Where are you headed, globalization?

The path globalization had followed over the past decades has come to an end. The rise of regional powers and the growing protectionism foreshadow the changes to come. Will the world become multipolar or will we witness the end of globalization? In its recently published "Getting over Globalization" report, the Credit Suisse Research Institute advocates avoiding the darkest scenario and taking the road to multipolarity.

This year seems to be destined to open a new era in the history of globalization. Various events of 2016 seem to have marked the end of a long phase of globalization driven largely by western multinationals, markets and laws, combined with the startling rise in wealth in emerging economies. Taking into account flows of trade, people, finance and media, the Credit Suisse Research Institute's "Getting over Globalization" report analyzes three potential routes:

1. Globalization continues along its well-trodden path;
2. The world becomes multipolar;
3. We witness the end of globalization.

Scenario number one suggests that the western multinationals, law and institutions continue to shape the world, the US dollar remains the dominant currency, and trade expands. While this scenario offers some reassurance on the possibility of the world staying the way we have known it, it does not seem highly probable. Globalization seems to be running out of steam: economic growth is slow, protectionism is spreading, and new regional powers are rising, undermining the existence of the unipolar world. Two events of the past year which happened against the general opinion – Brexit and the election of Donald Trump – have taught us to expect the unexpected.

The multipolarity scenario would mean the end of the unipolar world and the rise of regions: parallel economy centers would expand across the globe. What stimulated the birth of multipolarity was globalization itself, as one of its undoubtedly positive side effects has been a better distribution of wealth. The key beneficiaries of this sub-trend include developing countries with large populations – such as India and China – that are now on the way to becoming regional leaders. According to this scenario, the world would rest on three pillars: the Americas, Europe and a China-dominated Asia. Multipolarity would bring the development of new world or regional institutions, the rise of "managed democracy" and more regionalized versions of the rule of law. While the global economy would continue to grow, the growth would be uneven among the regions.

The end of globalization is not expected worldwide and would come as a shock. This third scenario painted by the Credit Suisse Research Institute is the darkest and most negative. It is fueled by a slowdown in economic growth and trade, the possibility of a macro shock (e.g. indebtedness, inequality, immigration), or a rise in protectionism, to name just a few factors. The results could be very damaging, and reversing them could take a lot of time and effort. According to the Institute's researchers, we could expect the domination of "national champions" and a consolidation of power among some of them, fragmentation of global financial markets, currency wars, or even open military conflicts. For those looking for historical parallels, the report recalls the end of the first wave of globalization in 1913 and the subsequent onset of World War I.

A debate around this question is likely to be conditioned by a desire of many to cling to a form of globalization that enriched them, and to oppose a multipolar world where others could gain more economic and political power. However, in the face of the low trend of growth and the skepticism over globalization's benefits, attempts to sustain it in its old form seem likely to fail.

The transition to a multipolar world, a scenario that appears preferable to an "end of globalization" outcome, seems to be underway already. Therefore, it might be better to focus on creating a multipolar system that works well. Multipolarity, especially in its adolescent phase, is likely to be prone to policy errors, rivalries and geopolitical tensions. It might be worthwhile to attempt to establish a set of rules and appropriate institutions now, in order to frame multipolar stability.

The Credit Suisse Research Institute is Credit Suisse's in-house think tank. The Institute was established in the aftermath of the 2008 financial crisis with the objective to study long-term economic developments, which have – or promise to have – a global impact within and beyond the financial services. For more information, visit: www.credit-suisse.com/next

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