What if the world is not flat? Adapting to the new reality of globalization

The tumultuous environment we live, work and invest in today has accentuated key flaws in the globalization model – something which, in short, has brought benefits to the few rather than the many, and to some parts of the world much more than others. The upshot is rising inequality.

Rather than its intended “flattening” of the world, globalization has made it “spikier”, according to Ian Goldin, Oxford University Professor of Globalisation and Development and the Founding Director of the Oxford Martin School.

Even in parts of the so-called developed world, such as the US and Europe, many people are now worse off financially than 10 or 20 years ago. More specifically, for people living in dynamic cities, there is a growing disconnect between those who are doing well and those who aren’t. Some cannot get there in the first place due to affordability.

This raises questions about what’s next for societies and economies. “The only certainty about the future is more surprise…. The unpredictability is due to increasing complexity,” said Goldin, who is also an author and Former Economic Advisor to South African President Nelson Mandela.

Speaking at the UBS Global Macro Forum in Singapore in early June, he believes that with the world changing more rapidly than ever before, greater flexibility is essential to change jobs and cities – or risk being left further behind.

Achieving this requires individuals to be more resilient and adapt to the changing dynamism, explained Goldin.

Finding solutions relies on understanding the current, complex state of the global ecosystem.

Goldin sees an environment where risk is more common. He calls this “the butterfly defect” of globalization, to emphasize the negative implications that can spread, citing the global financial crisis 15 years ago and, more recently, the Covid-19 pandemic.

In general, lack of trust is becoming more commonplace around the world, fuelled by growing inequalities based on how globalization has been managed. Evidence of the consequences of rising populism and nationalism around the world can be seen by the state of the World Health Organization, which Goldin said to session host Niall MacLeod, APAC Head of Product Management at UBS Research, is worse today than in 2019 due to the challenges of fostering international cooperation to manage global problems.

“People feel the whole system is riskier and they want to build higher walls to protect themselves. However, there are no walls high enough to block the risks of climate change or a pandemic,” added Goldin.

Yet these walls also hinder the flow of technology, investments, people and, most importantly, the will to cooperate, which is needed to manage shared problems. In turn, the lack of trust impacts the poorest the hardest.

From a more optimistic perspective, Goldin saw the pandemic as a sign that individuals care about society, principles and ideals.

In line with this, transformation, fuelled by the focus on sustainability, can accelerate quickly. He believes this has the potential to lead to dramatic changes across trading systems. While it also raises some difficult questions relating to construction and aviation, Goldin is adamant it will happen and, in turn, will shift the investment landscape.

For example, his forthcoming book on the future of cities depicts the optimism that dynamic cities offer as a source of economic growth, ideas and innovation.

Embracing and tackling remote working practices by bringing together a critical mass of people physically located together can stem the slowdown in cities. Other big challenges for cities include climate change and the kind of anti-big city populism being seen in the US and the UK.

The role of technologies in increasing productivity will also be a key factor, especially in countries where low fertility levels require new approaches as some tasks won’t have enough workers to perform them.

“I believe we are moving increasingly towards a knowledge economy on the one hand, with higher incomes associated with rarer skills, and a service economy on the other hand,” said Goldin.

By accepting the global governance system is unfit for its 21st century purpose, and understanding the challenges that US-China tensions pose, Goldin believes it is important to bring together different types of institutions and businesses with a shared common goal to find areas of mutual interest.

He points to the achievements of the EU as a lesson to the world in being able to remove borders on key areas such as defense, foreign policy, and fiscal and monetary policy, yet also retaining national identity. In Asia, meanwhile, growing trade and investment flows within the region show hope for the future of globalization.

At the same time, fake news has eroded certain truths as the influence of social media grows. In response, Goldin told MacLeod that mechanisms are needed to hold people to account for anything that threatens the safety of society. Further, there is a collective need to ensure ethics and morality resurface.

“We are at a crossroads for humanity,” noted Goldin. “We have a role to play in making productivity happen and in making societies thrive.”

The views expressed are those of the interviewees and do not necessarily reflect those of UBS.