The world is passing through some very interesting times. The very interesting phenomenon of “economic inversion” is happening. Just like the phenomenon of “temperature inversion” in which the pollutants cannot escape a layer of cool air close to the surface, causing smog, political distrust does not allow the obvious fruits of economic collaboration to benefit the world, writes Raashid Wali Janjua, Director Research at the Islamabad Policy Research Institute (IPRI).
Regionalisation and globalisation are interesting phenomena that have been experienced several times in the past. True globalisation means the economic interdependence of the nations, mainly as a consequence of the mutually beneficial and free movement of goods, capital and labour for the equitable expansion of the economic pie for all. The important indicators of economic interdependence are trade, migration rates of people, capital flows, and technology sharing across borders. The tangible metrics that could be measured to gauge economic globalisation also include tariff structure, border control restrictions on labour, and curbs on flow of capital, including foreign direct investment.
According to KOF Swiss Economic Institute, the process of economic globalisation had picked up from 1990 to 2007, but has been in decline ever since. According to UNCTAD figures, the global flow of Foreign Direct Investment (FDI) has been on the decline since 2017, indicating a sedulous rise of de-globalisation. The trend was given fillip by US Presidents Trump and Obama’s economic policies, like the “Buy American Act” and the “Pivot to Asia”, ostensibly to counter the economic and trade ascendancy of China. Groupings like the Trans Pacific Partnership (TPP) initially proposed by the USA, could not find traction due to the US withdrawal, and their subsequent reincarnations like “Build Back Better World” also remain unimplemented.
The world is passing through some very interesting times. The very interesting phenomenon of “economic inversion” is happening. Just like the phenomenon of “temperature inversion” in which the pollutants cannot escape a layer of cool air close to the surface, causing smog, political distrust does not allow the obvious fruits of economic collaboration to benefit the world. The result in the case of environmental degradation is global warming, whereas in the case of globalization degradation it is global harming. The concept can be explained through the example of two contemporary competing models of economic and security cooperation being followed by global powers. Before explaining why those models are being pursued and why they compete with one another, it is pertinent to touch upon the raison d’etre of these models.
These models are being followed because the world has moved on to become multipolar following the unipolarity of the post-Soviet era and a brief period of bipolarity. The world has several poles now, like the USA, China, EU, and BRICS. Regionalism is the ineluctable byproduct of the interaction between the multiple poles of political power in the world. It is also a byproduct of another tendency amongst nations, i. e. to move away from multilateralism towards minilateralism.
Multilateral institutions like the UN and WTO have apparently failed to resolve serious conflicts and differences between the member states. As a result, small groups which share an agenda on geo-politics and economics have started emerging.
Among the two competing paradigms of cooperation and alliance making, China and other Asian and African countries are following economic and infrastructural integration under the aegis of the Belt and Road Initiative (BRI) and economic alliances like the Regional Comprehensive Economic Cooperation (RCEP). As a reaction, the USA is promoting alliances like AUKUS, Quad, I2U2, Chips Four, and extended NATO.
Although the US had proposed economic alliances like “Build Back Better World” through the G7 forum in 2021 and has recently sponsored a India-Middle East-Europe Economic Corridor (IMEC) at the G20 forum, the tangible steps have not so far been taken; meanwhile, China has invested over $1 trillion in 150 countries for the BRI.
Regionalism or the tendency to confine economic integration to certain regions can yield benefits to its member states as well as the international community if the region does not impose unfair restrictions and tariffs upon non-regional countries in pursuit of selfish political and economic agendas. There are both good and bad examples of the concept. The good examples include the Eurasian Economic Union (EEU) and ASEAN, that created a prosperous region through internal preferential trade and then opened up to the world for trade on equitable terms. A bad example is the moribund South Asian Association of Regional Countries (SAARC) and sub-regional groupings like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTECH) that are being promoted to marginalise important regional countries like Pakistan. South Asia is the least economically integrated region, with intra-regional trade limited to 5% compared to 25% in ASEAN and 50-75% in the European Union. South Asia, for example, can never achieve its true economic potential unless it leverages its economic connectivity advantages by linking up with the Central and West Asia through natural land routes. Without Pakistan’s inclusion and peace in Afghanistan, the dream of South Asian integration into a community of prosperity and connectivity with the rest of the world will remain a pipe dream.
The world today and particularly the developing nations need a humane and inclusive mode of globalisation. Erecting tariff barriers and sanctioning competitors in the name of de-risking and decoupling is fuelling unnecessary tensions in an already anarchic world state system and preventing a common approach to combat poverty, hunger, disease and the vagaries of climate change. All nations need to respect the economic and security sensitivities of others by shunning Thucydides’ traps and avoiding a culture of security dilemmas. No single region can remain an island in itself by denying the fruits of trade, commerce and connectivity to the rest of the world. Positive regionalism evidenced by alliances and projects such as BRI, EEU, and Conference on Interaction and Confidence Building Measures in Asia (CICA) should be promoted whereas the security centred regionalism evidenced by Indo Pacific alliances like QUAD, and AUKUS to be shunned. Finally, globalization should mean interdependence and prosperity for the Global South instead of the hegemony of the multinationals and rich nations.