The Banking Executive Magazine - July 2022 Issue

A New Form of Deglobalization Ahead but unmistakable shift from trade in goods to trade in services. Manufac- turing’s share of total output is falling almost everywhere, and the drop has been particularly sharp in China. Un- surprisingly, trade in manufactures is declining as a share of global GDP. Services will likely make up the slack, but trade in services is ham- pered by all kinds of political, regu- latory, and cultural barriers. There is no need for customers to speak the same language as the people who make their smartphones. But they are right to expect their doctor, architect, asset manager, or airline pilot to be able to communicate with them in a more-or-less comprehensible version of a shared language. And that takes time. Yet, by forcing people to hold busi- ness meetings across a computer screen, the COVID-19 pandemic has given services trade an unexpected shot in the arm. Why not use similar technology to sell services around the world? Radiologists in Bangalore were already reviewing X-rays pro- duced in Boston or Birmingham be- fore the pandemic. Now architects in Buenos Aires design housing projects for Beijing, and programmers in Bangkok write code for firms in Brus- sels. The economist Richard Baldwin has described globalization as a se- quence of “great unbundlings.” The first occurred in the late nineteenth century when steam power cut the expense of moving goods interna- tionally. The second came in the late twentieth century when information technology radically lowered the cost of moving ideas across borders. A third great unbundling beckons, predicts Baldwin, as digital technol- ogy makes it cheap and easy to move people across borders – without making them leave their bedroom or kitchen. The final change is political. Until now, globalization has largely shaped governments’ policy options. Today’s policymakers rightly want to shape the paths that globalization follows. International flows of hot money can be destabilizing and need to be regulated (as even the In- ternational Monetary Fund now rec- ognizes). Similarly, the direction of technological change is not preor- dained; as Harvard’s Dani Rodrik and Stefanie Stantcheva have argued, it can be shifted to create jobs rather than destroy them. A growing num- ber of essential global public goods – from climate control to pandemic relief – also call for more activist policies. If governments get it right, a more subdued, but also more sustainable and longer-lasting kind of globaliza- tion will emerge. Peddlers of deglob- alization theories may then need to change jobs and re-skill. Fortunately for them, that is easier to do in an open and growing world economy. the BANKING EXECUTIVE 32 ISSUE 163 JULY 2022