Stuart Brown, Director of Customer Experience, TeleWare

For the past two decades the term ‘globalisation’ has been the buzzword in business. It defines and describes the strategy of almost every big company, but following the financial crisis of 2008 we’ve entered a new world. A new concept is emerging, it is being referred to as the ‘gated globe’ and we have to ask ourselves – what does this mean for business?

What is globalisation?

A product of the industrial revolution, the pace, scope and scale of globalisation has accelerated dramatically, particularly in the last 25 years.  It has played a key role in the unprecedented increase in prosperity in the last 50 years, which is now spreading from America and Europe to include many formerly less developed countries in Asia, including China and India.

During this time, the twin forces of technology and economic liberalisation seemed destined to drive ever greater volumes of capital, goods and people across borders. The development of the internet allowed companies to change the way they organised production, and it increasingly allowed services, as well as manufacturing, to be globalised.

The legalisation and regulation during this time reflected the period; it was developed with a global mind-shift and supported international trade. It both encouraged the global community and allowed it to flourish.

Globalisation – good or bad?

Despite the reservations of a few, globalisation was generally regarded as a good thing. It was seen as the free exchange of ideas, people, goods and economics throughout the socio-cultural field and the environment.

When the crisis hit, firstly in America then in Europe, the absence of barriers caused it to spread rapidly. Those who had never been keen on wide-open borders were quick to criticise – this fuelled support for anti-globalisation parties.

The ‘Gated Globe’

The past five years have seen the term ‘globalisation’ quickly fall out of favour. Despite all the factors responsible for its growth – like evolution trade, telecommunications and air travel – still going strong, the concept has itself has become passé.

So what changed? It was the fact that in 2008, the globalised world of finance spawned its own crisis, one of epic proportions. It was a full-blown financial catastrophe that brought the world to its knees.

But as the world economy recovers, why does globalisation appear to still be on the wane?

Some experts have detected a stage they have named ‘new protectionism’ whereby governments around the world are reacting to the crisis and the subsequent recession by subtly erecting barriers to protect their economies.

Others have referred to this as ‘the gated globe’. Almost all countries still embrace the principles of international trade and investment. They still want to enjoy the benefits of globalisation. But they now also want to protect themselves as much as possible from the downsides, be they volatile capital flows or rolling imports. Policy makers have become choosier about whom they trade with, how much access they grant foreign investors and banks, and what sort of capital they admit. These are not impermeable walls, but they are carefully erected barriers.

These barriers include controlling the flow of capital, the introduction of stricter regulation and closer management of the flow of people between countries.

Global capital flows fell from $11 trillion in 2007 to a third of that in 2012. The decline has happened partly for cyclical reasons, but also because regulators in America and Europe who saw banks’ foreign adventures end in disaster, have sought to ring-fence and protect their financial systems. We’ve seen this in the introduction of increasing regulation since 2008, first in the UK in 2011 followed by America’s introduction of Dodd-Frank in December 2013. The rest of Europe is due to follow with the introduction of MiFID II in 2014.

A state of imperfection

I think most people would agree when I say that a few constraints on global finance are not necessarily a bad thing. Where previously the ease of cross-border lending made it possible for places like America and southern European countries to run up ever larger current-account deficits, limiting banks’ foreign-currency borrowing has in most cases been welcomed. Limiting foreign-currency borrowing makes them less likely to fail, should the exchange rate fall.

But like everything, gated globalisation also carries its own hidden costs.

Policy makers routinely overestimate their ability to distinguish between good and bad capital as well as between nurturing exports and innovation and rewarding entrenched interests. Governments must not forget the benefits of financial openness: the opening up before the crisis had done wonders for channelling capital to the best investment opportunities, lowering prices for consumers and promoting competition. Interfering with this process could reduce a country’s growth potential.

In its infancy, it’s hard to know exactly the impact gated globalisation will have… Is it merely a pause on the path to more openness, or is the real reason for its decline is simply that its job is done, that our global economy has reached new heights?

Is it on balance, a good or bad thing?

What we can see is that governments are adopting this more cautious and controlled approach to international trade, and only time can tell us what the lasting impact of gated globalisation will be.