Humanity is currently facing some of the most profound changes we have seen in generations, presenting us with challenges and opportunities to reassess long-held concepts, structures, and ways of being. One of the most debated topics of the past few decades has been globalisation, which has followed a particular path shaped by the interests of a global order that was already shifting prior to the COVID-19 pandemic. The question now is, with the accelerated changes taking place across the world, what will this mean for globalisation?
To address this extremely critical and timely topic, the DOC has launched a series of expert articles on the ‘Future of globalisation’. We are committed to providing an open platform for diverse views and in the spirit of open dialogue, the series will cover a range of contrasting perspectives. In this latest contribution, Alexey Gromyko provides a Russian perspective on the impacts of the current pandemic on our globalised world.
“There are decades when little happens. And there are weeks when decades happen”. The COVID-19 pandemic has proven this expression true. The pandemic has had a deep impact on politics, the economy, and public mentality. The American movie The Day After (1983) is about the world after a nuclear disaster, though there are few people today who promote doomsday visions because of the corona crisis. This time the expression ‘the day after’ typically means a return to normality, though with major adjustments. However, there is no doubt that our world, at least a significant part of it, has experienced a shock caused by the pandemic, and the impacts will be profound.
Even the most balanced attitude to the current pandemic does not nullify the direct and indirect consequences, which are similar to the impact of the Great Depression or the Great Recession. We need to distinguish between temporary changes caused by the fight against the virus, per se, and the long-term consequences. Moreover, some changes, triggered by the pandemic, will not be something new, but rather a return to ideas and solutions that already existed.
When we talk today about the contemporary world economy, we presume in most cases there are political motives. It is impossible to avoid this in modern times. With the COVID-19 outbreak, economic, technological, and information-based competition, among others, have become more pronounced. It is not surprising, as globalisation has transformed from an economic self-regulated process to a political tool used to defeat business competitors. Under the guise of economic rationale, a number of states apply a plethora of restrictions, extraterritorial sanctions, and actions that bypass the WTO with arguments based on national security interests and assumed political and military threats.
As of 2020, the key problems that caused the recession of 2008-2009, have not been resolved. The pandemic has only exacerbated these problems. The world economy is suffering a symmetrical shock, with a simultaneous decline of supply and demand. Tremendous capital injections to mitigate the consequences of the pandemic have been made, and the urgency of the situation puts the risks of new emerging financial bubbles on the back burner. Toxic debts are being accumulated again. The geopolitical competition between Washington and Beijing is escalating against the backdrop of the presidential campaign in the US. The strategic decoupling of the US and its European allies continues. In general, systemic and structural changes in international relations and in global and regional governance enhance the trends, which had become entrenched in previous years.
At first glance, de-globalisation, which is a topic of many discussions, is in progress. However, in reality we face an ongoing crisis of the ‘ultra-phase’ of globalisation, the crisis of several elements of a global world, which has been established in the last 40 years. It is a crisis of the neoliberal model of globalisation, a fiasco of economic and political neoliberalism. A key feature of the new stage of globalisation is the displacement of global integration with regional integration. Thus, regressive, disintegration processes on a higher level are accompanied by a growing demand for integration processes on the lower, regional level. For example, trade wars between the US and China or restrictions imposed on foreign investments by the European Union are a part of global disintegration. In the shadow of the new EU industrial strategy, dirigisme will grow in the European economy, market mechanisms will become more distorted, and protectionism to support one’s own competitiveness will grow.
On the other hand, additional stimuli to strengthen mutual dependence within the EU or the Eurasian Economic Union (EEU) could be achieved with deeper integration on the regional level. For example, the joint Franco-German initiative to create – under the auspices of the European Commission – a 750 billion EUR fund to provide assistance to member countries (including 500 billion in the form of grants) could become the most significant contribution due to the corona crisis to strengthening the federal elements of the EU. If such a financial instrument is set up, this will be a significant step towards achieving a Fiscal Union, and a sign of a fundamental shift in Germany’s stance on the ‘transfer union’ and mutualisation of risks. In mass media, such a shift in the position of Angela Merkel has already been called a milestone, which could secure her a place in the ‘pantheon of European statesmanship’. The pandemic has enhanced centripetal tendencies in the EEU as well. However it is too earlier to say if institutional changes aimed at deepening Eurasian integration will happen on the coattails of the fight against COVID-19.
On the surface, it looks surprising that the US and Britain – the core of the neoliberal model of globalisation – have become the main triggers of its ‘ultra-phase’ demise. But for a more informed observer the logic is obvious. In the past years, the US has pulled out of the Trans-Pacific Partnership (TPP) agreement, terminated negotiations with the EU on the Transatlantic Trade and Investment Partnership (TTIP), de-facto ruined the Iran nuclear deal, left the Paris Climate Agreement, and withdrew from the UN Commission on Human Rights. The US has also abandoned the Intermediate-Range Nuclear Forces Treaty (INF), has been sabotaging the World Trade Organization (WTO), recently stopped payments to the World Health Organization (WHO) in the midst of the pandemic, and announced the intention to pull out of the Open Skies Treaty. The US is likely to reject the prolongation of the Treaty on the Further Reduction and Limitation of Strategic Offensive Arms (New START). As to Britain, the most powerful blow, which the EU has experienced in its history, was Brexit.
The situation in the EU
COVID-19 has demonstrated the true colours of nation-states – the phenomenon of ‘national egoisms’. In fact, this is normal when there is solidarity at the local and national levels, and only later at the regional and international levels. The core role of nation-states in providing security to their society does not contradict the importance of international and global cooperation. The pandemic showed us that these contradicting trends are two sides of one coin. It is a problem that can only be solved by the mutual efforts of nation-states and international organisations. “Give to Caesar what is Caesar’s, and give to God what is God’s”: a nation-state and the WTO each do their part of the job; Madrid and Rome are responsible for one part of the problem and Brussels – for another.
Discussions about the balance between security and civic freedoms have heated up in the last months. As soon as different European countries started to lift public health safety measures in May, various civil protests flared up. These were caused by restrictions on public gathering and movement, or by worsening of living conditions as a result of growing social inequality, unemployment, poverty. President Macron’s ratings sank below 40% in April, and in May the ‘yellow vests’ resumed their actions. Protests in Spain were provoked by Prime Minister Pedro Sanchez’s intention to prolong the state of emergency until the end of June. Germany also experienced a wave of demonstrations.
The new European Commission, which commenced in December 2019, proclaimed itself a geopolitical one. One of its main goals has been to provide the EU global leadership in world trade, regulation, standards, and added value chains with the help of the Green Agenda, digitalisation, and the new industrial strategy. The Green Deal envisages a transformation of the EU by 2050 into a ‘climate neutral’ region. This cannot be done without a deep restructuring of the entire European economy. To achieve this, the EU plans to carry out several measures, including the introduction of a carbon tax on the external borders of the single market and the establishment of a Just Transition Fund with a budget of about 1 trillion EUR. Because of the pandemic and the colossal expenses in fighting it, these plans are in jeopardy. Moreover, the green economy transformation and digitalisation objectively mean redundancies and a significant growth in unemployment (although, as some hope, temporary). But the pandemic has already led to severe deterioration in this sphere. As for the new economic strategy, the EU foresees relocalisation of European industry. But it is difficult to see how this goal will not clash with the green agenda.
The situation in Russia
Regarding the situation in Russia, the aftermath of the pandemic looks no less uncertain. For example, according to the Presidential decree of May 2018, by 2024 Russia should become the fifth biggest world economy, overtaking Germany. This aim is based on purchasing power parity (PPP). If the Russian economy contracts less than Germany’s, this is one step closer. Indeed, fresh data from the IMF shows that Russia has already surpassed Germany in PPP terms. Obviously, such an approach to the assessment of the economy is not serious. The genuine indicators should be growth in real income, which has decreased by 8% since 2013; reduction of social inequality; economic diversification; and modernisation. Minimum wages, pensions, and investment in basic capital should be raised significantly and a moderate budget deficit should be allowed. It is important to look at countries such as Denmark or France, which do not provide state support to companies with headquarters or subsidiaries in offshore areas or tax havens. For Russia, it is an old and painful issue. It is a high time to begin de-offshorisation of the Russian economy.
Russia needs an effective budget federalism, a moderate progressive taxation; a radically new approach to human capital; a drastic improvement of conditions for small and medium-sized enterprises; and the abandonment of notorious optimisation of science, education, and health care.
Crystallisation of polycentrism goes on. It is still unclear which model of this new world order will dominate and what kind of new hierarchies will prevail. The pandemic has sharpened geopolitical rivalries. In terms of the deepening geopolitical divide, Russia and China are in one camp. However, it does not mean that one can ignore the widening gaps and asymmetries in their development. Russia needs to retain its geopolitical autonomy and to avoid becoming junior partner or a de facto satellite of other centres of power. For the European Union it is essential to move towards its proclaimed strategic autonomy, otherwise its ambitions will turn hollow. If Moscow and Brussels are successful in these endeavours, they will acquire much more space for maneuvering amidst the US-China competition, which is drifting towards to rivalry.