasize that there is no optimal scenario, all solutions have both advantages and disadvantages. The authors see the development of globalization in the coming years as a complex combination of elements of all four scenarios. Experts express the hope that the development of the process will lead to going beyond the simplified and ideologized narrative of "globalization", which is usually opposed to "deglobalization".