In recent years it has often been said that globalization has come to its fall, or at least has been reversed. Indeed, the reversal of globalization processes has reached an impressive scale: from record-beating levels of protectionism in trade to a competition of currency devaluations, sanctions, restrictions and migration crises. A regression is noticeable in every sphere of the world economy from trade and investment to migration processes, from the movement of goods to the flows of capital and labour.

Globalization has come to a deadlock, but as humanity embarked on a search for alternative development paths, a sort of “reboot of globalization” started.

Globalization and global growth

There are various indicators to define globalization, but the most illusstrative and widely used criterion is that trans-border economic cooperation should grow at higher rates than internal economy does. In other words, globalization advances, if international trade growth rates or trans-border investment growth rates exceed the global GDP growth rates.

According to the World Trade Organization (WTO), in 2012 – 2014 world merchandise trade grew only 2.4 percent, which is the lowest rate on record (for the periods when the world trade grew for three consecutive years). WTO forecasts that in 2015 – 2016 the world trade will increase by slightly over 3.5 percent, which is lower than the average rate for the last 25 years. What is more, its growth rate will only marginally exceed the global GDP growth rate.

One can hardly be surprised at such dynamics, as the major world economies, including the advanced countries have considerably expanded the use of protectionist measures against the backdrop of global growth slowdown. According to Global Trade Alert (GTA), since the financial crisis of 2007 – 2008, the levels of protectionism in the world economy has been unprecedentedly high.

The situation of the trans-border investment flows is even more deplorable. According to UNCTAD, in 2014 direct foreign investments (DFI) fell by more than 16 percent, while in 2008 – 2009 it plummeted by over 20 percent. UNCTAD forecasts that as a result, even by the end of 2016 global DFI flow will remain below the 2008 level.

The volume of mergers and acquisitions (M&A) reduced by 39 percent in 2014 and reached the minimum since the beginning of the world financial crisis. It is evident that unlike previous decades, after 2008 the growth rate of trans-border investments has lagged far behind the global GDP growth rate.

Protectionism enhanced considerably in the regulation of trans-border investment flows. In 2010 – 2014 the number of countries imposing restrictive measures doubled as compared to 2000 – 2004. It should be noted, however, that in 2014 the situation in investment protectionism changed, with both the measures themselves and the number of countries that applied them, reduced.

Globalization: losing the footing

Among international economic organizations, WTO stands out as a vivid example of the reversal of globalization. Unable to get over the differences between the advanced and the developing countries, especially in matters of curbing protectionism in agriculture, this organization has been in a profound crisis for some decades. This hampers the opening of the markets and the commencement of further rounds of world trade liberalization. The leading economies increasingly often opt for establishing regional trade blocs that pursue the policy of exclusive trade liberalization for the select group of their members.

The IMF and the World Bank are also facing major challenges. With ongoing crises the pressure on these bodies (especially the IMF) has grown considerably, which necessitates additional resources. The developing countries are not satisfied with the advanced Western countries’ domination of the IMF and the World Bank, and opt for establishing their own international organizations. A transformation of the global financial architecture accompanied by the emergence of new international financial structures would inevitably cause the reformatting of globalization, and the alteration of the pace and the direction of this process.

At the regional level, globalization was especially intense as a result of enhanced economic cooperation between the United States and China. Today it is obvious that this alliance slackens giving way to the Trans-Pacific Partnership (TPP) established by the United States and comprising neither China nor Russia as its members. Chinese economy itself has been adjusting its course to liberalization, including the liberalization of capital flows, partly due to the fall of prices at local financial markets. All of this happens against the backdrop of gene­ral slowdown of Chinese economy, increased volatility at global financial markets, which, in its turn, affects trade and investment flows on a global scale.

Besides China, there is another driver of reversal of globalization processes in the global economy. I refer to Europe. While in previous decades thanks to integration processes within the EU this region was one of the main drivers of globalization, today it shows more and more signs of disintegration. It would be enough to cite the referendum on the EU membership scheduled for this summer in the UK, migration problems, limited application of the Schengen agreement, and the issue of South European countries’ debts.

Even the United States, for all the seemin­gly good economic growth rates, have faced difficulties. The US markets and dollar are no longer perceived by the investors as the “safest haven” in the world economy. As the Federal Reserve System raised the rates, there have been increasing concerns that the US stocks market might have been overestimated, while in macroeconomic policy the US itself apparently has problems with overcoming the phase of quantitative easing. There emerges a situation in which the world economy and consequently the globalization loose footing and reference points.

Globalization: sectoral actors

Among sectors, the key actors of globalization of recent decades are facing a downturn. This primarily refers to the banking sector. After the crisis of 2007 – 2008 government regulation has been drastically strengthened in financial sector. It was reflected first and foremost in the Dodd-Frank Wall Street Reform and Consumer Protection Act that limits the banks’ speculative financial operations.

The problems facing European banks, including the tight situation of Deutsche Bank proves that it will take long to clear the path towards revitalization of Europe’s banking sector.

No doubt, the process of globalization is far from sustaining defeat everywhere. There has been growth in the field of information technology, academic cooperation, the spread of regional integration alliances. Yet even in areas where globalization appears to reach new heights, one can note a more mixed picture at closer look.

One can cite as an example the advance of regional integration arrangements. In 1948 – 1994 GATT (that preceded WTO) registered 124 notifications on the establishment of such associations. After WTO was established in 1995, the number of such notifications exceeded 400, and today the total number of regional arrangements stands above 600.

The establishment of such integration groupings should apparently promote the growth of transnational trade and investment flows. However the advance of regionalism has its negative sides as well. Those are related, inter alia, to the so called trade diversion from the countries and regions that were left outside the integration grouping. In other words, while the members of integration groupings benefit from redirecting trade and investment flows in the world economy towards themselves, other regions may lose such flows.

There is also another risk related to advancing regionalism. I refer to undermining the role of WTO in the regulation of the world trade. As hundreds of regional associations emerge, the countries become less interested in using multilateral trade liberalization regimes, opening their markets on preferential and exclusive basis. The crisis of WTO is to a large extent caused by the active advance of regionalism and the advanced economies’ opting for preferential agreements in the situation where a more equal balance has been reached between the advanced and the developing members of the organization.

Globalization: reasons for regression

What is the reason for the crisis phenomena in the world economy and why the globalization process fails?

Almost all of the failures of globalization, both in the area of migration and in the sphere of trade, have been brought about by imbalances between the advanced and the developing countries. Many economists believe that the world financial crisis of 2007 – 2008 was triggered by the so-called global imbalances, primarily excessive consumption in the advanced countries and high levels of savings in the developing Asian countries, most importantly, China. There remain differences with regard to advanced and developing countries’ representation in global institutions. In the world trade there are still differences to be addressed related to the opening of the markets of services and agricultural products. The key factor of the migration crisis is a large wealth disparity between Europe and the developing countries of the Middle East.

The disparity of income both within a state and between countries is a major factor hampering globalization processes, as it slows down economic growth. This is one of the findings of a 2015 IMF research (Era Dabla-Norris et al, Causes and Consequences of Income Inequality: a Global Perspective, IMF, 2015). According to IMF economists, if the income share of the low- and medium-income population increases by 1 percentage point GDP growth in the following five years is almost 0.4 percentage points higher. Instead, a similar increase in the income of the more wealthy population groups is associated with a GDP growth almost 0.1 percentage points lower. What is more, the disparity of income in the OECD countries has reached a record-breaking level since 1980s.

The regression of globalization can very well turn out to be a temporary step back before a new wave of globalization in the decades to come. However, the question of how globalization evolves in longer terms remains largely open.

In a research examining the evolution of this process during last centuries (Trade Globalization since 1795: Waves of Integration in the World System, 2000) researchers from Johns Hopkins University ask themselves a question whether trade globalization is a recent phenomenon, a long-term upward trend, or a cyclical process. They concluded that first, there is a long-term trend towards strengthening of globalization processes, and, second, that the process of globalization is cyclical and has downward periods that alternate with upward periods.

Between early 19th and late 20th century the researchers identified thee waves of globalization: from early 19th century to 1880, from early 20th century to the Great Depression, and the second half of the 20th century. Interestingly, as the globalization trend reached its peaks, that is, in the early 19th century and in the middle of the 20th century, the world economy went through the stages of reformatting, creating a new global architecture (the system of congresses of the early 19th century, and the Bretton Woods system of the middle of the 20th century). Despite the conclusions presented in this research, so far there has been no statistical proof that the globalization is cyclical and that the temporary downturn will be followed by further development of globalization. Indeed, the statistical data has been recorded for too short a time, and the number of registered stages of the cycle is too small.

Strictly speaking, with the experience of the development of the world economy that has been accumulated, one cannot completely discard the possibility that rather than a temporary downturn, we are witnessing a full-scale decline of globalization processes and the long-term return to the national states paradigm in both world politics and the world economy.

At the moment one can say for certain that just like in the 19th and the 20th centuries, in the 21st century the globalization process is far from destined to grow constantly. It can go through dramatic and painful regressions. The current downturn is to a great extent caused by the world economy responding to the unsustainability and asymmetry of globalization that features imbalances between the advanced and developing countries. Our today’s task is to learn from our experience and send globalization along a path of greater sustainability which would not take the world economy to the dead end of a preset ‘consensus’, but create conditions for the divergence and coexistence of diverse national economic systems.