What’s next for economic globalization?

What does the future hold for globalization?

There is little debate that globalization has created significant economic opportunities and lifted millions out of poverty. But its focus on growth and competitiveness has also been criticized as a source of inequality and economic disruption.

Add to this the fundamental economic transformation the world has undergone since the pandemic began, the ongoing climate crisis and renewed geopolitical turbulence, and it’s clear that globalization is at a crossroads.

A new white paper from the World Economic Forum’s Centre for the New Economy and Society takes a look at what our global economic future might look like. Four Futures for Economic Globalization: Scenarios and Their Implications puts forward four possible trajectories for the evolution of globalization by 2027.

It considers how globalization may evolve as economic powers choose between multilateral integration and fragmentation, both at a political level and in their technology policies.

The first trajectory, “Globalization 5.0: Reconnection”, builds on the ideal of shared prosperity. It envisages increased integration in both economic and technology terms.

Reinforced regional and global alliances will result in diversified supply chains, high labour mobility, greater employment flexibility and increased innovation.

There will also be greater adoption of renewable energy and investments in long-term sustainable growth, shared more equitably across advanced and developing economies.

These trends will be underpinned by strong local economic and social resilience, including greater investments in social safety nets through higher taxation.

In the “Analogue Networks: Virtual Nationalism” scenario, physical integration between countries is revived. Governments see the benefits of multilateralism in terms of affordable fuel, food and other goods.

However, this sentiment is not replicated on a digital level. Exacerbated political rivalries and cybersecurity concerns lead countries to seek greater control over the digital domain. This will result in a splintering of technology regulation, governance and interoperability. Instead of the global internet, there will be several “splinternets”, hampering digital financial services and international trade.

Technology innovation, labour mobility and the energy transition are expected to stagnate under this globalization scenario. Developing economies will suffer disproportionately due to their lack of advanced digital capabilities.

The “Digital Dominance: Agile Platforms” scenario considers the opposite of the previous scenario – what will happen if digital integration prevails as international cooperation goes into reverse?

The likely outcome will be greater economic protectionism with highly localized manufacturing and value chains at the mercy of political rivalries.

However, alongside this, major economies are predicted to align on the taxation and governance of digital services. This will lead to a surge in technology-enabled work and cooperation, offsetting some of the impact of physical fragmentation.

Despite booming demand for highly skilled workers, their cross-border movement could face restrictions depending on where they are based, creating a two-speed labour market. The energy transition would likely suffer as protectionist measures limit access to natural resources and raw materials.

Geopolitical turbulence and the impact of COVID-19 have turned countries’ attention inwards. In the fourth scenario, “Autarkic World: Systemic Fragmentation”, that focus becomes permanent, resulting in protectionist measures that slow trade, investment and cross-border job opportunities.

Cooperation and supply chains become regionalized or localized, while a degradation of manufacturing and repeated supply shocks threaten food and health security.

In the digital sphere, governments exert greater control, resulting in increased censorship and surveillance, as well as misinformation.

The overall impact is wide-ranging economic stagnation. The environment would suffer in the face of declining international cooperation and standards, and a rise in fossil fuel use would be likely.

None of the scenarios represents an ideal set-up for the future of the global economy, the report’s authors conclude.

They see the most likely future as being one where global cooperation and economic nationalism coexist across the physical and digital worlds. They recommend overcoming an outdated globalization narrative and focusing on a fresh approach centred on social and environmental outcomes.

The Annual Meeting of the World Economic Forum will discuss the future of globalization in a session called “Is Globalization Dead?” on 25 May.