About three years ago I spent a little more than R600 on a book. On the face of it, the book was about a “great convergence” in the global political economy. It’s a good book, but I had some nagging problems because of mild tremors in the global political economy. I ventured a guess, which I will probably bore the reader with because I have referred to it in this column previously, based purely on a hunch at the start of 2020 that March that year may signal a turning point in the global political economy. Much of the world went into lockdown because of the Covid-19 pandemic. I could not and will not claim any powers of prediction, as I wrote in this column in early 2021.
Never mind. Here we are and the “great convergence”, a fairly logical account of globalisation by Richard Baldwin, professor of international economics at the Graduate Institute of International and Development Studies in Geneva, suddenly looks like a bit of a sideshow. Much of what Baldwin wrote about rested on the way that information and communications technology (ICT) was reshaping globalisation, and that it signalled a greater convergence of sorts and would speed up globalisation and convergence.
Then Covid-19 arrived and exposed all the iniquities, flaws and fault lines in global supply chains and the tenuousness of what we (well, I) often referred to as the functional integration of national political economies into a globalised whole. This “totality” of capitalism and its tendency to nestle everywhere were defining features of Joseph Schumpeter (procapitalist) and Karl Marx’s (anticapitalist) oeuvres.
What we came to call globalisation (that totalisation) started in earnest again in the 1990s but it seems the party is over. Eighteen months into the pandemic and there are now reports of “sizeable gaps” between “factory orders and output”; transportation costs from China to the US and EU have increased by up to 10 times in 2021, and more companies in more sectors are “supply constrained”.
The causes, according to Mohamed El-Erian, president of Queens College, Cambridge, are a combination of disrupted supply chains, high transportation costs, container scarcity, congested ports and labour shortages that is forcing companies in manufacturing and services to operate below capacity and with constant wage pressure.
“Fewer chief executives have confidence that such disruptions are temporary and quickly reversible. This will restrain growth plans despite robust demand, and increase pressure to raise prices to offset higher costs. Rather than a one-off dynamic, the global economy is experiencing waves of supply disruptions suggesting that longer-term forces are also in play,” El-Erian wrote in the Financial Times a few weeks ago.
While there are pockets of optimism he remains convinced that with “inflation already in the pipeline” there is a very real chance that the global political economy is bracing for “stagflationary winds”. Stagflation [slow economic growth pari passu with increasing unemployment and higher inflation] is generally “unfamiliar to those that did not live through the 1970s. It is a scenario that more companies are putting front and centre in their planning. Yet too many policymakers and, therefore, market participants lag behind realities on the ground.”
Suddenly Baldwin’s “great convergence” looks a mite optimistic. While I remain positive that progress can be achieved towards greater functional integration as a result of ICT — especially if we get the ethics of artificial intelligence and robotics right — the pandemic appears to have caused a new divergence. If we go back to the globalisation of the 1990s there was a general optimism that economic growth came with the potential for convergence, and that lower income counties should grow faster based largely on their rate of factor accumulation. There was, at the time, a great divergence in the distribution of incomes across countries, with poor ones bearing the brunt of this growing inequality.
It seems this divergence is back. Or maybe it never really went away, and the pandemic merely pulled back the covers. As we say in the critical tradition of the social sciences, it is singularly important to look beneath surface forms of equality to expose the underlying iniquities and injustices.
There is a growing concern that poor countries, especially those that are net food importers, could face increased import costs and higher food insecurity. Through contagion mechanisms (trade, global capital flows, and so on) poor countries may be hit really hard by global market volatility, especially since footloose capital had been travelling to poorer countries in search of profit. The situation for poor countries may become dire with worsening health conditions.
“The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics” and now, “96% of the population in low-income countries remains unvaccinated... Crippling debt-servicing problems should also be pre-empted through early, orderly restructurings that involve fair burden sharing among both public and private creditors,” Gita Gopinath, chief economist at the IMF, said last week.
Gopinath added that there is no silver bullet for the current crisis, but a multimeasure approach with increased supply of Covid-19 vaccines, should be at the centre of global public policymaking. That R600 book is still a good read, but I am not so sure about a “great convergence”.
• Lagardien, a visiting professor at the Wits University School of Governance, has worked in the office of the chief economist of the World Bank, as well as the secretariat of the National Planning Commission
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