“Globalization among friends”, or the great fragmentation of the global space

The 1980s marked a break. Until then, national economies imported and exported commodities, consumer goods and capital goods. Globalization has increased the exchange of intermediate products, which gives large groups the opportunity to delegate design and production tasks to suppliers abroad.

Thanks to information technologies and digitization, the dual movement of outsourcing and offshoring of tasks has enabled the creation of global value chains (GVCs), which are characterized by a high intensity of coordination and a decrease in transaction costs. The fluidisation of space has increased the mobility of goods and services, while the liberalization of financial markets has accelerated capital.

Deindustrialization

The balance between investing abroad and / or establishing contractual relationships with suppliers has since depended on decisions made by the Group’s management structure, which is responsible for integrating tasks and logistical coordination in such a way that it goes beyond additive management. , site by site, to increase interdependence in resource management.

For many products, where the added value lies in the components produced by the suppliers, the establishment of CVM (cars, textiles, medicines, etc.) has played a strong role in French deindustrialization. Faced with this trend, the economic structure has not moved up the market to achieve new added value in the area, and French production has remained positioned in low- to medium-cost segments, as we had shown in The paradoxes of the knowledge economy (Hermes Lavoisier Editions, 2012).

The sanction can be read in the deep and continuous deterioration of trade balances, which again fell from minus 84.7 billion euros in 2021 to minus 113.9 billion euros in May 2022 over 12 rolling months.

Headwind

Productive de-globalization is associated with several factors. Hyperglobalization is on the decline after the financial crisis in 2008. China is focusing again on domestic demand, and US commercial decline has increased between 2015 and 2020. Foreign investment stagnated between 2008 and 2014 and then fell sharply until 2020. Globalization is changing. in nature it is influenced by geopolitical considerations as much as by purely economic reasons.

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When a GVC multiplies, the return on coordination decreases because it becomes more difficult for the groups to control the entire production process. In addition, the pandemic, whose shock produces a reconstitution of GVCs on new territorial bases (a third of them according to a German institute) and the effects of containment immobilizing containers in Chinese ports.

The staggering increase in transportation costs exacerbates the production bottlenecks affecting the components of a wide range of products. Not forgetting the ecological imperatives aimed at reducing imported pollution that previous relocations had intensified under the pretext of greener national productions.

Globalization “among friends”

We are witnessing a question mark of globalization that prioritises a neoliberal global order over national interests. The resulting excesses explain the emergence of populism at the political level and, at the economic level, the return of the state, whether in the form of consolidation of industrial structures (re-industrialization, relocations), national sovereignty and / or European (industrial policy) within semiconductors, batteries, medicines, etc.), social issues and energy and environmental policies.

The willingness to reconfigure globalization is obvious. Proof of this is the recent speech by Janet Yellen, the US Treasury Secretary, who stated that “from now on, globalization will take place between friends who share the same values”. The increasing fragmentation of the global space reveals several areas of influence that favor shortening and regionalization of supply chains and require the reassembly of ecosystems and the redefinition of business competencies.

Furthermore, trade tensions between China and the United States and the war in Ukraine highlight the devolution that not only concerns the productive sphere and finances, it also affects the mentalities, norms and values ​​that underlie them. For example, Western diplomacy is often perceived as a form of interference, its power intensifying commercial relations, especially with developing countries, by exposing them more to the markets and finances of the United States and, to a lesser extent, Europe.

The return of European “spreads”

For their part, Western democracies are building barriers to culture (canceled concerts, Dostoevsky censored by the University of Milan-Bicocca), information (Sputnik and RT banned in the EU), digital space (equipment manufacturers Huawei and ZTE excluded from the US and Canada), sports (exclusion of Russian and Belarusian players from the Wimbledon tournament), etc.

Fragmentation can be observed at a finer level within a large region. Rising interest rates in the EU increase the gap between heavily indebted countries and smaller ones. In 2021, the difference between the interest paid by Germany and Italy was 0.9 points. It is now 2.5 points, reflecting an increased risk on the Italian debt.

The European Central Bank’s tightening of monetary policy, which will be reflected in the cessation of asset purchases, will widen the EU’s cracks by increasing the risk premiums that investors demand for certain countries. More generally, downsizing by the state and corporations becomes an inevitable constraint in times of rising nominal and real interest rates.

Adaptation to this new agreement risks widening the gap between EU Member States. The costs can be high, some economists warn: the need to save, loss of wealth for wealth holders (decline in the value of real and financial assets) or loss of purchasing power for employees, as long as a real indexation of wages to inflation is not possible.

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By Bernard GuilhonProfessor of Economics, SCHEME Business School

The original version of this article was published on The Conversation.