Globalization – Responsible for All, Blamed by All

In the autumn of 2022, it is hard to shake the impression that the world has gone mad. Wars with the threat of nuclear escalation, the awakening of claims to parts of other states, inflation, the spread of poverty, strengthening autocracies, emerging unrest… all together provoke a desire in people to try to understand the causes. Especially since attempts to ignore disturbing signals by focusing on daily tasks fail.

If we cannot protect ourselves and our loved ones from the consequences more seriously, it would help little if we manage to create a mosaic from the many pieces we are buried under every day. In a time when it seems that humanity is diligently working on its self-destruction, the association with the well-known book by Israeli anthropologist Yuval Noah Harari ‘Sapiens: A Brief History of Humankind’ first arises.

Simply put, Homo sapiens is an animal species of specific abilities that has managed to destroy or subjugate all other animal species on planet Earth in forty thousand years. When Sapiens no longer has other opponents, it turns to attempts to destroy within its own species.

When the attempt to reread Harari proves too disturbing, on the shelf is also the book by Rutger Bregman ‘Humankind: A Hopeful History’. This historian claims that it is ‘realistic and revolutionary to assume that people are good’. For someone who is neither an anthropologist nor a historian, parallel reading only introduces confusion. Thus, a slightly less demanding intellectual challenge appears as an outlet for the economic chronicler. In a more familiar field. What is it, viewed economically, that has contributed to the world being such a disturbing place in the autumn of 2022?

Real and Unreal Profits

One possible answer regarding the last thirty years is globalization. A large number of arguments lead to the conclusion that the much freer flow of goods and capital is responsible for significant progress in the world at the end of the 20th century, but globalization in the 21st century has also brought a virus that threatens atypical global recession and social, political, and military fractures. Simply put, at the beginning of the 90s of the last century, the victory of capitalism over socialism in Eastern Europe and the opening of China to international trade created space for a new phase of globalization. The free international market suited both the USA and China. It was a win-win situation. Both sides benefited. Former socialist countries did not have much to offer the West, but they were low in debt, so demand stimulated by loans proved to be an effective growth generator for developed capitalist countries.

In the first phase, central banks in the West monitored international GDP growth measured by printing money. The real dividend of globalization was shared. Unfortunately, the acquired profits ended up in the accounts of too few people. Africans would buy refrigerators, but they were not enabled to have purchasing power. And the wealthier layer of Westerners did not need more than two refrigerators per household.

Deflating the ‘Pumped Up’

In fear of reduced demand, the globalization machine at the beginning of the 21st century was increasingly lubricated by excessive monetary stimuli. Globalization at the end of the 20th century drew the world into high growth rates. When the resource was exhausted, monetary enrichment began. Thus, in 2009, the real estate bubble burst in the USA and shook the global financial system. The response? Banks were saved with more money printing (for which the theoretical justification was awarded this year’s Nobel Prize to former FED chief Ben Bernanke). Everything was ripe for a new collapse, but it was successfully postponed until the emergence of the ‘black swan’ in the form of the COVID-19 pandemic. Money printing accelerated further, demand exploded, and now the price has come due in the form of inflation. Economic laws eventually surface.

Globalization has, first naturally, and then unnaturally, enriched some countries more than it should have. This primarily refers to Russia, which profited from high demand and high prices for its raw materials. China has also strengthened at the expense of globalization and now, pumped up, has not only economic but also military ambitions (Taiwan). At the same time, the USA has gained strength to attempt to defend its global dominance.

Deglobalization will, by creating two separate economic blocks, the West and the East, gradually deflate the forces that accumulated during real, and later inflated globalization. Inflation will clean up the undeserved dividends of globalization. However, this process will be long, painful, and dangerous. There remains hope that Bregman’s ‘humankind’ will prevail over Harari’s ‘humanity’.