BlackRock CEO Larry Fink released a letter to shareholders yesterday making a stark proclamation: “the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”
Globalization is officially over. Did anyone else have that on their 2022 bingo card?
While it’s easy to get lost in the jargon, this has big implications for us everyday normal people. International think tank Chatham House defines deglobalization — globalization’s antithesis — as “a movement towards a less connected world, characterized by powerful nation states, local solutions, and border controls rather than global institutions, treaties, and free movement.”
This means borders are going to be more strongly enforced, countries will adopt protectionist policies, and people, goods, and ideas will no longer easily flow from one place. There have only been two periods of deglobalization in recent history: during the Great Depression of the 1930s and following the financial crisis in the 2010s.
A new world order is emerging. It is not a crazy right-wing conspiracy. The race to decarbonize energy sources, competition with China, and now a new cold war between Russia and the West means business as usual is over. Things have to change and will, whether we like it or not.
So what does this mean for us? High gas prices, albeit painful, are probably going to be the least of your worries moving forward. Buckle up, we’re in for a bumpy ride.
What Will Likely Happen
Populist Uprisings
There is a 6’3”, 243-pound elephant in the room that we need to start talking about. His name is Donald J. Trump.
This year is a critical midterm election year in the United States. Not only are there 39 gubernatorial seats up for grabs, it is the first election following the redistricting that took place after the 2020 census. The outcome of this election will largely act as a referendum on the less-than-stellar Biden administration and will inaugurate the start of the 2024 presidential campaign.
I spent most of 2021 driving around the country. I visited everywhere from small towns in Oklahoma to the liberal enclaves of San Francisco and Portland. From that experience, I discovered that Americans aren’t just politically divided, they’re outright segregated.
Flags, interestingly enough, are a visible manifestation of this. The intellectual, woke progressives residing in most American cities are oblivious to the populist threat that lies along the rural, interstate towns that tie America together. People who once only pledged allegiance to the American flag now fly flags pledging allegiance to a political ideology.
At the same time censorship and cancel culture are stoking the flames of a rising populist revolt on the left. While Trump was the most prominent of populist ideologues to be deplatformed, he wasn’t the last. Regardless of where you stand on COVID “disinformation” it triggered a growing disillusionment among liberal intellectuals. The absence of Trump, unpalatable as he was, snowballed into the elimination of free thinking and political discourse.
Trump supporters and woke progressives are two sides of the same populist coin. The coveted undecided, independent voter no longer exists. You are either for Trump or against Trump, there is no in between.
Trump is going to run again in 2024 and it is likely he will get elected. Unless the Democratic ticket bears a name like Michelle Obama, it is unlikely they will be able to sway undecided voters let alone retain the votes Biden received in 2020. The people who find both options equally distasteful will sit out, allowing the ideologues to determine the outcome.
Trump supporters didn’t handle his loss well in 2020. Have you thought about how the rest of us will handle a Trump victory in 2024? This is a flashpoint that could possibly combust in the next few years.
Sustained Inflation
COVID royally screwed up supply chains, leading to inflation. There is this belief that life is going to return to normal once COVID is over. But what if this is never over?
The inflation we are experiencing today is as much a result of COVID as it is of the monetary policy invoked to stabilize the economy after lockdowns went into effect. The Federal Reserve now has a $9 trillion balance sheet, doubling in size over the last three years. While Fed Chair Jermone Powell plans to begin tapering the balance sheet, emergent crises like the one in Ukraine may make it increasingly harder to do so.
Inflation is the new normal. There is little reason to believe that prices will magically go back down overnight. Too much money in circulation decreases the purchasing power of a dollar while shortages of goods and labor increase the costs of production. This means it costs more to buy things and your money buys you less than what it used to.
In the short-term retirees may be forced back into work to buffer their dwindling savings. Meanwhile, this is going to amplify long-term economic stress for working class Americans and student loan debtors who can’t afford to purchase homes or save for retirement.
We are in a much bigger economic bubble that will likely pop. The government stepped in to prevent a total collapse in 2008. Can it do so again this time?
Food Scarcity
At the start of COVID there were toilet paper shortages. By the end of last year there were labor shortages. Now we’re about to enter a third round of shortages. Want to take a wager at what it’s going to be this time?
Food.
There’s always been a lingering threat to the global supply of food. According to Matheus’s population theory food supply increases at an arithmetic rate while the population continues to increase at an exponential rate. Just from a mathematical perspective alone, there will come a time when humans outstrip the earth of enough resources to sustain the human race. Factor in the effects of climate changes, the proliferation of monocrops, and general soil mismanagement, it was already inevitable food scarcity will take hold in our lifetime.
Thanks to COVID and Russia’s war in Ukraine, the threat of food scarcity is here. Russia is a supplier of key ingredients to make fertilizer. Now that Russia is effectively removed from the global economy, so too are its resources. You think gas prices are high, just ask a farmer what they think about skyrocketing fertilizer prices.
The economics of farming is different from your experience as a retail consumer. A farmer can’t just increase prices the same way a grocery store can. Instead, the response to increasing costs is to generally decrease output. This means farmers are producing less.
In the United States, we won’t see food outright disappear but we’ll definitely see higher prices. For the developing world, however, food scarcity could lead to contracting economies as agricultural-producing countries have lower crop yields to trade with. Meanwhile, the poorest of the poor will literally starve at no fault of their own.
People don’t need populist politics or monetary policy to survive but they will need food. It is inevitable that food scarcity will lead to the outbreak of new civil wars. Globally speaking, wealthy countries will protect their supply chains at the expense of developing countries. Domestically, the elites within a society will protect their access to food at the expense of the peasantry.
Regardless of what you think about Doomsday Preppers, it’s becoming clear that they weren’t totally wrong. Now might be a really good time to start learning how to manage a household food supply.
Increased Protectionist Policies
There’s a lot of optimism that the world can come together to solve the climate crisis. But what if we can’t?
We are already in the window of action to begin decarbonizing the economy. While one could argue the COVID-19 pandemic helped us decrease global emissions and Russia’s war in Ukraine is accelerating the push for energy independence, one could argue that these have also become distractions. The United States’s immediate solution to the question of energy independence is to increase oil and gas production. This will drastically increase greenhouse gas emissions in the short-term and could make it that much harder to wean ourselves off of fossil fuels in the long-term.
There is also the question of finding cooperative solutions to the climate crisis that are just. Developed countries spent the last century benefiting from fossil fuels while poorer countries did not. Now is their time to industrialize and Western countries are effectively putting the kibosh on this. The lack of urgent action now will result in hastily imposed regulations later on. How can any of us expect a country like India to acquiesce to fossil fuel divestments because of the West’s own climate negligence?
Meanwhile, there’s a culture war brewing between the European Union and the United States over the severity of climate-related regulations. The EU will invariably lead the way in taxing emissions. America, on the other hand, likely will not have the political will to follow suit, thanks in part to Grover Norquist’s anti-tax legacy. And even if a carbon tax did go into effect, would American companies even pay it? They’ve devised clever strategies to avoid paying regular taxes, what makes any of us certain that Exxon, Google, and Amazon are going to pony up to pay a carbon tax?
Given the rapidly shrinking window of time to take action and the unlikelihood that action can be taken, it is likely countries will adopt measures to protect themselves, even if that comes at the expense of global climate cooperation. This will solidify the shift towards deglobalization. We are already seeing this starting to emerge in Europe where the world’s first carbon emissions tariff will start being implemented as early as 2023. Countries who cannot – or will not – pay such a tariff will divert their carbon footprint rather than divest it.
Climate-induced protectionism on the global stage will amplify the aforementioned impacts of political populism, inflation, and supply shortages. Rather than work in concert with one another, countries will find it increasingly necessary to score points on the global stage to placate unstable domestic political environments at home.
The Big Unknowns of Deglobalization
Continued Cooperation in Global Institutions
The economic war the West is waging on Russia is a double-edged sword. While the punitive efforts to cripple Russia’s economy will work in the short-term, it is also setting a dangerous precedent for the future of international relations.
While Russia can be isolated from the global economy it can’t be isolated from the global commons. Russia participates in the International Space Station, uses the internet, and is just as much a contributor to greenhouse gasses as the rest of us. To exclude Russia from global economic participation opens the door for future exclusion in other international organizations.
While no one can dispute that Russia invaded Ukraine and violated its sovereignty there is also a bigger question about what exactly sovereignty means. If you’re a Palestinian your sovereignty has been violated for decades with little to no punishment against your aggressor. If you’re in Hong Kong you’re watching Mainland China erode “one country, two systems” while if you’re in Xinjiang you are disappeared into a network of modern-day concentration camps.
Sovereignty it seems is in the eye of the beholder. This singular event could lead to a tit-for-tat unraveling of other international organizations too.
While much of the post-Cold War era has coalesced around a unipolar, American-led world, decreasing confidence in international institutions could lead to the emergence of a multipolar world where countries opt out of the American system and opt into the Chinese or Russian systems, whatever those eventually look like.
The degradation of international institutions and the norms that govern them will further entrench a shift towards deglobalization. This will make it that much harder to address global problems like climate change and future pandemics.
Escalation to World War
Bret Stephens recently penned an op-ed in the New York Times making the argument that “World War II didn’t so much begin as it gathered, like water rising until it breaches a dam.”
He isn’t wrong. World War III has slowly been emerging over much of the last decade and most of us have been blissfully unaware. Ukraine had a bloody revolution in 2014 that was barely covered in the Western press. Days after the Russian-backed president was ousted, Russia annexed Crimea. For the last seven years, Russia has undermined Ukraine’s sovereignty in the Donbas region and no one has batted an eye.
We naively believe that war will never happen again in Europe but it's already here. Just like the last two world wars, a complex network of alliances is being put to the test. NATO in theory has maintained stability for the last 80 years but disagreements of how NATO will react to Russian aggression could catalyze the start of WWIII.
This is a zero-sum game for Russia, with nuclear weapons on the table. Putin has too much pride to beg for forgiveness at the feet of Western powers. It is much more likely that this will escalate rather than deescalate. With Russia now on NATO’s doorstep, what happens if Putin presses on to Poland or Moldova? More importantly: what happens if Russia does this during a second Trump administration in 2024?
The alliances holding Europe together rely on American leadership. Absent that they will unravel. Given the aforementioned likelihood of populist polarization, domestic economic strain, and a more isolated protectionist foreign policy stance, an American leadership vacuum may emerge in the very near future.
Will Digital Decentralization be the End of Democracy?
As geopolitical armageddon is underway human civilization is sitting on the cusp of the greatest economic revolution since the Industrial Revolution. As Voltaire once said “with great power comes great responsibility.”
Blockchain, cryptocurrencies, and the entire web3 enterprise will radically change the premise of ownership and thus the foundational myths upon which our entire capitalist economy is built on. In the new digital economy, social capital will bear as much weight as financial capital does in the physical world.
While there is a gold rush of new opportunities to be part of the new digital economy, decentralization is fraught with peril. The internet as we know it now is completely unregulated. A cartel of Silicon Valley technocrats use adaptive algorithms to drive profit off of a business model dependent on digital ad spending. This comes with an imperative to control and manipulate data to drive profits with pinpoint accuracy.
The more our lives become digitized the more norms governing the physical world will become obsolete. Free speech, for example, has been replaced with concepts like disinformation and deplatforming. Deviating from the accepted narrative is no longer tolerable. We’re seeing a proliferation of cancel culture that inevitably leads to self-censorship and the suppression of critical thinking. How can democracy, let alone our current world order, exist in a world run by algorithms and digital avatars?
One only needs to look east for the answer to that question. China has developed a social credit system within a much broader state-run surveillance network. The line between good/bad behavior is arbitrarily defined and the state can change it on a whim. The system is an easy way to empower an obedient class while slowly eliminating the idea of disobedience from society altogether.
This can and likely will happen here. The infrastructure is already in place for it. Democratic norms and values cannot exist in a digital world that is authoritarian by nature. Digital decentralization promises to be truly democratic in theory, but in practice, the people who understand the technology will write the rules of the game for their benefit, not ours.
Where Do We Go from Here?
Optimism and hope are hallmarks of a resilient society but there comes a point where optimism is blinding. Business as usual cannot persist. Deglobalization is here.
So what do we do?
We cannot change what happens in the world around us. Domestic politics are going to intensify, food and other necessities are going to become more expensive and increasingly scarce, and more conflicts are going to emerge. We can’t solve the climate crisis without the buy-in from large fossil fuel producers and we can’t install democratic norms into the emerging digital world without Mark Zuckerberg’s blessing.
What we can control is how we react to the world. We can make individual choices that improve our quality of life and choose to find contentment with what we have rather than longing for what used to be. We can disengage from social media and re-engage with our local communities. And as silly as it sounds, we can reconnect with nature and learn how to adapt alongside it.
How we navigate the world moving forward is a choice only we can make. Deglobalization is here. Will we be a victim of circumstance or learn to thrive despite it?