The Past Speaks

There is some evidence that globalization has slowed down since the Global Financial Crisis. One way of measuring globalization is to compare the growth of global trade to growth in the world economy in general. By that measure, the rate of globalization definitely appears to be slowing. According to a recent article in the FT, in three decades before the 2008 financial crisis, global trade regularly grew at twice the rate of the global economy.”With last year’s growth of 2.8 per cent, global trade has now expanded at, or below, the rate of the broader global economy for three straight years.”

In the last year or so, the term “deglobalization” has been on everyone’s lips (see here, here, and here). I get the impression the word was used frequently at the 2015 World Economic Forum meeting (see here and here). This discourse of deglobalization can also be seen in the Wall Street Journal and the other publications read by senior corporate managers. In The System Worked, Dan Drezner has argued that we haven’t seen any deglobalization.  My own view is that while the global trade data suggests that while we haven’t witnessed any actual deglobalization, the process is decelerating dramatically.  Recent news out of the banking sector provides some evidence of deglobalization: HSBC is retreating from key emerging markets: the “world’s local bank” has decided it will no longer provide retailing banking service in Turkey and Brazil, two important countries.  See here, here, and here.

As I read the press reports about HSBC’s exit from emerging markets, I noticed the frequency of references to political factors in influencing the change in the bank’s strategy. As a business historian who is interested in globalization, I’ve long believed that the changing political institutions are incredibly important as drivers of the various waves of globalization and de-globalization the world economy has experienced over the last few hundred years.  I’m particularly sympathetic to the view that rapid globalization requires a strong global hegemon, which means that globalization is most likely to take place in a world dominated by a single superpower capable of providing global public goods such as international stability. We had such a superpower for almost a century after Napoleon’s defeat in 1815 (it was the British Empire). Banks and other firms made their strategies accordingly. Britain’s status as the first of the great powers was challenged in the early 20th century by rising great powers like Germany and the world experienced de-globalization, largely because of the reluctance of the interwar US to step into the shoes of the British Empire. International firms still made money, but they had to adjust their strategies to the new geopolitical landscape. Globalization did not resume until the post-1945 period, when the United States began to perform many of the functions  that had the previous liberal capitalist global hegemon, the British Empire, had discharged (Kindleberger, 1986 and Gilpin, 2011, 94-95).

Recent years have seen the accumulation of evidence of American relative decline. I don’t know if we are really in a post-American world, but the unipolar system that underpinned rapid globalization in the 1990s no longer exists. Perhaps the Obama’s administration’s foreign policy has contributed to the perception of American weakness. Such perceptions, accurate or not, may influence the strategies of MNEs. In any event, we now live in a world of great power rivalries that is uncannily similar to the world circa 1905. The outbreak of the First World War in August 1914 ended the first era of globalization and initiated several decades of deglobalization and de-financialization. I’m certainly not saying that great-power rivalries will continue to intensify. Nor am I saying that the expectation of intensification now informs the strategy of HSBC and other multinationals. (I simply don’t know what the senior managers of such firms think about the international system, although I would very much love to talk them about this issue!). However, I would speculate that the people who make high-level strategy in firms like HSBC expect that the world’s political systems are moving in a direction that means that a business model of providing retail banking services on every continent and in every major emerging market no longer makes sense.

Please note that I am not saying that either globalization or deglobalization are normative. I’m mainly interested here in how shifting policy environments influence the strategies of multinational firms.