The global financial crisis expectations are becoming a factor in global economic development. The steps taken by major world powers amid modern economic processes should be viewed in two contexts: on the one hand, as attempts to mitigate the impending crisis through local and sectoral economic pre-shocks on a smaller scale, neutralizing part of the destructive energy of a potential crisis. On the other hand, it is obvious that global economic players have already begun to develop scenarios based on a fundamentally different global economic architecture, including the financial industry architecture.
The current situation should be viewed as a kind of civilizational fork with one branch evolving towards a post-industrial world based on digital technology and the other towards a partial return to industrialism based on the Fourth Industrial Revolution solutions with the transformation of global labor markets towards the demand for a more qualified workforce. The process of redistributing influence in the industrial world will be at the heart of the “economic end-game” of the current economic crisis.
Here are five key signs of an impending global financial crisis that will determine the nature of the future economic and political landscape.
First. Asymmetries of global economic growth. Asymmetrical economic growth will determine the nature of regionalization processes in the short term and the possibilities of regional de-dollarization. At the first stage of the crisis – the collapse of the single economic and investment space – the priority goal will be to protect the already “fenced” regionalized market segments, something Donald Trump is now doing. Further on, economic growth in regional “nuclei” and both quantitative and qualitative asymmetries in that growth will determine the prospects for (not always voluntary) accession of new economic and political agents to the nuclei.
At present, the concept of ‘global economic growth rates’ is a macroeconomic abstraction that does not reflect much. Economic growth in post-industrial economies may not even reflect strategic macroeconomic trends. But in the context of regionalization, the situation is beginning to change, generating a phenomenon described as transformation of regionalized economic growth into economic ties and interdependencies within macro-regions.
The impending crisis reflects a fight over the future format of monetization of regionalized economic growth and investment activities. The winning formats – it would be wrong to expect a single monopoly post-dollar investment format to win – will provide the framework for future global investment mechanisms. This medium-term goal should determine the specifics of Russia’s efforts to prepare for a possible global financial crisis, which at the initial stage will evolve around the rivalry over the formats of future financial and investment basis for global trade.
Second. Disintegration of global investment chains. The regionalization of economic growth and the change in the mechanisms for monetization and reinvestment of rents, primarily the resource and logistics rents, will question the relevance of existing models for reinvesting the financial resources received, around which the existing financial system was built. Its principal element was ‘investment redundancy.’
The problem of developing mechanisms for absorbing excess investment resources will be relevant even in the new conditions, especially when implementing the relatively radical scenarios of regionalization of economic spaces, which implies the emergence of numerous points of contact between regional and transregional trading systems served by specific payment and settlement mechanisms.
Third. A slowdown in social globalization and emerging serious disproportions in social development. The process has been developing for a relatively long time and manifests itself in a disparity between formal and actual indicators of living standards, which is reflected in various ratings. Another manifestation of the growing asymmetry in the development is a relevance of various alternative mechanisms for calculating macroeconomic dynamics.
The current situation is noted by a growing disparity between the consumption level and social standards, that is, the availability of a greater scope of social services and those related to the social sphere. The resources of developed nations go for retaining the high level of consumption, with the concept of absolute minimum income implemented in a number of countries to serve this purpose. This concept reflects not only the critical importance of retaining the level of consumption for sustainable development, even through sacrificing the quality of life and economic systems’ efficiency, but also a failure to form a new technological and investment cycle that could create enough high quality jobs that can be compared to common consumption as regards their economic returns.
Fourth. Production localization and regionalization. Digital technology allows for nearly unlimited opportunities for localization and customization of the production. The risks of disintegration of the existing technological chains are relatively high due to both nonpersistent introduction of elements of the Fourth Industrial Revolution and adding an extra load of political and military-political risks to economic relations. This will consistently force players in the global economic processes to simplify logistic and technological links, which may, in case of an uncontrolled growth of interregional commodity exchange risks, lead to a slower technological development and emerging relatively closed technological cycles based on the principles of national or regional self-sufficiency.
The crisis of ‘global factories’ acts a driver for reorganization of the global real sector and an impetus for accelerated reorganization of the global economy, particularly where there is an absence of a domestic market for corresponding products that can serve as a safety mechanism.
Production cost-effectiveness remains the main restrictive factor. It is based on significant social (or consumer) groups with steady consumer models that are predictable in the long-term. In other words, social stratification will almost inevitably become an element of long-term economic planning and a tool to overcome inevitably negative consequences of globalization lost in access to markets. We can expect further strengthening of the authoritative component in economic regionalization for the purpose of increasing competitiveness compared to globalized technology chains.
Fifth. Integration of the military component in the economic activity and economic competition. The growing importance of region’s ability to control risks arising in economic activity is the defining moment in the development of new economic trends. Primarily, they are operation risks related to the opportunity of access to the key tools of economic activity at the big system level (state or inter-state). This factor currently determines a state’s investment efficiency and appeal. But in the conditions currently being established globally, this is increasingly related to military and political risks, the importance of which is growing. States and coalitions of states must minimize military risks that concern national and international economic systems directly, as well as control the risks that arise during their foreign trade activities. Initially, this phenomenon started to emerge in the implementation of new logistics projects where it has already taken a certain shape – justified by the industry specifics.
The globalization model that has been relevant for the past 20 years was built exactly around this economized soft power that provided the United States with a competitive advantage. Global de-institutionalization in the economy and politics (the UN crisis, NATO attempting to take over economic regulation) is becoming a risk but also an opportunity in this context, as is the final collapse of the global economic consensus (the APEC Leaders’ Meeting in Papua New Guinea, the ASEAN Forum in Singapore).
By Dmitry Evstafiev, Professor at the Communications, Media, and Design Department at the Higher School of Economics