Group 15 @ Sophia – From Davos, a View on the State of Globalization

Davos, Switzerland, on Jan. 13

Photograph by Gianluca Colla/Bloomberg

If globalization has a spiritual home, it’s Davos, the Swiss ski resort that will play host to a who’s who of the planet’s decision-makers from Jan. 22 to 25. The annual meeting of the World Economic Forum is devoted to “improving the state of the world,” with the ever-present subtext that more integration is better. Davos Man’s abiding belief that those two goals are compatible has taken a beating in recent years. The financial crisis that struck in 2008 raised serious questions about whether globalization had become more of a threat than a boon. We learned the hard way that the world financial system had become like an electrical grid in which a single tree falling across a high-tension line could cause blackouts of homes and businesses hundreds of miles away.

Today, even as the Great Recession recedes from memory, its ravages are visible. Prior to the crisis, global commerce was growing twice as fast as global economic output, says Bhanu Baweja, who heads emerging-market cross-asset strategy at UBS(UBS). Trade plummeted after the crisis and is only now regaining momentum. Cross-border capital flows are 60 percent of what they were before the meltdown, according to the McKinsey Global Institute. Charles Collyns, who was assistant U.S.Treasury secretary for international finance until joining the Institute of International Finance as chief economist last year, puts it bluntly: “Globalization has stalled.”

That’s not the line that the WEF’s organizers will be broadcasting. “The people in Davos are looking forward, not backward,” says Robert Greenhill,a former executive and consultant from Canada who’s now chief business officer of the forum. Still, the stresses of the wider world are sure to find their way into the forum’s meeting halls. Talk of currency war is in the air, while China and Japan are skirmishing in the East China Sea. In the U.S., trade is taking some of the blame for the hot-button issue of the year: inequality. Emerging markets such as Brazil and Turkey have swooned over the Federal Reserve’s plans to cut back bond purchases. Global banks complain that regulators are balkanizing finance by requiring each local unit to have the capital to stand on its own. Snooping by the U.S. National Security Agency (NSA) has caused hard feelings among allies and rivals alike.

Without violating trade rules, countries have found ways to close borders. Australia now bans overseas storage of electronic health records. Argentina requires foreign luxury automakers to offset their imports of cars with exports of local products, such as malbec wine, all in the name of “trade balancing.” “What we’re moving toward is a system which on paper is open, but beneath the surface is increasingly distorted by all kinds of subsidies and buy-local provisions,” says Simon Evenett, professor of international trade at the University of St. Gallen in Switzerland. Investment controls and antitrust rules are sometimes “intimidating people from doing cross-border deals because of risks today that didn’t exist before,” says Thomas Vinje, chairman of the global antitrust practice in the Brussels office of Clifford Chance, a U.K. law firm.

Progress on the free movement of people and information is also being stymied. A lobbying coalition that included General Electric (GE) and Google (GOOG) failed to get Congress to ease immigration limits last year despite arguments that American companies can’t find enough tech workers. Financial hubs such as Singapore and the U.K. are making it harder for companies to hire foreigners following domestic protests. “Policies to promote more immigration into the advanced economies are going to be a hard sell until unemployment rates drop,” according to the “Depth Index of Globalization 2013,” a 276-page study by IESE, the graduate business school of the University of Navarra in Spain. Meanwhile, the NSA’s Prism spying scandal has hurt U.S. suppliers of cloud computing as countries opt to keep data in home-based clouds.

In a report to clients last year, Joachim Fels, Morgan Stanley’s (MS) chief international economist, warned that 2014 could be a repeat of 1914, which brought an abrupt end to the first golden era of globalization. Wrote Fels: “I do worry about a creeping trend towards a de-globalization of economic activity and capital flows.”

The view from Davos, though, is that all is not lost. Trade talks are the most important countertrend. With little notice from protesters, negotiators are making progress toward the Trans-Pacific Partnership on one side of the world and the Transatlantic Trade and Investment Partnership on the other, as well as a fledgling U.S.-China investment treaty. Agreement on trade-streamlining measures was reached at the World Trade Organization’s ministerial meeting in Bali on Dec. 7. A study by consulting firm Bain presented at Davos last year, which inspired the Bali pact, concluded that eliminating discriminatory regulations and other barriers to global supply chains could boost world gross domestic product six times as much as doing away with all tariffs.

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Groupe 15 @ Sophia : Globalization – Pros and Cons

In our group, we have debated, in terms of pros and cons, how we apprehend the globalization process.

First of all, let’s evocate pros of such a phenomenon:

* Spread and sharing knowledge and diversified goods and services

* Markets openness which creates plenty of opportunities for companies and individuals (like new jobs opportunities and new market share)

* Better communication between citizens, states and international institutions

* Improvement of transport (cost and speed) and ways of communication

* New technologies and scientific progress which permits a improvement of medicine and so an increase of life expectancy all around the world

And then, cons of globalization which of course constitute a lot of challenges for the future:

 * The immense enrichment is misallocated and the wealth gap between poor and rich countries has increased

* Globalization is from the beginning an occidental process which resulted in the disappearance of some culture and ancestral knowledge

* Increase of black market and international criminality

* The diminution of Nation States role in the democratic and social fields

* Global warming and environmental destruction

* As the interdependence increases, the systemic risk of a global collapse from financials actors (from “Too Big to Fail” banks) is more present

* Delocalisation and competition between workers without same social rights

As a conclusion, we can assert that globalization permit to enhance our way of living and personal comfort (life expectancy, immense middle class emergence, better transports and communication for sharing knowledge). However, as we mentioned earlier, big challenges are ahead and it the purpose of course existing international institutions and politics but first of all citizens and companies.