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Pinelopi Koujianou Goldberg shows how the Ukraine war achieved what neither soaring inequality not the COVID-19 pandemic could - halting globalisation

Public Policy / opinion
Pinelopi Koujianou Goldberg shows how the Ukraine war achieved what neither soaring inequality not the COVID-19 pandemic could - halting globalisation
overseas connections

After decades of unprecedented openness, international economic relations have entered a new era, characterised by mistrust and division. Given the potential costs of this shift, it is worth retracing how we got here.

Following the end of the Cold War, globalisation brought about a drastic reduction in extreme poverty, not least by enabling East Asian countries, including China, to achieve rapid growth and development. Living standards (as measured by income per capita) also improved globally.

Open trade and market-oriented policies were central to this progress. Trade with low-wage (at the time) countries – such as China, Mexico, South Korea, and Vietnam – kept goods prices and wages in advanced economies in check, benefiting both consumers in these countries and workers in the exporting economies.

Economic interconnectedness arguably also contributed significantly to the long period of peace enjoyed by the Western world. In the era of so-called hyper-globalisation, war meant disruption of far-flung supply chains, with severe economic consequences. In such a system, everyone has an incentive to behave.

The transition from interconnectedness to fragmentation has occurred in three distinct phases, each with its own causes and implications for the future of globalisation. The first phase began in 2016, with the ascendance of inward-looking politics in two former bastions of globalisation. With Brexit, the United Kingdom rejected integration with Europe. And by electing Donald Trump as president, the United States embraced an “America first” ethos that opened the way for a trade war with China.

These developments were reactions, first and foremost, to rising inequality. While the average person globally was better off at the end of the 2010s than in 1980, many developed-country workers increasingly felt left behind.

It was not just a feeling. Communities that were more exposed to import competition from low-wage countries – a result of pre-existing spatial industrialisation patterns – did worse than communities that were sheltered from imports (compare, for example, Hickory, North Carolina, a traditional factory town, and California’s Silicon Valley). But it was also nothing new. Trade has long been known to improve general welfare, while also generating distributional tensions. The policy response most economists recommended is nothing new, either: rather than embrace protectionism, countries should pursue some form of redistribution.

At any rate, there was little reason to believe that the backlash that began in 2016 would spell doom for globalisation. The world was too interconnected to revert to the old regime.

Then came phase two: the COVID-19 pandemic. A pandemic is one of the greatest risks globalisation raises. The more interconnected countries are, the easier it is for disease to spread among them. At the same time, it can spur an every-country-for-itself mentality, exemplified by the export restrictions and other inward-looking policies that governments implemented in response to the crisis.

Shortages of essential goods like personal protective equipment and supply bottlenecks provided more fuel for the argument that global supply chains could not be trusted. Many concluded that the “dependencies” created by international trade were sources of vulnerability. Building “resilience” through shorter, more localised supply chains became the order of the day.

Yet the global trading system proved remarkably robust during the past two years. According to the International Monetary Fund, global trade, as measured by the ratio of merchandise imports to world GDP, has increased since 2019. Most shortages proved to be short-lived. Several other supply-chain bottlenecks – such as the recent baby-formula shortage in the US – had domestic, not global, causes. In fact, bottlenecks would probably have been much worse without international trade.

So, despite an unprecedented public-health shock, the global economy kept going – wounded and at a much slower pace than before, but still with good prospects eventually to recover. Then Russia invaded Ukraine, and phase three began.

The smooth functioning of global supply chains requires peace, stability, and predictability. The war has eroded trust among countries and shifted expectations about geopolitical alliances, spurring calls for “reshoring” or “friend-shoring” in the name of “economic security.” If, for example, China invades Taiwan, what happens to a global economy that depends on chips produced by a single company, TSMC, on the island?

The war in Ukraine has thus achieved what soaring domestic inequality and the COVID-19 pandemic could not. It is one thing to rely on your friends, even if this implies hardship for some workers in your domestic market; it is entirely something else to rely on your enemies. And so, the economic “mutual assured destruction” that was supposed to deter deglobalisation has apparently reached its limits.

Now, countries are seeking to build resilience by turning inward, embracing industrial policies for sectors that are viewed as critical for national security, such as semiconductors and energy. But whether this approach will succeed is far from certain. History teaches us that, when industrial policy works, it really works. But it is hard to know what will succeed ex ante.

China is often credited with (or accused of) relying on industrial policy to promote growth. But it was also responsible for one of industrial policy’s biggest failures: the Great Leap Forward, which caused up to 55 million deaths by the time it ended in 1962. As for the policies that did succeed, careful, piecemeal implementation was vital. Reforms were tested at the local and regional levels first, and scaled up only when they had demonstrated their potential. But “crossing the river by feeling the stones,” as Deng Xiaoping put it, takes time, and time is not on Western economies’ side right now.

Complicating matters further, semiconductors are characterised by “massive modularity,” meaning that each unit produced comprises several interconnected functional modules that can be broken down into more specialised modules, each with its own standards, innovation potential, and market structure. Whether such processes can be replicated domestically within a short period of time is questionable. We should remember that centrally planned systems failed because they could not keep up with the increasing complexity of modern economic systems.

It seems we have crossed the Rubicon in international economic relations, leaving globalisation behind. The challenge now will be to find our bearings as the consequences play out.

Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is Professor of Economics at Yale University. Copyright: Project Syndicate, 2022, published here with permission.

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... " centrally planned systems failed " ... ooooh , there's a wake up call for our current government ...

Anyone listening ? .... oh  , that's right , our Demi-God Queen is on a private plane to Canada ...

... odd , didnt she tell us that " climate change was our nuclear moment " ...


Actually, the GBH's of this world should try thinking.

This isn't about our current leader.

This isn't about what the writer says it is, either.

This is peak-and-retreat. It could only happen once, globally. Seems most folk are going to get a tad confused about cause and causal. Comes from believing the teachings of Economics. Alle same pie-in-the-sky-when-you-die; priests to worship, mantra to believe....…

Been in my bookshelf for more than a decade. Some of us are not surprised by the unfoldings....


It seems we have crossed the Rubicon in international economic relations, leaving globalisation behind. The challenge now will be to find our bearings as the consequences play out.

World Bank President David Malpass recently stated in an interview with Bloomberg that China is unwilling to deliver more stimulus during the current international slowdown. On the one hand, Malpass acknowledged that China's approach "may be good for their economy and good for the long run," but then he abruptly switched the tone by saying "that puts more burden on the US" and is not conducive for the US to support international growth. Link



The Crony Capitalist Globalists will not go down without a fight. There is at present a small delay while they all make another fortune off the Ukraine war, then straight back in to it. They will attempt to add to all small businesses costs while their multinational juggernauts will carry on. If they have their way, in the near future, we will only be allowed to do business with a multinational. All foreign owned banks, Dairy factories, clothing stores, Countdown, Uber, KFC, MacDonalds, Dominoes, etc, etc. 50 years ago, none of these companies were in NZ, and we all got by. All business will be done by sending a cut back to the Crony Capitalists. This will be achieved by giving the government a cut as well. Only if they have their way. Luckily for them, most of us are handing our freedom, privacy, and independence to them on a platter . It is obvious that this is happening, but most of us don't seem to care. However, those Kiwis who can see, will have to fight them and just not let them take us over. 


Global CORPORATISM is what killed globalisation. 


Limits to growth are what killed globalisation.

Russia has done the world a favour by artificially accelerating the timeline of the energy decline by 2-3 years. It is giving the world a sharp wake up call that is accentuating the underlying issue while appearing to be political and organisational in nature at the surface, this gives both the political class and the business class time to react and prepare strategies that are going to become crucial in the next 5-10 years. It's sort of like training wheels.


Fantastic comment.


This piece seems very much like a case of an economic analysis being driven, or at least corrupted, by nationalistic (USA) bias.  Free trade has never been a popular priority of the US and well before the war in Ukraine started the US was ramping up its favoured tactic of selective protectionism (think Huawei?). If you pursue policies that prevent countries or companies from freely exporting then true globalisation eventually becomes a victim of this.  Therefore, the seeds of de-globalisation, if this is actually taking place, were sown well before Russia invaded Ukraine.  Production (worker constraints) and transport shortages largely caused by Covid have made countries more aware of the benefits of self-sufficiency and nudged them away from a globalised world.  Energy and where it is sourced is definitely a factor that should also focus countries on domestic self-sufficiency. This will become only too evident in the coming northern winter (Russian gas to Europe) so I guess in this respect the Russian invasion of Ukraine will reset some globalisation complacencies.