Globalization: Benefits, Backlash and What’s Next

From supply chain disruptions to debates over trade agreements, globalization is both a source of opportunity and vulnerability for businesses operating on an international scale. While supporters emphasize its potential to foster economic growth and cultural exchange, critics point to issues of inequality and job displacement. 

In this interview, David Detomasi, professor and Distinguished Teaching Fellow of International Business, provides an analysis of globalization’s benefits and backlash, and the factors that will shape our future. He explores the core components of globalization – trade, finance, manufacturing and labour – while addressing the resurgence of mercantilism. 

Detomasi also explains how Canadian businesses and consumers should be responding to deglobalization and geopolitics, unpacking the disruptive potential of the Fourth Industrial Revolution and its impacts on economies, societies and individuals. 

[MUSIC PLAYING]  

David Detomasi

00:07: What is globalization? 

Globalization, first and foremost, is a choice. It's a choice that governments have made to deliberately lower barriers to economic interchange across borders. And they usually do it across three or four realms.  

The biggest one that people know of is trade – the exchange of primarily goods across borders, primarily tariff free. The second one is money – the movement of investment capital and portfolio capital across borders as well to invest in foreign markets.  

Third is manufacturing – the willingness to relocate manufacturing facilities to places that are perhaps cheaper or have better locales. The final one, and probably the most controversial or noticeable one, is people – the ability and willingness of people to move across borders to chase new jobs, new opportunities.  

00:57: What is the extent of globalization? 

How connected is the world really under globalization? It's not as connected as people sometimes assume. It is not the case that absolutely every business is somehow reliant on foreign production chains. In fact, in the United States, the latest data I've seen indicates that about 20 per cent of U.S. firms do any international business at all. 

01:22: What are the arguments for and against globalization?  

Globalization is good for the world for a few reasons. One of them is primarily economic, and that it lowers the price of goods and services that people consume. Free trade allows you to source products that are cheaper and allows people to buy products they couldn't otherwise afford.  

Globalization is good in theory because it makes people more interconnected. It makes people more aware of each other. It makes countries that trade together tend to fight less, if at all. It tends to also be equated with things that we want to see, like democracy.  

The argument against globalization is, there are two or three of them. One, it's gone too far. Primarily, when people look at that, they see, for example, people movement. And they are worried about the cultural changes that sometimes engenders in local communities.  

Two, is a loss of economic opportunity, primarily from those to lower to middle class, who have seen a lot of their job opportunities disappear, the middle-class manufacturing sector in North America that has really not benefited much, if at all, by globalization.  

A third argument against globalization is it makes you vulnerable to foreigners. Primarily if you've outsourced something that your economy really needs, you want to perhaps have that domestically produced. We saw this during COVID when we had medical supplies that we could only source abroad. 

02:45: What is mercantilism?  

Mercantilism, put simply, is the deliberate use of state instruments to enhance states power in key areas to make their companies stronger, to make their dominance in particular industries higher, and to keep others from catching them.  

It's designed to rig the market using whatever tools you can to ensure that your companies remain ahead and others can't catch you. Mercantilism is making a comeback, largely because there is political gain to be made. But there are also real concerns because countries have always competed for power, for influence, for staying ahead.  

And the job of a domestic government is to make sure you're the one rising and not the one falling. And it broadly is “what do we have governments for?” It is to protect people, to make sure they're secure, to make sure they're safe. And only then can they worry about whether or not they're rich.  

This return to nations competing is just the way things have been for hundreds of years. It's not something to be surprised about. And it doesn't spell the end of globalization either. It just means there's going to be a new form that is a little bit more confrontational.  

04:02: How should Canadians respond to deglobalization?  

How should Canadian businesses and consumers respond to deglobalization geopolitics? One is not to be panicking. This is not strange or weird, this is a return to something that has been part and parcel of the business community forever.  

Two is not to think that the era of globalization is ending. It was never as fully integrated as we thought and it's not ending now. There are other ways that you can approach the international community and still get the vast bulk of benefits, but you just have to be aware that governments will be looking to enhance their national power. And they will be paying attention to what you're doing with that particular eye in place first.  

For example, any company that's operating in the high-tech sphere, intellectual property sphere is going to have to have security concerns in terms of how they manage their data, manage their property. They're going to be reviewed by foreign direct invest agencies with an eye towards security.  

And they have to be aware of government's increasing willingness to intervene in markets where they feel security says they should. And that can be very sudden. And that can be very drastic. So, you have to have an eye on what they're thinking.  

05:14: Are we on the cusp of a fourth global Industrial Revolution?  

The definition of the Fourth Industrial Revolution is built on the fact that we've had three previous ones, largely moving towards agrarian, to industrial, to high tech. And now what's the fourth going to be?  

And the common factor of industrial revolutions is we don't always know where they're going to go. But they usually end up someplace good. They usually end up with more high-paying jobs, more value added. The key there is to be at the forefront of those industries that might be leading.  

And then usually they are the application of knowledge in some new or creative way to solve a problem that needs to be solved by lots of people. The biggest one in my particular area is green energy, being able to supply energy that is effective, affordable, but increasingly less carbon intensive.