(soft music)
- [Batia Wiessenfeld] Thank you all for
joining us today for the last
of the spring series
of faculty insights
virtual seminars on COVID-19.
We are gonna be starting
up again on May 26th
with Aswath Damodaran
who will be moderated
by Viral Acharya,
so stay tuned for more
information on the weekly,
it will go to weekly
every Tuesday,
summer sessions in this series.
But for today, we have
an issue to focus on:
the effect of this pandemic
on globalization that has been
the object of much
inquiry and discussion
and we have two of Stern's
experts on globalization:
Steve Altman and Rob Salomon
to discuss this with us.
So Rob and Steve, thank you
so much for participating.
And I think Rob, take it away.
- [Rob Salomon] Thank you Batia and
thanks to all of you
for joining us today to discuss
COVID-19 and globalization.
Steve and I are
delighted to be here.
Steve Altman is a professor
here at NYU Stern,
where he also
leads the NYU Stern
initiative on globalization.
I likewise, I'm a
professor here at Stern,
where I've been researching
globalization-related topics
for the better part
of the last 20 years.
And so we're delighted
to share our expertise
in globalization with you.
Before we get into the
details of the presentation,
I wanted to provide
a bit of an agenda,
just so to give you a sense
for where we're going to go.
So what we're gonna focus
on at the beginning is
globalization and the
pre-pandemic trajectory.
And we'll talk about what
the pandemic has done
to globalization and global
activity in the short term.
We'll provide also
some forecasts.
And then toward the
end, what we'll do is
get into a discussion of
the longer run implications
of this COVID-19 pandemic
on globalization.
We'll talk about the drivers
of the future of globalization
and we'll touch also on
the business implications.
So, one of the debates that
we've seen on globalization
over the past month or two
is whether or not COVID-19
means the end of globalization.
And there's been a divide here.
On the one hand, you'll
see headlines that say,
oh, well, this is the end of
globalization as we know it.
Right, Forbes,
just April 3rd says
"The post-Coronavirus world
maybe the end of globalization."
And then there are others who
take a more tempered view,
suggesting that,
well, globalization is not over,
this is just a temporary blip.
And we're going to address
those issues in turn.
Now, of course, I recognize
that not everybody here
is an expert in or familiar
with globalization.
And so let me just briefly
provide some context
for the purposes
of level setting
before we dive into
the specific data.
So when you think
about globalization,
I define globalization
as the free or freer
movement of goods,
services, capital,
ideas and knowledge and
people across borders.
Now, that's sort of theory or
the idea behind globalization.
Now, how do you measure it?
And that's something that
Steve has been working
on for a long time.
In particular, he's been
working with DHL to develop
what's referred to as the
Global Connectedness Index,
where they take the idea, that
definition of globalization
and try to measure
those movements.
And so they'll measure the
movement of goods and
services with trade flows,
the movement of capital
with capital flows,
the movement of ideas
and knowledge with
information flows,
and the movement of people
with things like migration,
tourism, students seeking
education in other places.
There's one thing that I
will point out to about this,
which is that,
look, these flows
sometimes capture
some elements of each other.
So for example, when you
have students traveling
to study in other countries
that also sometimes can reflect
knowledge moving across
borders, ideas, the sharing of
information that is
part of people mixing
when they travel overseas.
So again, this is
Steve has been
working a long time
with DHL on measuring
these flows,
but I just wanted to
provide a little bit
of that background.
And also, before we
dive into the data,
there's one important
thing to stress.
That it probably will come
as no surprise to many of you
that the data we share
today will reflect
an obvious lurch downward
in globalization activity.
Now, it's one
thing to talk about
the amount of the
decline in globalization,
and another to talk about
the extent of that decline.
And so what do we mean by that?
And by the extent of the
decline what I mean to say is,
how much global
activity has declined
relative to domestic activity?
Or how much has domestic
activity substituted
for what previously used
to be global activity?
And so wherever possible,
we're gonna try and focus
on this latter part,
to what extent has
globalization dropped
relative to other flows?
And with that, I'll turn it
over to my colleague, Steve Altman.
- [Steve Altman] Thanks very much, Rob.
And thanks also to Batia,
to the rest of the team
behind this series and to all
of you for joining us today.
As Rob mentioned, the DHL
Global Connectedness Index
is calculated based on the
12 types of trade capital,
information and people flows
that are listed on the screen.
Now, we don't have enough recent
data on all of those flows
to track COVID-19 impacts
using the index itself.
But I'll use the index to
set the pre-pandemic context,
and then we'll look at
narrower sets of measures
for the COVID-19 impact.
So, here's the overall
trend line on the full index
from 2001 through 2018.
And without going into details
on how this is calculated,
the main driver of this trend
is changes in the proportion
of international relative
to domestic activity.
So, what Rob was talking about
a moment ago with respect to
the extent of globalization.
So when international trade
capital information and people
flows grow faster than
their domestic counterparts
that pushes the index up,
and when international flows
lag behind domestic activity
that pulls the index back down.
Now, what we were seeing
before the pandemic
was that globalization
measured in this way,
was not advancing as
swiftly or as steadily,
after the 2008 global
financial crisis,
as it had been
before the crisis.
But we still observed that
the world was more globalized
in 2018
than at any,
than at just about any
previous point in history.
So we were a bit off
of the all time high
that we had measured, but we
were still pretty close to it.
And just going one layer deeper,
the trade and capital
flow pillars of the index
are still below their
pre-crisis peaks.
While the information and
people flow pillars of the index
have continued to
set new records.
So to summarize the
background context,
the COVID pandemic
has hit globalization
after a period of slower
and more volatile growth,
particularly of trade
and capital flows.
But still at a time when
most globalization measures
remained close to
their all time highs.
Now, moving along to
the COVID-19 effects
on the international flows,
let's look first at trade growth
forecasts in volume terms.
So in other words, just
how much actual content
moves across borders rather than
the dollar value of that trade.
And not yet the kind
of extent measures
that Rob was talking
about a moment ago.
So the WTO, the World
Trade Organization
has prepared a range of
forecasts depending on how long
the pandemic lasts and
economic consequences.
They predict a 13 to
32% drop in the volume
for merchandise trade,
that's trade in
physical goods, in 2020.
Under the more pessimistic case,
a 32% drop would imply a
faster collapse of world trade
than even during the
Great Depression.
The latest IMF forecast,
shown here on the right,
covering both
goods and services,
predicts a smaller
11% decline in 2020.
Although the IMF also
highlights downside risks
to their forecasts.
So current forecasts call
for very large declines
in trade volume in 2020.
Now, at this point
in the presentation,
I would like to note
the general pattern
that when macroeconomic
conditions deteriorate,
trade and other kinds
of international flows
tend to shrink much faster
than domestic activity.
The WTO forecast assumes a
three to 9% drop in real GDP,
while the IMF forecast
assumes a 3% decline.
So both of these forecasts
imply trade volume
shrinking roughly three to
four times faster than output.
Now, having just shown
you the worst trade volume
forecasts to come in
since I started doing
this type of work,
I think it's useful to
try even very roughly
to gain some perspective
on these forecasts
by putting them in context,
both with trade relative to
overall economic activity
and by looking across a
long historical time period.
So this chart looks
across two centuries
at one of the most
commonly used measures
of global market
integration via trade,
the global ratio of exports
of goods and services to GDP.
After very large increases
since World War II,
this metric peaked in 2008,
and has been fluctuating
below that peak
over the past decade.
For 2020,
I'll put here and extremely
rough estimate based on the IMF,
generated based on
the IMF forecast.
And the reason that I
have to hedge so much
about this particular
number is that
it reflects both the uncertainty
of how much trade volume
we're going to have as
well as the fact that
this calculation has
to take into account
price levels of traded
goods and exchange rates
and, as most of you
would be familiar with,
we've been seeing wild swings in
the prices of some key traded
commodities, such as oil.
But as long as we recognize
the caveats around this,
and that we can't
be very sure yet
where this number
is going to land,
I think it's helpful
to see that at least
calculations based on the
data we have at this point,
would put the world exports
to GDP ratio for 2020
back roughly to where
it was in the mid 2000s.
So that's a really huge drop.
But the mid 2000s
was hardly an era of
disconnected national economies.
Most of the run up in trade
integration after World War II
would still stand even
under that scenario in 2020.
And the major forecasts
all do still call for
a rebound in 2021.
Before moving on from
trade to capital,
I'm sure many of you
are wondering about
how to think of the effects
of the US-China trade war
versus those of the pandemic.
In the preceding charts,
you've already gotten
some sense of this,
but I'd like to
dramatize how much larger
the pandemic effect
on trade growth is
by showing you how the
IMF trade forecasts
have shifted as both of
those episodes unfolded.
So what we see here is
forecasted trade volume growth
year on year for
2018 through 2021,
as it looked back
in October 2018.
Still in the fairly early
stages of the trade war.
The forecast at that point,
calls for roughly 4% growth
in all four years just a bit
faster than real GDP growth.
As the trade war unfolded
2019 was downgraded repeatedly
bu a rebound was still
expected in 2020.
Here's how it looked in
April 2019, October 2019,
and even January 2020.
And then the pandemic hit.
Here's the April 2020 forecast,
with a very steep drop in 2020
and then hope for
a rebound in 2021.
Let's move on then
to capital flows.
Starting with the UN Conference
on Trade and Development,
UNCTAD's latest
forecasts on foreign
direct investment flows.
FDI mainly reflects
companies buying, building
or reinvesting in
operations abroad.
The latest forecast calls
for a 30 to 40% decline
in 2020 slash 2021.
That's another very
striking forecast.
But I'd like to mention
two caveats about it.
First is to note that FDI,
like other capital flows,
tends to be quite volatile.
So a 30 to 40% decline
here is not as surprising
as a similar decline would be
for a measure of trade,
information or people flows.
Second, it's important to
keep in mind that FDI flows
are really not a great
proxy for changes in the
activity of multinational firms
such as their foreign
production or foreign sales.
So the FDI trend does
not necessarily imply a
real retreat from
corporate globalization.
From a capital flow perspective,
what I'm actually more concerned
about than the FDI trend
is how 2020 is going to play
out for emerging economies.
Remittances, largely money
that migrants working abroad
send back home, are an even
larger source of capital
for emerging markets than FDI.
And the new forecast from
the World Bank predicts
a 20% drop in 2020.
At the same time, emerging
markets have suffered record net
outflows of
portfolio investment.
Analysis by the Institute
for International Finance
shows that during the first 75
days of the COVID-19 crisis,
net outflows of portfolio
investment for emerging markets
were more than three times
larger than they were
during the 2008 global
financial crisis.
Fortunately, those
flows have stabilized
over the past couple of weeks.
Looking at full year
projections for 2020,
the Institute for
International Finance forecasts
that net portfolio flows
to emerging markets,
excluding China,
will be negative for
both equity and debt
but more sharply negative
for portfolio equity.
For information flows, the
third of our four categories,
we don't have updates yet
for any of our usual
annual data sets.
But my rough impression of
the data available thus far
is that they point to large
increases in data traffic,
but not necessarily increases
in the globalization
of information flows.
To show you how data traffic
has soared during COVID-19,
here are Cloudflare's estimates
of the growth of internet
traffic in 10 countries
since December of last year.
On average, internet traffic
for those countries grew 42%.
People are staying at home
working, watching videos,
attending Zoom meetings
and seminars like this one.
But how much of that
traffic is actually
international versus domestic?
We don't know yet.
But I suspect a big
part, for example,
of the increase
in online meetings
actually reflects meetings
between proximate participants
who normally would
have met in person.
So we can't assume an
increase in globalization
just based on the growth of
overall internet traffic.
Online news represents
another source of content
on information flows.
This chart shows the
proportion of page views
on major news websites
from internet users
located outside of the
media outlets' home country.
It shows January versus March
for three countries hit
hard by the pandemic:
the US, Spain and Italy.
There isn't a clear pattern of
large increases or decreases
in the international share of
readers on these news sites.
So, people are reading a lot
more news during this period.
But there doesn't
appear to be a big shift
toward or away from people
relying on foreign news sources.
In contrast, there's
even some evidence
that people might be reading
more very local news.
In the US, Patch.com's
traffic appears to have grown
more than CNN's
during the pandemic.
Finally, turning
to people flows,
international movements
of people have
largely ground to a halt.
Scheduled airline
capacity is down 90%
for international flights
as compared to 62%
for domestic flights
according to data from OAG.
But even those numbers
understate how bad
the situation is for air travel,
because they don't
take into account
how many empty seats the
airlines are flying around
or how many scheduled
flights are being canceled.
In the US, the number of
people passing through
TSA security
checkpoints is down 95%.
And here are a
couple of forecasts
for international travel
over the full year of 2020.
The International Civil
Aviation Organization, ICAO
in the chart on the left side,
is forecasting a
tremendous 44 to 80% drop
in international air passengers.
And the UN World Tourism
Organization on the right side
is expecting a 20 to 30% drop
in international
tourist arrivals
across all modes
of transportation.
And I wouldn't be surprised
if the latter forecast
gets revised downward, that
UNWTO forecasts was from March.
Since it is people
who carry the virus
from one place to
another, it seems likely
that international
travel will take longer
than the other flows to recover.
According to the UNWTO,
we're now all the way up to
100% of countries having
imposed travel restrictions
due to the pandemic and
no countries have yet
lifted those restrictions.
To wrap this up,
looking across the different
categories of flows,
I figured an interesting
way to summarize
the forecasts I've
cited, would be
to look at how far
back we have to go
to see international flows
similar to those that have
been forecasted for 2020.
In other words, how far
back, roughly speaking,
would 2020 turn the clock
back on globalization
if these forecasts
come to fruition?
For example, looking at the
top bar for merchandise trade,
a 13 to 32% drop in trade volume
would put that measure back
to where it was
between 2009 and 2013.
There are several caveats and
this isn't very sophisticated,
but looking down
across this chart,
all but three of the
forecasts take us back
to international flow levels
from between 2009 and 2016.
So, big drops versus 2019,
but generally not to levels
that most business people
haven't seen before
earlier in their careers.
And only the lower
bound international
air travel forecast
would take us back below where
we were in the mid 2000s.
So in my view, the data that
I've shared with you represent
a tremendously painful setback
for anyone whose business
or livelihood depends
on international flows.
But, as long as these drops
are followed by a recovery
rather than further declines,
they wouldn't mean the
end of globalization.
Globalization's longer
term prospects of course,
are our next topic,
for which I'll turn the
presentation back over to Rob.
Thank you very much.
- [Rob] Great.
Thanks, Steve.
And I think now, one of the
questions that we can ask,
like many who focus
on the macro economy.
As globalization scholars,
we're also left wondering
what will a globalization
recovery look like?
Will it be a V?
Will it be an L?
Will it be a W?
Or will it even recover fully?
Right, we could
envision a world where
globalization activity
increases back from its lows
where it stands right now,
but only to settle at
levels that are lower
than what the pre-COVID peaks
had been in 2016 and 2017.
And
depending on, a lot of
what we believe about the
how globalization will take
shape over the coming years
depends on some very
important issues.
And so I have my own priors,
I know what I think
is going to happen
with respect to globalization.
But I, rather than just sort
of give you my own sense
or our own sense, I'm happy to,
we're happy to address
that in the Q&A,
I just wanted to frame the
discussion and more practically,
I think the important thing is,
is there some vaccine
or effective treatment?
And you obviously can
imagine that with a vaccine
or effective treatment that
levels of globalization
will recover more quickly.
Also, with a vaccine
or effective treatment,
we can think that reopening
timelines and guidelines
will allow us to go back
to certain activities
that we engaged in pre-COVID.
Now, as a scholar
of institutions,
I actually like to think about
how will the institutions,
human-created institutions,
respond to such a crisis?
And we can think about
sort of political regimes
and the kinds of frictions
and fragility that exists
across the world.
And the policy responses
that they'll adopt
in the face of
this crisis, right?
We're all ready, I
mean the reality is,
we're already living
in an environment
of increased populism
and nationalism.
So the question here is, is
do these trends continue as
a result of the Coronavirus
or do they reverse?
And I have to say, frankly that,
I'm at maybe the most uncertain
point that I've ever been
in my career at this respect;
in some sense
I'd say, ask me again
on November 4th.
Because a lot of this will
depend on what happens
in the election in
the United States
and elsewhere
throughout the globe.
We can think about
what this means
about relations between
superpowers, right?
China, the US and the blame game
and how politicians
will respond to,
especially when you think about
the United States and Europe,
how they will respond to
China in a post-COVID world.
And as Steve mentioned,
you could think about
political stability
in emerging markets,
especially those that
are heavily reliant
on the export of commodities
or manufactured goods.
You can think about
economic policies
that will be pursued by
political administrations,
you can ask about autarky
versus interdependence.
Will we want to go it alone
in a post-COVID world?
Or are we okay going back
to pre-COVID arrangements?
And you can think
about supply chains,
just the availability of things
like PPE and ventilators.
You can ask, and
critical equipment
that's needed to
fight the pandemic.
Right, so this has
stoked sort of the
redundancy versus
reshoring debate.
Should we be outsourcing the
manufacturer of critical goods
to third countries or should
we be reshoring that activity
back and manufacturing
those domestically?
We wanna, we'll
ask questions about
do we want more
immigration or less?
And whether or not we want
more immigrants, let's say,
will immigrants, from a
supply side standpoint,
will immigrants
still want to come?
We can think about ongoing
technological innovation
and how people respond
to this pandemic.
How will people shift out the
production possibility frontier?
Will advances in robotics
and machine learning
make more reshoring possible?
Right, further affecting the
possible snapback in trade?
Will advances in 5G technologies
make remote work
more reasonable,
more desirable and
influence global flows?
And then finally, you have
to ask about public opinion.
You know, globalization
is often a Boogeyman
when it comes to blame
for bad outcomes,
economic and otherwise.
And so we can wonder,
how will attitudes change
towards globalization?
Will there be a
rise in xenophobia?
Will people not
feel safe traveling?
And something that's incredibly
important for universities
in particular, what
will all of this mean
for international students?
Will students
still want to come?
Will students be
allowed to come?
And so I think when you're
thinking longer term,
you have to ask or wonder about
the political, economic
and cultural institutions
within countries and
what the responses
will be of those
institutions to the crisis.
Just to pepper this a little
bit with my own personal view,
I believe that we will see
a rebound in
globalization activity
over the next 12 to 18 months.
However, my expectation as
of now is that we will settle
at lower levels than
the pre-COVID peak.
And with that, we'll
turn it over to questions
and open it up from here.
- [Batia] Thank you so
much, Rob and Steve
for the really
interesting presentation.
I think you guys
really helped to put
the COVID-19 implications
for globalization in context.
Suggesting that
when we consider the
what's going on domestically,
and we kind of factor
that out of the
flows that are
international or global,
that actually the picture
looks a lot less bad than it
appears when you're looking
at sort of overall volume.
I'm wondering though if you can
give us a little bit of nuance
in a couple of different ways.
One of them is
might the texture
or sort of the,
places, the texture
either regionally
or at the industry level change
as a function of the virus
in ways that are maybe
a little more irregular
and maybe more dramatic than
the overall numbers look?
So for example,
we know that there was
this trade war with China,
there's been a lot
of attention to
supply chains being
kind of fragile
because they are too dependent
on just a few players
and particularly a lot of talk
of too great dependence
on China in particular.
And so I wonder if you see
changes in the regional
interdependencies coming
out of Coronavirus?
- [Rob] Steve, do you wanna
address that one first and,
I can jump in and chime in?
- [Steve] Sure.
Sure I could comment a bit.
So,
I think it is quite likely
that we're going to see more
diversification of
supply chain sourcing.
So you can think
of so in terms of,
trying to respond, there's this
debate that Rob mentioned of
redundancy versus reshoring.
And that most of the
literature would suggest that
a more redundant,
more diversified set
of foreign sources
would be the safer way to
proceed versus trying to
work very, very
heavily on reshoring.
And so a lot of people
take the next step from
redundancy to more
regionalization.
I think it's too early to say.
So there's been a lot of
talk over the past few years
of a shift toward
more regionalization,
the idea that globalization
might be breaking down
along regional lines.
When we look at the trade data,
we do not yet see a trend
of shorter distance trade
growing faster than
longer distance trade.
So we don't yet see the evidence
in the overall trade data
to say that it's clear
that we have shifted
toward a much more
regionalized system.
On the other hand, there
are good reasons to think
that it might happen given
the nature of the political
relationships and other
considerations to it.
It's certainly a very
strong possibility,
but I would say not yet a
foregone conclusion that we
would see more regionalization
coming out of this episode.
- [Rob] And what I would
add to that is,
so I largely agree with Steve
and as a student of
institutions, what
I would say is,
as Steve was mentioning,
what my work demonstrates
is that as the,
as a response to this crisis,
what you will likely see is
increased trade and
investment across countries
that are more similar
to each other.
Right, you will probably
see greater levels
of regionalization between, say,
the United States and
the United Kingdom,
the United States
and Western Europe,
and probably less of
US and Europe with China.
For a variety of reasons related
to how their institutions
seem to be developing over time.
Another thing that I wanted
to comment on just briefly,
which I think also Steve
mentioned, was this notion of
supply chains and
redundancy versus reshoring.
And I think that one thing
that this COVID pandemic
has really brought to the
fore, is risk management.
Something that I think
people have underestimated
for too long a period of time.
We should, I think
that we should have,
when you spoke to most
folks about supply chains,
they were happy to go with
whoever had the lowest price
without really taking into
consideration that that price,
that lower price, might
come with additional risk
and they tended to
discount that risk.
And so I would expect to see
more reshoring, precisely
because people now recognize
the risk to offshoring
in a way that,
that before they overlooked.
- [Batia] So in a way, the two
of you are suggesting
almost opposing things.
So you're kind of,
where Steve sounded like
he was talking about
much more redundancy,
you're suggesting that
there's also gonna be
a shift to reshoring.
And even when there is
redundancy, it will be
with countries that
are more similar.
And so maybe,
that's kind of
somewhere in between
reshoring and redundancy.
- [Rob] If I could clarify a
little bit on that point.
What I'm saying is that
there are good
reasons to think that
there will also be an
increase in reshoring
and that it would depend on
the political sensitivity
of the industry.
So in industries that are
more politically sensitive,
I think the balance would
shift more toward reshoring.
Where it's less
politically sensitive,
more redundancy is more likely
or some combination thereof.
- [Batia] So what we've
seen, it was actually
the thing that everyone
is paying attention to,
is those industry differences.
And for sure,
the fact that we are dependent
on external production,
on global production,
for things like PPEs has
gotten a lot of attention.
But for a decade now, we
have, at least a decade,
we've been very
concerned about reliance
on pharmaceuticals
coming from outside.
And so the whole arena of
pharmaceuticals and medical
supply chains
that you're suggesting,
would be reshored.
What do you...
I'm sorry.
- [Rob] Yeah, yeah, so
I was just gonna,
I mean, you precisely
know that which is
I think in every
industry they're gonna
have to ask themselves,
what is our version of PPE?
What are those critical
inputs that we can no longer
just rely on external sourcing?
Where we would need to
have some critical supply
from either a third country,
or to reshore that and
do that at home as well.
So I think risk
management, in particular,
is going to be a bigger focus
in a post-COVID pandemic world.
- [Batia] So the redundancy, and
then you're suggesting,
sorry, that it would
be within industries,
that basically every industry
is gonna reshore some things,
but is gonna probably
maintain global supply chains
for the things that
they still can.
And though those might be
a little more redundant.
One of the promises of
redundancy is the possibility
of sharing the wealth.
We know that globalization
has been responsible for
an overall lowering of economic
inequality across countries
and sort of distribution
of opportunities.
And that there are
some countries that
have benefited more.
There's effort at looking
for where might redundancies,
where might we sort of
look for other options?
That, do you see that
potentially being beneficial
to developing countries?
That they could be
on the list of where
we would look to have kind
of backup supply chains
and sort of alternative
options to the bigger players?
Or do you see it actually
kind of increasing inequality,
like the effort that Rob
you were highlighting,
looking to countries that
are more similar to us,
that perhaps would go in
the opposite direction?
- [Rob] You know that, Steve if
you don't mind I'll jump in
and turn it to you real quick.
This is a really
interesting thought exercise
because I think that one
of the things that we
have learned about globalization
over the years is that
it truly has helped increase
the size of the overall pie,
increased economic growth and,
but the problem is that the
distribution of those gains
has been lopsided
to say the least.
Though, so if you look
at the United States,
some sectors of society have
benefited from globalization,
much more so than others.
If you look at sort of
developing economies,
developing economies
have benefited
largely from globalization.
In fact, some of the backlash,
some of the nationalism
and populism movements,
to me are more
a backlash towards the
uneven distribution
of gains to globalization.
That's in parcel
With what we've observed
with the nationalism and
protectionist movements.
Now, the question is,
if we go to a
post-COVID world where
developed countries start
reshoring things strategically,
if they start,
if they stop relying on
developing countries for
inputs then that
could be detrimental.
And I'm especially worried
about developing economies
in a post-COVID world.
Steve, I don't know how
you feel about that.
- [Steve] Yeah, I would
tend to agree that
it's kind of a double-edged
sword, there will be probably
a few countries
that do benefit from
becoming, from growth
as alternative suppliers
relative to China but overall,
the picture is concerning.
- [Batia] Yeah, I think that, sort
of on that, people are,
what we've seen is that
COVID-19 has rapidly spread
among the developed countries.
And only now, sort
of much later,
has it begun to spread
in developing countries
and it seems like the toll
is just extraordinary.
And so we expect that
the these countries,
because of the state of
their healthcare system,
because of the state of
their political dynamics,
their ability to kind of come
back into the global system
and the comfort of
the developed countries in
sort of welcoming those,
welcoming immigration flow back,
doing business with
those countries
could be much more delayed,
could be a less rapid return.
And so, I guess I mean
that's kind of a hypothesis.
I wonder what you folks think
or have you thought about
or is there any data that
might help us to address
what you think the recovery
process will look like globally?
- [Rob] With respect to the
pandemic itself,
I wouldn't consider
myself an expert as to
what are the effects of the,
from a public health standpoint,
what the effects will be
on developing economies
versus developed economies.
But I do think my hypothesis
would align with yours Batia,
which is that, my
expectation is that
developing countries would
recover much more slowly
than developed countries.
And I'm especially worried
about developing countries
who are dependent upon
specific commodities
that have taken a
beating over this list.
So those dependent
for example on oil.
In particular, you can think
about countries like that
who for them recovery
will take a lot longer
than it would sort of
for developed countries
or countries where the
economies are more diversified.
But I think that's,
a slightly different question
than globalization flows.
That's talking about comparing
global economic activity
across countries versus
sort of the flows of global,
the globalization
flows themselves.
- [Batia] Okay, some questions that
have come from the audience,
and I welcome
others to post them.
But Tom Pugel, our
colleague in economics,
is asking how quickly and how
well will we be able to see
and measure changes
in the use of
these global supply chains?
- [Steve] It depends on how we're
thinking about the supply chain.
So if you want to be
looking at, sort of the
extent let's say to which
foreign inputs are
going into production
in different countries,
these data really
come up with quite a long lag.
So we haven't been seeing the
growth we used to in terms of
more steps being added
in supply chains.
But it really will be quite
a lag before we're going
to be able to know, sort of
at that level of granularity,
how the supply
chains are shifting.
The overall data in terms
of the trade capital flows,
the much bigger picture,
measures are coming in quickly,
so we're looking at
it month by month.
China had surprisingly
strong trade data for April,
but I'm afraid that's
probably going to be a blip.
But so it varies across
the different metrics.
But in terms of the
actual reconfiguration
of supply chains,
and I think it will take
us quite a bit longer
to know what's really happening.
You hear a lot of anecdotes,
but it's hard to
actually quantify
what's happening
in the aggregate.
- [Rob] And
- [Batia] Go head.
- [Rob] Yeah, Tom, I know
Tom this doesn't
precisely answer your question.
And I differ to Steve who
has been measuring the supply
chain and trade flow
data for quite some time.
But I will think, I think that
something that will give you
an indication of how just
generally globalization flows
will start to evolve
is come September,
when we see how students,
foreign students are able
to attend or not
attend universities.
And that will give us, I
think, our first glimpse
or our first indication
of what the longer term,
how long it will take for
these globalization flows
to change or to
recover, let's say.
- [Batia] That's interesting,
'cause arguably,
the reason for the
internationalization
of education
is the internationalization of
business, of global activity.
That basically people want to
have this global experience,
global educational experiences
in order to prepare them for
careers that are inherently,
that they expect to be global.
And what you're
suggesting is that maybe
it can go in the
opposite direction.
And certainly we know that the
more experiences people have
internationally, the more that
they basically seek those out
and help them drive
global activity.
But I think if people
are making predictions,
sort of in the short term,
is it possible that basically
students are thinking
about the likelihood
that they will be able to
stay in the US for a job
and using that as a decision
determining of where they
want to get a degree from.
So I guess that you can
go in both directions.
- [Rob] Right and I would say that
there are sort of two ways
that you can think about sort
of the student aspect of this
is that one, you can think
about this at a policy level,
which is, why do countries
allow foreign students
to come in and study?
At least for the United States,
part of that was
to attract talent,
and not only to attract
talent, but to keep talent.
So if you look, I think it's
over the last 30 years or so,
people who've come to
study STEM subjects
in the United States,
foreigners who've come to study
STEM subjects in
the United States,
90% of them are still
in the United States
10 years after their degree.
Now, for individuals, the
why part of it is driven by
oh, maybe I wanna go to a place
that has greener pastures,
but it's also where
can I skill myself up
and make myself the most
competitive possible
resource in a
global marketplace?
So I think it just depends
what level of analysis
we're thinking about when
it comes to students.
- [Batia] Globalization affects our
societies in so many ways,
and education is
just one of them.
Arguably, globalization
is part of what has led to
a disproportionate
opportunity being concentrated
in larger metropolitan areas,
those larger metropolitan
areas are the more globalized,
sort of global, they're
the boundary spanners of,
where there's more of
these global businesses,
global industries concentrated.
And so if we, one of
the questions that came
from an incoming MSBA student
is raising whether we
expect that there might be
sort of a COVID-19
decrease in urbanization
which has certainly been on
the increase for decades now,
and it's just extraordinary how
much urbanization has grown.
Might we see a stepping
back on urbanization
and kind of the links
to globalization
that go along with that?
- [Rob] So that's a really
interesting question.
And this is sort of, I guess,
a little bit of on a side,
not specifically related
to globalization.
But I was reading some work
from a sociologist friend
of mine the other day
who pointed out that when
suburbs were first created,
suburbs actually were
created in part to get
people away from sicknesses
that occurred in the cities.
That part of the reason suburbs
were created was because,
I can't remember the
gentleman's name who
is largely attributed with
having created the suburbs,
but it was outside of London
and the idea was to
get more green spaces
because there were,
was tuberculosis going
around in the city,
there was cholera.
And so if we believe that
density, like living in a city,
drives sort of the
contagiousness or the
transmission of Coronavirus,
there could be something
to that hypothesis
that in a
post-Coronavirus world,
people will not want to,
or will have a desire to
live away from cities again.
I don't think, I mean
it all depends how long
this episode lasts.
I don't think that
that will happen.
But that is one
potential extreme outcome
if this crisis persists
for longer than we expect.
- [Steve] If I can jump in on that, I
think it's important that we
don't overplay the
role of globalization
in these kinds of patterns,
which is urbanization,
inequality, and so on.
And to remember that
the vast majority
of the economic activity
that's happening
around the world is domestic,
and that that's especially true
in a large country
like the United States.
The US actually, among
advanced economies,
ranks last on imports
relative to GDP.
If we look globally, still
only about 3% of people
live outside of the
countries where they're born.
So, sometimes there's a bit
of a temptation to think,
okay globalization is
a really big trend,
it's driving a lot of
these other developments.
But it's important, I think,
to also be looking at the
numbers and to recognize
that most of what's happening
internally within countries
is still domestically driven.
-[Batia] Okay, one of the
things that both of,
that's a very important
and useful reminder.
But one of the
things that Rob and,
at the end, in your final slide,
you were kind of talking
about political activity
as being one of the drivers
of how the reshaping
of globalization is
likely to emerge.
And, we've definitely seen
that the US relationship
with China, you even
highlighted that
in November we'll know a lot
more about what globalization
will look like in an
acknowledgement of the
political relationships.
And I think we've
got a few questions
that are asking about
how might these,
we've certainly seen
relationships across nations
be strengthened, or
in many cases tested,
in response to this crisis.
And I wonder if you see
it potentially reshaping
the structure of these
global supply chains
and the structure of
globalization going forward,
if you see there being
potential winners and losers.
So for example, we've
got a question about,
do we see a shift
from China to India
or other kinds of changes?
Is it driven by
political activity?
Is it driven by
other activities?
Who are gonna be the winners
kind of coming out of this?
- [Rob] So I saw that question,
the question about,
do you see supply chain
shifting from China to India
in a post-Coronavirus world?
And my answer is actually no.
Not because supply
chains won't shift,
but if anything,
if they do shift,
my expectation would be that
not that they shift
from China to India,
but that they shift from
China to other countries
like Vietnam or,
South Korea or to other
locations in Asia.
Because when you
think about India,
India hasn't always
been incredibly
foreign investment-friendly.
There's a lot of
local protectionism
already inbuilt into
the Indian system.
Beyond that,
part of the trouble, part
of the problem with India
is it doesn't really have
the infrastructure in place
to support the kinds
of global supply chains
that large multinational
organizations require.
So I wouldn't see a shift
from China to India,
if anything, I would see a
shift from China to Vietnam,
let's say as an example,
and with some redundancy
and reshoring, et cetera.
So that would be my expectation.
Steve, I don't know
how you see it.
-[Steve] Yeah, I think that's likely.
And distance also matters
quite a lot in terms of,
we see a lot of
regional supply chains,
a lot of regional trade.
And so proximity, China is
still going to be very important
base and you have kind of
the East Asian system there
that will continue
to be important,
even if its geography changes.
- [Rob] And, with respect to
the political question,
I think we'll know more
on November 4th, right?
At least with,
I think so far as the
United States is concerned,
we'll have a better
sense for whether
these nationalist,
populist movements
here in the United States
will continue to grow.
And I think that if
Trump wins in November,
that it signals an
increasing in protectionism
and nationalism.
If Biden wins in November,
my expectation is that
globalization will revert back
to something that looks like
what the pre-COVID
pandemic era looked like,
but at a lower level, not
sort of at the peaks that we
experienced in 2016, 2017.
- [Batia] It is really ironic
that for the first time
arguably the whole world
is in the same boat.
We're all dealing with
the exact same threat
and have so much, potentially,
to learn from one another.
And this is a moment
where instead of that
collaboration happening,
we are seeing all the
activity happening
at the national level.
I guess I'm kind of
wondering whether you see
multinationals playing a role in
a shift away from that
putting off the borders?
What would drive that shift?
Would it be academics,
would it be multinationals?
Like where do you see it
feels like from the outside,
the thing that would make,
that would bring us together?
You know, psychologically,
one of the things
that brings people together
is having a common enemy,
having a common challenge
and a sense of common fate.
And we have that in
the world right now,
in a way far beyond what
we've ever had before.
But that's not what we're
seeing as the response.
And I'm just wondering if
you foresee that changing
and what would it, and who
would be the players that might
enable that change?
- [Steve] From the standpoint of
multinationals, I think,
multinational firms do
have a constructive role
to play here.
And I think to the extent
that we're seeing that
there's a lot that continues
to work in terms of
the international supply
chains and the extent
to which companies have
managed to keep the flows of
goods going and part of that is
coordinated through
multinational firms.
And so they have been
making a contribution,
I think they can
continue to make
important contributions
as entities that can
work across these
different divides.
I think it's also important,
however, to keep in mind
the internal stresses
that this crisis
puts on multinationals.
From a management
perspective, not only are they
suffering from the
fact that they can't
move people back and forth
to have in-person contact,
like they had before,
but they're also struck.
You also have internally,
the same kind of politics
that plays out the
stresses between countries
happening at the same
time that they're facing
greater business stress.
So, multinationals can play
a very constructive role,
they can help
harness capabilities
that are located across
different countries.
But we need to also recognize
the internal stresses
that that places on
them managerially.
- [Rob] Yeah, I agree.
I think that multinationals
do stand to play
an important role
in the COVID crisis
precisely because,
as Steve mentioned,
they do have a presence in so
many jurisdictions that they
can keep a pulse on what's
going on on the ground,
they can share information
with those who might not be
aware of what's happening
in different locations.
But, and there are myriad
ways in which multinationals
can help be part
of the solution to
the difficulty that we're
facing during COVID-19.
But one thing that I
would like to stress
and you've mentioned
this as well, Batia,
is this notion of
policy coordination.
Is that, right that
the COVID pandemic,
it does not
discriminate by country,
it doesn't, at some level,
it's a human problem.
It's a common enemy
that we all face,
it's not a US problem,
it's not a Spain problem,
or an Italy problem
or a Brazil problem,
it's a world problem.
And so I was heartened
that last week Singapore
convened a group of
countries that pledge to work
in a coordinated manner
and share information
with respect to Coronavirus.
One thing that I did notice
was that the United States
was conspicuously
absent from that group.
And so it's interesting
because again, as I mentioned,
I think I mentioned this
during the presentation is that
globalization tends to be
one of the first Boogeymans
and one of the first things
that is blamed for bad outcomes,
whether its economic
or public health.
But here is an opportunity
for us to galvanize
and to coalesce
around a common enemy.
But from a policy perspective
we're missing that opportunity.
- [Batia] So we have a question here
that's really interesting.
And unfortunately, it doesn't,
it seems like at best,
we'll change that in November.
But it's, we have a different
question in a different
direction is sort of
thinking about the
thinking about your emphasis
on how information flows
were a key driver
of globalization.
And recently that was really
where you were seeing a lot of
the increase you were also
seeing it in people flows,
but the information flows
was the most impressive.
Rob's example of sort
of how maybe there is
gonna be some information flows,
particularly in
resolving this crisis,
though maybe the US is
gonna be left out of that.
But I guess does that
suggest that there will,
the benefits of the next
era of globalization
will be realized more
by the more skilled
or the less skilled workers?
- [Steve] I think there's a really a
great deal of uncertainty.
I wish I could provide
a clear answer.
So up until let's say about
three or four years ago,
we were clearly seeing
international information flows
strongly outpacing the growth
of domestic information flows,
driving that upward trajectory.
We've seen a big slowing
of that in recent years.
And so we don't yet know
the key drivers of that.
So part of it is a
big increase in the
growth of domestic
information flows,
all of what's happening with
the trends in digitization.
We're also seeing,
on the other hand,
data localization policies
being embraced in a
variety of countries.
So there's a lot of
this background activity
going on in the world
of information flows.
And I think, I wish I could
give you a clear answer,
but it's really quite
uncertain the way
that's going to play out.
- [Rob] And then if I come back,
what was the second portion
of the question again?
It had to do with...
- [Batia]The winners and losers.
- [Rob] Oh the
winners and losers.
Right so if you think about it
the traditional winners
and losers have been,
if you look at the data over
the last 20 or 30 years,
up until this point, the
winners and losers have been
high-skilled labor in
developed countries,
high-skilled labor in
developing countries
and to a lesser extent,
low-skilled labor in
developing countries.
And so the question is,
is to the extent
that we believe that
populism and nationalism
will increase as a trend,
then you will see
that there is a,
there will be a decline in
high-skilled winners
in developed countries,
and likely a decline in
the low-skilled winners
in developing countries.
That would be my expectation.
But again, that's predicated on
- [Batia] That's interesting.
- [Rob] Increasing nationalism,
increasing populism
versus a trend
toward the reverse.
- [Batia] Right, which would be
driven by the factors that
you mentioned in
your last slide,
those that you've
kind of listed.
So here's another question
that's coming from
an incoming MBA student.
And basically, it's,
it is interesting is kind
of highlighting many people
have observed that it
feels like COVID-19
is today's kind of global
crisis that we all share.
And that climate change arguably
is sort of gonna
be very similar.
We could be in this situation
in terms of climate change
that we are right
now where we realize,
wow, by the time we've woken up,
it's too late to do anything.
And the interesting
thing is that
there's a connection
between these two crises,
because the decline
in economic activity
has allowed us to
see just how much
the climate has changed and
to restore, sort of repair,
some of the damage as the
economic activity has gone down.
And so I guess the question is,
what do you think will happen?
You also brought up
oil prices going down,
which might have very
perverse effects,
potentially setting back
climate change efforts.
And so I wonder what you think
about and this question is
kind of addressing what do
we think is gonna happen
in terms of climate
change and sustainability
on a global level?
And how will that play
into our recovery?
- [Rob] That's an
existential question.
I think, so yeah, so I
mean, you're right, I mean,
what we've observed with the
decline in economic activity
throughout this pandemic,
is we've seen a reduction
in carbon emissions,
we've seen a reduction
in pollution levels.
So, but the question is
what does that mean
for sustainability
and climate change
mitigation moving forward?
I'm not a sustainability expert,
So I feel a little bit out
of my comfort zone here.
The thing that I would
say and I think Martina
asked this question, I would say
Martina, for your generation,
this is the existential
question, right?
And it's your generation
that will determine
in which direction we go.
One of the things that
we've learned through this
pandemic is how important
coordinated policy is.
One of the things I've learned
is how important
coordinated policy is.
And not just with respect
to the Coronavirus pandemic,
financial crises require
a coordinated policy
and I also believe that climate
change and sustainability
will require a
coordinated policy.
Is there the political,
institutional will for that?
I don't know.
Right now, and I'm, again,
I'm not expert enough to
wade into that discussion.
But Steve, I differed if you
have anything you
wanted to add on that.
- [Steve] I would just again look at
it as a powerful illustration
of the value of cooperation
and how important it would be
to try as we can to rebuild
some of these bridges
between countries.
- [Batia] Thank you both so much for
really a wide-ranging
discussion.
And you recognized that this
issue of globalization really
tees off so many other
connected issues.
And I really appreciate
you bringing this insight
to us in this series.
Thanks again.
- [Rob] Thank you.
- [Steve] Thank you very much.
(soft music)
