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Posted Friday, May 22, 2009 1:00 PM

Will the Recession Make the World Smaller?

Rana Foroohar
That’s the premise of a new book by a longtime source of mine, Jeff Rubin, the former chief economist for CIBC World Markets in Canada. I remember back when oil spiked to $147 in July of 2008, I interviewed Rubin about how nosebleed oil prices would change the world. His take was that we’d see a major rollback in globalization, with manufacturing once again being done at home, flying becoming a major luxury, and dinner plates getting a lot more bland with staples like imported salmon or asparagus no longer affordable. Basically, life would be some sort of cross between the 1940s and the 70s, with gas lines, victory gardens, newly re-empowered American working men turning out steel, cars and appliances for sale here at home.

That’s still Jeff’s take, and his new book theorizes that the recession will only speed this trend (he still sees oil rising in the next couple of years, off the back of an economic rebound in China and India). But I have to say, I have my doubts. I’ve blogged and written lots about how we’re just not seeing the sort of Great Depression style trade protectionism that would be one of the main factors in a globalization backlash. Meanwhile, the wage gap between America and Asia, which encourages companies to move abroad, is going to get bigger. According to McKinsey research, the absolute gap between Chinese and U.S. labor costs per hour is projected to increase to more than $26 in 2013, up from about $17.50 in 1996.

Jeff’s response to this would be that high oil would negate that effect by making the costs of transporting cheap goods from Asia too high. But the oil price question, which is dependant on a complex and ever-changing set of variables (including global conflict, refinery capacity, the whims of dictators, and weather) is very much up for grabs. I had a briefing at the East-West Center last week with Fereidun Fesharaki, one of the world’s top energy forecasters, and he’s betting on long-term prices of $80 a barrel. Higher than now, but not enough to turn back the tide of globalization.
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Member Comments

Posted By: Mohan_ (May 31, 2009 at 7:08 PM)

Taking off from another concept of “flattening world” (apologies Friedman), trade and movement of goods just one dimension that is impacting us due to the slowdown. There is very little (if any) evidence that the globalization of services is following the same path.

http://www.globalizationandme.com/

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Posted By: KristinaBrooker (May 25, 2009 at 1:33 PM)

Phase 1: Transitioning from the divergent free market to the

convergent knowledge economy.

The first adjustment is automatic welfare, in each bank account.

This will fix the majority of the problem with communications

about other necessary changes. It is currently very difficult to

print information about how the post free market system will be

organized because the criminal and drug offenders find it

dangerous to expect some form of welfare. For criminals to expect

welfare leads to less profitable decisions.

So until the welfare for each individual of some designated

infrastructure is approved, the criminals within that infrastructure

find news that leads to expecting such a change a problem to agree

might happen.

Kristina Brooker 126 395 086

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Posted By: kjmclark (May 24, 2009 at 9:12 AM)

Um, have you somehow missed the crash in world trade that's occurring?  I think one of the primary lessons we should be learning fast right now is that you don't have to have protectionism to have 30% reductions in world trade in the course of a few months.  For example:

"Steepest decline on record in first quarter

World trade volume during the first quarter of 2009 fell 11.3 percent below the fourth quarter of 2008, according to an independent research institute.

CPB Netherlands Bureau for Economic Policy Analysis said the decline amounted to an annualized drop of 38 percent, the steepest fall since the institute began to track data in 1991. "

from the Journal of Commerce, May 20, 2009, http://www.joc.com/node/411447

You may want to ask for an update on that McKinsey report.  Unless it came out the past week or so, it's probably using assumptions about wage growth in US manufacturing that are outdated.  The latest BLS data shows manufacturing wage growth stalling, and falling in some sectors.

And how about that rising oil price?

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