Pandemic = Economic Collapse Part II
But specialization only works if we can collaborate and trade with each other. Norway could not expand the oil fields in the North Sea unless people outside the country’s borders buy the oil and gas. According to A2ZCAMERABLOG, China could not assemble the iPhone if they could not import cameras and processors from, among others, the United States. People in different professions and companies that produce different goods and services complement each other so that we have access to a wide range of goods and services in the world.
The breadth of the range of goods and services increases with the size of the market. Some examples illustrate the point: The school must be large for it to be able to offer many electives. Large cities have a much wider range of goods and services than small settlements. And large countries have a more diverse business structure, ie how many types of goods and services they produce, than small countries. This is why small countries are more dependent on trade as shown in Figure 2.
In some industries, it costs billions to develop the product, build factories and acquire expertise. Therefore, the company has to sell a lot to cover the costs. For example, there are only two manufacturers of large passenger aircraft in the world (Boeing and Airbus). Mobile phones also have high development costs and are dominated by a few manufacturers. The largest mobile phone factory in the world was recently opened by Samsung in India and can produce 120 million phones a year.
4: Financial crisis and coronavirus
In 2008, the world experienced the largest economic crisis since World War II. We see this fall in Chart 2. The so-called financial crisis originated in a crash in the US housing market, which led to banks incurring large losses and the stock markets falling like a rock. This spread throughout the world through international financial markets.
Many companies used the growth break in connection with the financial crisis to review their business plans again. In addition, the tsunami in Japan in 2011 and other natural disasters showed that long and complex supply chains are vulnerable to interruptions due to conditions beyond the company’s control. In the period after 2011, globalization has stopped, and world trade is growing at about the same rate as world production.
The corona crisis is much more serious than the financial crisis . World trade fell by 18 per cent between April and June 2020, and world GDP fell by around 12 per cent in the first half of 2020. This is the largest economic downturn since the 1930s, and this time trade has fallen more than production.
There are several reasons for this. First, people (flight crew, boat crew and trailer drivers) must cross borders for the goods to arrive. International aviation came to a complete halt during the corona crisis, and ships were often not allowed to dock and change crews.
Second, many countries imposed export restrictions . The motive was to ensure that its own inhabitants have access to food and medicine and other necessary goods. It quickly became apparent that very few or no countries produce everything they need to make medicines and medical equipment themselves, so many of the restrictions were quickly withdrawn.
Third, a chain is never stronger than its weakest link. When a subcontractor in a value chain has to shut down, it propagates to the entire value chain.
5: The prospects ahead: Is globalization over?
The world is in a serious economic crisis, and political rivalry, especially between the United States and China, does not make matters better.
Figure 2 also shows that there have been breaks in globalization in the past, for example after the oil crisis in the 1980s. But after a few years, globalization gained new momentum. There is reason to believe that globalization will return this time as well, but it may take new forms.
New technologies, such as artificial intelligence, robots, and other programmable machines, have enabled smaller factories to produce as cheaply as large ones in some industries. Product development, inventory management and marketing still require large organizations and not least huge amounts of data. We need new international rules for how data can be transferred safely and securely across national borders. This is being negotiated in the WTO .
Once we have in place rules for the digital economy, globalization will continue, but as a network of large and small businesses and individuals selling goods and services and sharing ideas and information. We have already seen that this is happening during the corona crisis, where digital solutions have been used in teaching and working life. So even though the pandemic put the brakes on economic globalization, we also see that the opportunities to get out of the crisis lie in the digital promise the world has received in the face of the coronavirus.