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Don’t Bash Globalization—It Will Rescue Our Economies After the Pandemic

The pundits are once again proclaiming the end of capitalism and globalization. But global production networks are highly resilient, and ready to come back online.

Workers assemble cars at the Dongfeng Honda plant in Wuhan, China, after returning to work following a months-long lockdown, on March 23, 2020.
Workers assemble cars at the Dongfeng Honda plant in Wuhan, China, after returning to work following a months-long lockdown, on March 23, 2020. STR/AFP via Getty Images

A global recession is deepening as one major economy after another falls prey to the coronavirus pandemic. China’s economy shrunk for the first time in decades—a downturn that not even the country’s notoriously rosy economic statisticians can hide. U.S. unemployment is approaching 20 percent, close to Depression-era levels. Travel restrictions have killed global tourism and plunged the oil industry into pandemonium. Auto production has virtually ceased, retail has moved online, and restaurants are closed almost everywhere.

Just about the only companies doing well out of the coronavirus pandemic are medical equipment makers, video streaming services, and Amazon.

In this coronavirus winter of our discontent, it’s hard to imagine that a glorious economic summer may be just a few months away. People are buying nothing but toilet paper, and pundits, as usual, are proclaiming the end of capitalism. Economic forecasts for this year range from sharp recession to protracted depression; the International Monetary Fund forecasts global GDP to contract by 3 percent in 2020 and the GDP of the advanced economies of Europe, North America, and East Asia to contract by 6 percent.

Yet, just as epidemiologists’ projections of tens of millions of coronavirus deaths had to be taken with a bit of caution (and perhaps a grain of salt), economists’ forecasts may also turn out to be overblown. If the worst-case scenarios prove wrong and GDP does come roaring back sooner than expected, then it will be because of globalization. Far from being the boogeyman its critics make it out to be, globalization is the reason that economies are more productive, more efficient, and, yes, more resilient in the face of shocks. As a result, we can now do more with less—and keep doing it even as the world itself comes crashing down around us.

In this coronavirus winter of our discontent, it’s hard to imagine that a glorious economic summer may be just a few months away.

The popular impression is that globalized production networks are vulnerably fragile due to their incredible complexity and easily disrupted due to just-in-time inventory management practices. In fact, much of the pandemic-related unraveling of the economy has been blamed on these networks breaking down. But this impression is completely misguided. Production networks are incredibly complex—but that complexity gives them strength, like a dense web made of delicate threads. And skimpy inventories would only threaten production schedules if an entire industry of airborne logistics hadn’t grown up around them.

Before globalization, a typical factory might have kept several weeks or months of parts in stock, just to be sure never to run out. That suppressed innovation, since it meant that any product redesign might turn expensive inventory into obsolete paperweights. In the globalization era, factories effectively outsource their inventory management to logistics companies: When a factory needs a part, it orders it. If the part can’t be sourced from its usual supplier (for example, in a China locked down by the coronavirus), the supply chain can easily shift to alternative providers in other countries. Alternatively, factories with state-of-the-art, reprogrammable machines can just shift to producing different models for which parts happen to be available.

This kind of globalization-enabled flexibility is exactly what we’ve seen in response to the coronavirus crisis. Take automobiles. When the pandemic closed down many Chinese suppliers in February, pundits predicted that global auto production would grind to a halt. They seized on the temporary shutdown of a Fiat Chrysler plant in Serbia as evidence of the fragility of 21st-century supply chains.

Read the fine print and it turns out that the Serbian plant was already scheduled to close for retooling; Fiat Chrysler didn’t expect the change in scheduling to impact its total monthly production. Then, as things turned out, the Serbian plant didn’t shut down at all—until Fiat Chrysler shut down all its European plants as a safeguard against coronavirus infection and in response to slumping demand. Supposedly fragile far-flung supply chains held firm; it was the larger economy that failed.

A few other plants around the world had to fly in specialized parts to make up for shortfalls. In Japan, Nissan had to halt production at one plant for two days due to supply chain disruptions, while in South Korea, Hyundai closed one plant for five days, and Kia closed three plants for one day. And that’s it. No collapse, no disruption—not even a slowdown until slack demand forced automakers to close up shop to prevent overstocking at their dealerships.

Tesla shut its California factory only after government orders, not because of any lack of parts.

It’s been the same story in the electronics industry. Samsung had to close a smartphone assembly plant in South Korea—not because it couldn’t get parts but because a worker tested positive for the coronavirus. It flew the parts to another factory in Vietnam for assembly there. Also in South Korea, an LG camera factory closed because of sick staff, not broken supply chains. Neither closure caused so much as a ripple in smartphone supplies. The global interconnectedness of electronics production networks ensures that no single point of failure can disrupt output for long.

Even if the output of a particular product is temporarily halted due to supply chain problems, globalization has spawned such a multiplicity of products that near-substitutes are always available. Today’s automobiles and mobile phones are some of the most complex consumer products ever made, yet even in the face of the most severely disruptive disaster since World War II, no one in the world has been denied the opportunity to buy a car or a phone due to production problems. The world’s health authorities may have failed us, but global production networks have passed with flying colors.

This gives us hope for a quicker economic recovery if and when demand returns. That’s a big if, to be sure, as long as so many people and businesses are struggling. But as soon as orders come in, production networks can be restarted at a moment’s notice. When people are ready to buy, the products will be ready to sell. That makes today’s coronavirus crisis very different from the 2008-2009 global financial crisis. That crisis began on Wall Street and infected much of the Western financial system, leaving a decadelong legacy of global stagnation. Apparently the financial system is a lot less resilient than the real economy.

Globalization has made the real economy look a lot like the internet. The internet’s distributed structure means that it can survive nuclear Armageddon intact. The coronavirus surge in internet traffic from millions of people working and studying from home has hardly dented average download speeds, let along crashed the net. The anarchic weblike architecture of the internet has proved itself much more robust than the highly regulated networks of global finance. Global production networks have the same advantage.

That’s why supposedly fragile production networks have hardly been dented by the pandemic. Local and national economies may be shut down by social distancing rules and mandated lockdowns, but global networks have kept going.

Nor have global production networks been responsible for spreading the coronavirus itself. The chief vectors have been cocktail parties, religious congregations, and tourism. None of the commentators who now rail against globalization are talking about closing Colorado’s ski slopes or Europe’s art galleries, to say nothing of the cruise ship industry. Yet the pandemic didn’t spread on the screens of Chinese-manufactured mobile phones. It spread because people like to travel, and no amount of deglobalization is going to change that.When the U.S. economy comes back online in a few months, it will find a global economy eager for its goods and ready to absorb its pent-up potential.

The globalization of production makes it entirely possible that the coronavirus recession will be over almost as fast as it came. That’s no consolation to the thousands of businesses that will go under or the millions of people who have already lost their jobs. But a short and deep recession is better than a long depression. Thanks to globalization, there will still be a global economy to return to once the pandemic winds down in each individual country.

Right now, the United States may be shutting down, but East Asia is already opening back up, and the first countries in Europe are easing their lockdowns. When the U.S. economy comes back online in a few months, it will find a global economy eager for its goods and ready to absorb its pent-up potential. That’s the magic of globalization. It can’t cure the virus, but it will help all of us recover a lot faster together than we ever could on our own.

Salvatore Babones is an adjunct scholar at the Centre for Independent Studies in Sydney and an associate professor at the University of Sydney. Twitter: @sbabones

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