The world today is dramatically different to the world we lived in just a few weeks ago. In the wake of the tragedy in Ukraine, Russia is being isolated by harsh sanctions. Some of the major tenets of globalisation, such as multilateralism and free trade and investment, had already been under scrutiny. From Covid-19 to the war in Ukraine, global affairs have further accelerated these trends.

Mike O’Sullivan, an economist, investor and author, speaks to fDi about the next phase of globalisation in the light of the end of globalisation and the rise of a new values-driven world order, with the multipolar system replacing the existing global liberal order.

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Q: Could you share your perspective on the end of globalisation?

A: We’ve had globalisation since the fall of communism. It’s been a real force for good around the world and it’s now coming to an end, with events such as Donald Trump’s trade wars, the snuffing out of democracy in Hong Kong, the stress test of Covid-19 and now, of course, the invasion of Ukraine.

Q: The West is trying to isolate Russia economically, financially and politically because of what’s happening in Ukraine. Russia is not the most globalised country, but it certainly plays a key role in value chains such as energy. How do you see this war accelerating what you consider the end of globalisation?

A: Some of the key components of globalisation have been building up over the years, such as deflation and global supply chains. It has allowed deflation to be exported around the world and a commoditisation of many things. The fact that we’re seeing the end of low inflation should not be a surprise, and tells me that globalisation is ending.

The complexity and the stress we’re seeing on supply chains and energy also suggest that the old, globalised orders are coming apart. In Russia, there are a few things president Vladimir Putin has said in recent years: he believes in the end of the liberal world order and says we’re heading towards a multipolar world.

The difficulty with that is, to be a proper sort of world power in a multipolar world, you need soft power, a strong economy and robust financial system. However, Russia has none of those. As of today, the country has zero soft power and is not an economically powerful country. It’s also an interesting example of the rise and fall of nations — something that’s going to be more and more prevalent in this end-of-globalisation type world.

Q: Mr Putin told the Financial Times in 2019 that "the liberal idea" has "outlived its purpose". What do you think the main central powers and values will be in this future multipolar world?

A: One contrast between the old, globalised world and the multipolar world is that everything is currently integrated and interconnected. We’ve had one system for a while, which we call the ‘American liberal system’. As globalisation comes to an end, what we’re going to see is a multipolar world dominated by the US, the EU and China-centric Asia. 

My thesis is not so much that they’re all big and powerful in different ways, but rather they will increasingly have different ways of doing things and expressing themselves.

Think of the internet as an example. In 2006, Google had about 30% market share in China. China now has completely closed off its internet to companies like Google — you can’t use Gmail in China. The government tightly controls data and freedom of expression on the internet, and at the same time, it has a huge e-commerce industry.

In Europe we don’t yet have an e-commerce at that scale yet, although it’s growing very quickly. We also don’t have big digital companies in Europe. The emphasis here, as a social democracy, is on protecting people and protecting their data. In the US, the big internet and social media companies make up 25% of the market cap of the US stock market. So, there, it’s a financial phenomenon as well as a commercial one.

More broadly, I expect that in the next five to 10 to 15 years, each of these regions will have a different approach to things like military spending or strategic industries like data, semiconductors and banking regulation. Some of them will collaborate — the greatest scope for collaboration is between the US and Europe. But effectively, we’re now away from this tidy world of globalisation.

Q: Do you think this could shift power away from the dollar to alternatives, particularly Chinese renminbi, or would China be reluctant to pick up the slack?

A: The fact that China has got maybe 2–3% of the world’s foreign exchange market share, the US has got about 56%, Europe 28%. This tells us a different story: that the euro is the next candidate to be the second reserve currency.

The area where America has got the greatest superiority to China is in finance, and the role of the dollar and the dollarised financial system. Also, China and Russia are not as close commercially and culturally as people think. So, there would be some resistance to China effectively taking over as Russia’s main trading partner. That tells me that for the foreseeable future, the international role of the renminbi would be limited.

The Chinese economy hasn’t had a real recession in some 20-something years, and is very indebted. As part of its financial development, China needs to get over the hump of that indebtedness to prove its competence as a bigger player in the global economy.

Q: Do you expect that competing blocs will lift further barriers to Chinese investment to limit their capacity to extend their sphere of influence?

A: Broadly speaking, I do. We’re in a world where companies and countries must take sides with the value system they feel closest to. A good example is Poland, which, in the past two years, has been drifting away from the EU’s values for different and complex reasons. This really puts Poland in a place where it can take a very impressive leading role in the emergency and the humanitarian part of the Ukraine crisis, alongside Nato and the EU.

Other countries that seem to want to be closer to Russia, such as Serbia, now run the risk of having their EU candidacy cancelled. So, companies and countries will have to choose. And I think countries around China will increasingly be aware of the negative side effects of having deep economic and financial relations with China. 

Q: How do you assess the wide range of companies that have been hailed as the ambassadors of capitalism diplomacy after announcing divestments from Russia?

A: These international companies have business models that are highly consumer-focused and driven by rapid movements on social media. Such companies are much more sensitive to public opinion, so many of them feel they must react quickly. These are also companies that are socially responsible and there is a sense in the corporate world that companies need to take sides for moral and political reasons.

The other interesting thing about the world that replaces globalisation is that we have institutions that will tackle the problems of cyber crime, cyber security and climate change. These problems will need the expertise and data that companies will have, but government organisations will not. So, I see a world where large companies have an opportunity and an obligation to become more involved in the problems of the world.

Q: How does investment in bitcoin, smart contracts and countries such as El Salvador adopting that currency relate to this multipolarity?

A: By adopting bitcoin in El Salvador, the country is going the other way. The whole idea of cryptocurrency is that it is decentralised. However, crypto will have to reconnect to the world. People must eventually take it out to have exchanges, and all that infrastructure cannot be independent. Therefore, I don’t think crypto can remain completely independent of the old system.

Jiyeon Go contributed research for this interview

This article first appeared in the April/May 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.