For nearly a week, the Ever Green, the world’s largest container ship, was wedged in the Suez Canal blocking all traffic. The impact of this catastrophe affected global shipping lines throughout the world and affected a vast array of products. Estimates suggest that delays in roughly $10 billion worth of goods were directly affected by the event. And this says nothing about the secondary and indirect impacts these delays will cause. Because of this, many are doubling down on protectionist policies that promote self-sufficiency. Not only is such a perspective extremely short-sighted, it’s outright dangerous.
Like it or not, we live in a globalized world that is highly interconnected and interdependent. But it’s not just its existence that indicates its necessity. The need for globalization extends well beyond this to include many factors. In decades past, infrastructures and technologies prevented such a globalized world from existing. But today, innovations in these areas not only support such a world but likewise show why a need for globalization persists. Even in the midst of a pandemic and the Ever Green’s grounding, it’s perfectly clear globalization is essential.
“Firms have basically decided that they can manage [weather, tariffs, and disease] and still pursue [shipping and inventory] efficiency gains. That helps explain why trade has been resilient.” – Robert Koopman, Chief Economist at the Geneva-based World Trade Organization.
The Pros Far Outweigh the Cons
The versatile shipping container was developed in the 1950s, and it revolutionized supply chains. But alone, it did not create a more globalized world based on trade. It was not until technology advances involving the Internet and global transportation system emerged. This included things like supply chain robotics. (Read more about supply chain robotics and automation in this Bold story.) And it also reflected the adoption of just-in-time (JIT) manufacturing, which markedly reduces inventory holding costs. It’s these cost-savings (and profits) that have driven the need for globalization. In fact, since the 1980s, global shipping increased roughly 1500 percent.
The need for globalization extends beyond the economic aspects of the world situation today. Globalization accelerates the spread of knowledge and innovation both directly and indirectly. It promotes increased competition that further leads to lower costs and better products. Notably, the standard of living has significantly increased around the world as globalization has expanded. Extreme poverty has been reduced by 35 percent since the 1990s as a result of a globalized world. These factors, as well as the ability to better use existing resources, highlight why the need for globalization persists.
“China remains the manufacturing floor of the world. There are problems that are real and need to be dealt with, but it doesn’t change the fact that China has built a very capable network that in the short run people will find very difficult to replace.” – Matthew Cox, CEO of Matson, a shipping container company
An Argument Against Self-Sufficiency
With the impacts of the pandemic, global shipping has been affected significantly. Even before the closure of the Suez Canal, dozens of container ships found themselves stuck outside various ports waiting to load or unload. With quarantines and lockdowns, shipping docks had fewer workers to manage these cargoes. As a result, delays have been encountered affecting supply chains and businesses globally. The Ever Green debacle only add insult to an already existing injury. But it’s these developments that have some calling for greater self-sufficiency and less reliance on a globalized world. But this view is clearly myopic in nature.
Not only did the pandemic negatively affect global shipping lines. It also influenced consumer buying patterns. E-commerce boomed, and the demand for shipping and delivery services skyrocketed. Without question, no nation could be self-sufficient enough to meet such a demand. US consumers need exercise equipment and electronics from overseas, and our agricultural products drive international food supply chains. (Read more about how agtech is tightening food supply chains in this Bold story.) Without a globalized world, the overall standard of living would drop precipitously. While the pandemic and Suez Canal delays have been costly, they do not even come close in justifying protectionist policies.
“Interdependence is here to stay. The issue is, what kind of interdependence do we want and need…Covid-19 presents the world with an opportunity – and necessity – to reinvent a globalization that is neither nostalgic or tribal.” – Jeremy Adelman, Director of the Global History Lab at Princeton University
Future Considerations of a Globalized World
The debate isn’t really about whether there is a need for globalization or not. Instead, the real question involves how we want a globalized world to look. Our choice is really between multilateralism and tribal interdependence. Multilateralism refers to a globalized world where all nations enjoy equal opportunities to participate. This is ideal in that it not only promote fairness and justice. But it also allows for the best use of global resources while better attending to global needs. Such an approach would allow for strategies to address climate change and international trade infractions in a just manner.
The alternative is that of tribal interdependence where more powerful nations exert their influence over weaker ones. In such a globalized world, countries like China and the U.S. determine the rules by which other countries will abide. Their tribes dictate how others must participant on the world stage. Thus, their need for globalization unilaterally impacts others, often in an unjust and unfair manner. These types of developments are already at play between the U.S. and China today. But inevitably, this will mean a globalized world that offers an uneven playing for businesses. And ultimately, this will lead to slowed innovation and progress.
Embracing the Need for Globalization
In moving ahead, business must recognize that they operate in a globalized world that is highly interdependent. There is no going back, and doing so would be ill-advised. The effect this would have on standards of living, costs, and innovation would be enormous. Though the pandemic and waterway mishaps showcase areas for improvement, they do not suggest abandoning ship. The need for globalization has never been more evident, especially one that promotes true multilateralism. The challenges we face as a global society require that we acknowledge this fact and embrace the opportunities it offers.
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