Whether Globalisation Is Always a Victim of Its Own Success

Answer

Globalisation is the process by which a freer flow of goods, services, capital and labour integrates the world’s economies more closely. The claim that it is “a victim of its own success” is the idea that the very forces driving globalisation forward eventually generate costs severe enough to provoke a retreat — deglobalisation. My thesis is that globalisation does generate self-undermining costs, so it is sometimes a victim of its success; but it is not always so, because its net benefits remain large and rational firms and governments adjust their strategies and policies to preserve them rather than abandon openness.

The success of globalisation rests on real, durable drivers. The foundational driver is the theory of comparative advantage: when each country specialises in the good in which it has the lower opportunity cost and trades, world output and each country’s consumption rise. Governments’ growing awareness of these gains, supported by the WTO’s successive rounds of trade liberalisation, has steadily lowered trade barriers. Two further drivers reinforce the trend: advances in information and communications technology, which let firms coordinate production and “slice up the value chain” across borders, and the dramatic fall in transport costs, which removes a barrier that once made trade uneconomic even where comparative advantage existed. These drivers are structural, not transient.

In some respects globalisation is a victim of its success. First, the global integration of supply chains raises vulnerability to external shocks. When one node breaks — the Fukushima earthquake, COVID-19 lockdowns — the whole network is disrupted, raising input prices and unit costs of production, lowering short-run aggregate supply and generating cost-push inflation.

This has prompted firms and governments to reshore production and grow domestic employment to build resilience, and commodity exporters to restrict exports to protect domestic supply — both a slowing of globalisation. Second, globalisation raises structural unemployment and inequality in advanced economies: as emerging economies develop comparative advantage in manufacturing, capital and jobs shift out of developed-country sunset industries, and occupationally immobile workers cannot move into sunrise industries. Wages fall in declining sectors and rise in expanding ones, widening the income gap. Governments respond by protecting declining industries, inviting retaliation and reduced trade. Third, intensified competition breeds unfair practices such as dumping, fuelling resentment, protectionist pressure and trade wars — the US–China conflict being the clearest example. In each case the success of globalisation generates the costs that drive the retreat from it.

But globalisation is not always a victim of its success. Despite repeated crises, the world trade-to-GDP ratio tripled to 52.1% by 2020 — evidence that the net benefits keep most countries engaged. The transfer of technology and freer capital flows deliver large gains: FDI into developing economies raises investment and AD (a multiplied rise in national income via the multiplier) and raises productive capacity and potential growth, encouraging those economies to keep driving globalisation. Advanced economies gain too — repatriated investment income strengthens their current accounts, and faster developing-country growth raises demand for advanced-economy exports, helping them recover from downturns such as the 2008 crisis. Crucially, the response to globalisation’s costs has not been wholesale retreat but adjustment: profit-motivated firms diversify rather than withdraw — the “China plus one” strategy spreads production across China and Southeast Asian economies with potential comparative advantage — preserving the gains from trade while reducing concentration risk.

Judgement. Globalisation is sometimes, but not always, a victim of its own success. Its integration genuinely manufactures the shocks, dislocation and backlash that slow it, so the costs are real and self-generated. Yet the claim that it is always so is too strong: the net benefits remain large, the underlying drivers are structural, and rational firms and governments respond by adapting — diversifying supply bases and deploying supply-side policy to create new comparative advantage, reduce occupational immobility and raise productivity, so that the costs are managed rather than allowed to reverse the process. Whether globalisation succumbs to its own success therefore depends not on the costs alone but on how well decision-makers adjust to them; given that they are driven by their objectives to do so, globalisation is more often resilient than self-defeating.