The Contradictions of Globalization

Whereas in Global Trends 2015 we viewed globalization—growing interconnectedness reflected in the expanded flows of information, technology, capital, goods, services, and people throughout the world—as among an array of key drivers, we now view it more as a “mega-trend”—a force so ubiquitous that it will substantially shape all of the other major trends in the world of 2020.

The reach of globalization was substantially broadened during the last 20 years by Chinese and Indian economic liberalization, the collapse of the Soviet Union, and the worldwide information technology revolution.  Through the next 15 years, it will sustain world economic growth, raise world living standards, and substantially deepen global interdependence.  At the same time, it will profoundly shake up the status quo almost everywhere—generating enormous economic, cultural, and consequently political convulsions.

Certain aspects of globalization, such as the growing global inter-connectedness stemming from the information technology revolution, are likely to be irreversible.  Real-time communication, which has transformed politics almost everywhere, is a phenomenon that even repressive governments would find difficult to expunge.

• It will be difficult, too, to turn off the phenomenon of entrenched economic interdependence, although the pace of global economic expansion may ebb and flow.  Interdependence has widened the effective reach of multinational business, enabling smaller firms as well as large multinationals to market across borders and bringing heretofore non-traded services into the international arena.

Yet the process of globalization, powerful as it is, could be substantially slowed or even reversed, just as the era of globalization in the late 19^th and early 20^th centuries was reversed by catastrophic war and global depression.  Some features that we associate with the globalization of the 1990s—such as economic and political liberalization—are prone to “fits and starts” and probably will depend on progress in multilateral negotiations, improvements in national governance, and the reduction of conflicts.  The freer flow of people across national borders will continue to face social and political obstacles even when there is a pressing need for migrant workers.

Moreover, the character of globalization probably will change just as capitalism changed over the course of the 19^th and 20^th centuries.  While today’s most advanced nations—especially the United States—will remain important forces driving capital, technology and goods, globalization is likely to take on much more of a “non-Western face” over the next 15 years.

• Most of the increase in world population and consumer demand through 2020 will take place in today’s developing nations—especially China, India, and Indonesia—and multinational companies from today’s advanced nations will adapt their “profiles” and business practices to the demands of these cultures.
• Able to disperse technology widely and promote economic progress in the developing world, corporations already are seeking to be “good citizens” by allowing the retention of non-Western practices in the workplaces in which they operate.  Corporations are in the position to make globalization more palatable to people concerned about preserving unique cultures.
• New or expanding corporations from countries lifted up by globalization will make their presence felt globally through trade and investments abroad.
• Countries that have benefited and are now in position to weigh in will seek more power in international bodies and greater influence on the “rules of the game.”
• In our interactions, many foreign experts have noted that while popular opinion in their countries favors the material benefits of globalization, citizens are opposed to its perceived “Americanization,” which they see as threatening to their cultural and religious values.  The conflation of globalization with US values has in turn fueled anti-Americanism in some parts of the world.

Currently, about two-thirds of the world’s population live in countries that are connected to the global economy.  Even by 2020, however, the benefits of globalization won’t be global.  Over the next 15 years, gaps will widen between those countries benefiting from globalization—economically, technologically, and socially—and those underdeveloped nations or pockets within nations that are left behind.  Indeed, we see the next 15 years as a period in which the perceptions of the contradictions and uncertainties of a globalized world come even more to the fore than is the case today.

An Expanding and Integrating Global Economy
The world economy is projected to be about 80 percent larger in 2020 than it was in 2000 and average per capita income to be roughly 50 percent higher.  Large parts of the world will enjoy unprecedented prosperity, and a numerically large middle class will be created for the first time in some formerly poor countries.  The social structures in those developing countries will be transformed as growth creates a greater middle class.  Over a long time frame, there is the potential, so long as the expansion continues, for more traditionally poor countries to be pulled closer into the globalization circle.

Most forecasts to 2020 and beyond continue to show higher annual growth for developing countries than for high-income ones.  Countries such as China and India will be in a position to achieve higher economic growth than Europe and Japan, whose aging work forces may inhibit their growth.  Given its enormous population—and assuming a reasonable degree of real currency appreciation—the dollar value of China’s gross national product (GNP) may be the second largest in the world by 2020.  For similar reasons, the value of India’s output could match that of a large European country.  The economies of other developing countries, such as Brazil and Indonesia, could surpass all but the largest European economies by 2020.[1]

• Even with all their dynamic growth, Asia’s “giants” and others are not likely to compare qualitatively to the economies of the US or even some of the other rich countries.  They will have some dynamic, world-class sectors, but more of their populations will work on farms, their capital stocks will be less sophisticated, and their financial systems are likely to be less efficient than those of other wealthy countries.

Continued Economic Turbulence.  Sustained high-growth rates have historical precedents.  China already has had about two decades of 7 percent and higher growth rates, and Japan, South Korea, and Taiwan have managed in the past to achieve annual rates averaging around 10 percent for a long period.

Fast-developing countries have historically suffered sudden setbacks, however, and economic turbulence is increasingly likely to spill over and upset broader international relations.  Many emerging markets—such as Mexico in the mid-1990s and Asian countries in the late 1990s—suffered negative effects from the abrupt reversals of capital movements, and China and India may encounter similar problems.  The scale of the potential reversals would be unprecedented, and it is unclear whether current international financial mechanisms would be in a position to forestall wider economic disruption.

With the gradual integration of China, India, and other developing countries into the global economy, hundreds of millions of working-age adults will join what is becoming, through trade and investment flows, a more interrelated world labor market.  World patterns of production, trade, employment, and wages will be transformed.

• This enormous work force—a growing portion of which will be well educated—will be an attractive, competitive source of low-cost labor at the same time that technological innovation is expanding the range of globally mobile occupations.
• Competition from these workers will increase job “churning,” necessitate professional retooling, and restrain wage growth in some occupations.

Where these labor market pressures lead will depend on how political leaders and policymakers respond.  Against the backdrop of a global economic recession, such resources could unleash widespread protectionist sentiments.  As long as sufficiently robust economic growth and labor market flexibility are sustained, however, intense international competition is unlikely to cause net job “loss” in the advanced economies.

Mobility and Laggards.  Although the living standards of many people in developing and underdeveloped countries will rise over the next 15 years, per capita incomes in most countries will not compare to those of Western nations by 2020.  There will continue to be large numbers of poor even in the rapidly emerging economies, and the proportion of those in the middle stratum is likely to be significantly less than is the case for today’s developed nations.  Experts estimate it could take China another 30 years beyond 2020 for per capita incomes to reach current rates in developed economies.

• Even if, as one study estimates, China’s middle class could make up as much as 40 percent of its population by 2020—double what it is now—it would be still well below the 60 percent level for the US.  And per capita income for China’s middle class would be substantially less than equivalents in the West.
• In India, there are now estimated to be some 300 million middle-income earners making $2,000-$4,000 a year.  Both the number of middle earners and their income levels are likely to rise rapidly, but their incomes will continue to be substantially below averages in the US and other rich countries even by 2020.
• However, a $3,000 annual income is considered sufficient to spur car purchases in Asia; thus rapidly rising income levels for a growing middle class will combine to mean a huge consumption explosion, which is already evident.

Widening income and regional disparities will not be incompatible with a growing middle class and increasing overall wealth.  In India, although much of the west and south may have a large middle class by 2020, a number of regions such as Bihar, Uttar Pradesh, and Orissa will remain underdeveloped.  

Moreover, countries not connected to the world economy will continue to suffer.  Even the most optimistic forecasts admit that economic growth fueled by globalization will leave many countries in poverty over the next 15 years.

• Scenarios developed by the World Bank indicate, for example, that Sub-Saharan Africa will be far behind even under the most optimistic scenario.  The region currently has the largest share of people living on less than $1 per day.

If the growing problem of abject poverty and bad governance in troubled states in Sub-Saharan Africa, Eurasia, the Middle East, and Latin America persists, these areas will become more fertile grounds for terrorism, organized crime, and pandemic disease.  Forced migration also is likely to be an important dimension of any downward spiral.  The international community is likely to face choices about whether, how, and at what cost to intervene.  

The Technology Revolution
The trend toward rapid, global diffusion of technology will continue, although the stepped-up technology revolution will not benefit everyone equally.

• Among the drivers of the growing availability of technology will be the growing two-way flow of high-tech brain power between developing countries and Western countries, the increasing size of the technologically literate workforce in some developing countries, and efforts by multinational corporations to diversify their high-tech operations.

New technology applications will foster dramatic improvements in human knowledge and individual well-being.  Such benefits include medical breakthroughs that begin to cure or mitigate some common diseases and stretch lifespans, applications that improve food and potable water production, and expansion of wireless communications and language translation technologies that will facilitate transnational business, commercial, and even social and political relationships.  

Moreover, future technology trends will be marked not only by accelerating advancements in individual technologies but also by a force-multiplying convergence of the technologies—information, biological, materials, and nanotechnologies—that have the potential to revolutionize all dimensions of life.  Materials enabled with nanotechnology’s sensors and facilitated by information technology will produce myriad devices that will enhance health and alter business practices and models.  Such materials will provide new knowledge about environment, improve security, and reduce privacy.  Such interactions of these technology trends—coupled with agile manufacturing methods and equipment as well as energy, water, and transportation technologies—will help China’s and India’s prospects for joining the “First World.”  Both countries are investing in basic research in these fields and are well placed to be leaders in a number of key fields.  Europe risks slipping behind Asia in creating some of these technologies.  The United States is still in a position to retain its overall lead, although it must increasingly compete with Asia and may lose significant ground in some sectors.  

To Adaptive Nations Go Technology ‘s Spoils.   The gulf between “haves” and “have-nots” may widen as the greatest benefits of globalization accrue to countries and groups that can access and adopt new technologies.  Indeed, a nation’s level of technological achievement generally will be defined in terms of its investment in integrating and applying the new, globally available technologies—whether the technologies are acquired through a country’s own basic research or from technology leaders.  Nations that remain behind in adopting technologies are likely to be those that have failed to pursue policies that support application of new technologies—such as good governance, universal education, and market reforms—and not solely because they are poor.

Those that employ such policies can leapfrog stages of development, skipping over phases that other high-tech leaders such as the United States and Europe had to traverse in order to advance. China and India are well positioned to achieve such breakthroughs.  Yet, even the poorest countries will be able to leverage prolific, cheap technologies to fuel—although at a slower rate—their own development.  

• As nations like China and India surge forward in funding critical science and engineering education, research, and other infrastructure investments, they will make considerable strides in manufacturing and marketing a full range of technology applications—from software and pharmaceuticals to wireless sensors and smart-materials products.

Rapid technological advances outside the United States could enable other countries to set the rules for design, standards, and implementation, and for molding privacy, information security, and intellectual property rights (IPR).  

• Indeed, international IPR enforcement is on course for dramatic change.  Countries like China and India will, because of the purchasing power of their huge markets, be able to shape the implementation of some technologies and step on the intellectual property rights of others.  The attractiveness of these large markets will tempt multinational firms to overlook IPR indiscretions that only minimally affect their bottom lines.  Additionally, as many of the expected advancements in technology are anticipated to be in medicine, there will be increasing pressure from a humanitarian and moral perspective to “release” the property rights “for the good of mankind.”

Nations also will face serious challenges in oversight, control, and prohibition of sensitive technologies.  With the same technology, such as sensors, computing, communication, and materials, increasingly being developed for a range of applications in both everyday, commercial settings and in critical military applications the monitoring and control of the export of technological components will become more difficult.  Moreover, joint ventures, globalized markets and the growing proportion of private sector capital in basic R&D will undermine nation-state efforts to keep tabs on sensitive technologies.    

• Questions concerning a country’s ethical practices in the technology realm—such as with genetically modified foods, data privacy, biological material research, concealable sensors, and biometric devices—may become an increasingly important factor in international trade policy and foreign relations.

At the same time, technology will be a source of tension in 2020:  from competition over creating and attracting the most critical component of technological advancement—people—to resistance among some cultural or political groups to the perceived privacy-robbing or homogenizing effects of pervasive technology.

Lingering Social Inequalities
Even with the potential for technological breakthroughs and the dispersion of new technologies, which could help reduce inequalities, significant social welfare disparities within the developing and between developing and OECD countries will remain until 2020.

Over the next 15 years, illiteracy rates of people 15 years and older will fall, according to UNESCO, but they will still be 17 times higher in poor and developing countries than those in OECD[2] countries.  Moreover, illiteracy rates among women will be almost twice as high as those among men.  Between 1950 and 1980 life expectancy between the more- and less-developed nations began to converge markedly; this probably will continue to be the case for many developing countries, including the most populous.  However, by US Census Bureau projections, over 40 countries—including many African countries, Central Asian states, and Russia—are projected to have a lower life expectancy in 2010 than they did in 1990.  

Even if effective HIV/AIDS prevention measures are adopted in various countries, the social and economic impact of the millions already infected with the disease will play out over the next 15 years.

• The rapid rise in adult deaths caused by AIDS has left an unprecedented number of orphans in Africa.  Today in some African countries one in ten children is an orphan, and the situation is certain to worsen.

The debilitation and death of millions of people resulting from the AIDS pandemic will have a growing impact on the economies of the hardest-hit countries, particularly those in Sub-Saharan Africa, where more than 20 million are believed to have died from HIV/AIDS since the early 1980s.  Studies show that household incomes drop by 50 to 80 percent when key earners become infected.  In “second wave” HIV/AIDS countries—Nigeria, Ethiopia, Russia, India, China, Brazil, Ukraine, and the Central Asian states—the disease will continue to spread beyond traditional high-risk groups into the general population.  As HIV/AIDS spreads, it has the potential to derail the economic prospects of many up-and-coming economic powers.  

Fictional Scenario: Davos World

This scenario provides an illustration of how robust economic growth over the next 15 years could reshape the globalization process—giving it a more non-Western face.  It is depicted in the form of a hypothetical letter from the head of the World Economic Forum to a former US Federal Reserve chairman on the eve of the annual Davos meeting in 2020.  Under this scenario, the Asian giants as well as other developing states continue to outpace most “Western” economies, and their huge, consumer-driven domestic markets become a major focus for global business and technology.  Many boats are lifted, but some founder.  Africa does better than one might think, while some medium-sized emerging countries are squeezed.  Western powers, including the United States, have to contend with job insecurity despite the many benefits to be derived from an expanding global economy.  Although benefiting from energy price increases, the Middle East lags behind and threatens the future of globalization.  In addition, growing tensions over Taiwan may be on the verge of triggering an economic meltdown.  At the end of the scenario, we identify some lessons to be drawn from our fictional account, including the need for more management by leaders lest globalization slip off the rails.