Is Malaysia and the rest of the world heading towards deglobalisation?

Extracted from the Star today, March 14, 2009, food for thot...

As the global economic crisis accelerates, some countries will seek greener pastures in their own backyards

For the past two decades, globalisation has been touted as an ideal concept that would bring about prosperity for the whole world. The idea is that countries can trade goods and services without many barriers in the international markets, and enjoy the free flow of cross-border capital investments.

Also, globalisation will allow cross-border migration of workers and hasten the speed of technology and knowledge transfer. So, many countries have rushed towards financial and trade liberalisation to open up their economies and reap the benefits of globalisation.


And for the past 10 years, international trade has grown at breakneck speed while cross-border investments have risen rapidly. Skilled workers and professionals have moved easily to other countries for employment.

The developing countries, particularly those in Asia, benefited most from this process. Their economies have grown faster than those of the developed nations.

But today, globalisation does not sound so cool anymore because it has made countries around the world vulnerable to the financial crisis that has originated from just one country – the United States.

Some believe that the economic turmoil has given rise to a new phenomenon called deglobalisation.

The move to deglobalise, economists explain, is motivated by a country’s desire to minimise its dependence on trade, and to a certain extent, delink itself from the beleaguered global financial system. As the global crisis accelerates, many countries have begun to turn to their own resources to grow their economies.

Protectionist barriers are rising and governments are turning inwards. For instance, in Malaysia, we have the Buy Malaysian campaign. The Philippines has its own Buy Filipino campaign, while the US has a Buy American clause in President Barack Obama’s recently approved economic stimulus package.

But economists say although the processes of globalisation have slowed, it is still too early to conclude whether globalisation has shifted into reverse gear.

These could just be a cyclical phenomenon that will fade away in time, or it could really be a sign of deglobalisation affecting a structural change in the world economy.

Recently, the World Bank, in its report, estimated that global trade would shrink for the first time since 1982 by 2.1% this year. Countries that are highly exposed to trade will suffer the most. Take Singapore, whose exports account for 186% of its gross domestic product (GDP). In the fourth quarter of 2008, its economy contracted at an annualised rate of 17%.

Being an integral part of the global economy, Malaysia has not been spared too. The country’s GDP for the fourth quarter of last year barely grew, with only a 0.1% y-o-y (year-on-year) increase. Malaysia’s exports, which account for almost 100% of GDP, fell sharply by 27.8% y-o-y for January 2009, after posting a decline of 14.9% y-o-y in the preceding month.

As exports declined, Malaysia has increasingly turned to domestic demand, particularly private consumption and Government spending, to spur its economy. It is hoped that the recently unveiled RM60bil mini budget will achieve that purpose.

Meanwhile, global foreign direct investment (FDI) inflows are estimated to have fallen 21% last year to an estimated US$1.4 trillion, and will likely fall further this year, according to new estimates released recently by the United Nations Conference on Trade and Development.

The World Bank, on the other hand, projects that net private debt and equity flows to developing countries will fall to US$530bil this year, compared with US$1 trillion in 2007.

Already, the Asian region has suffered a capital flight since the third quarter of last year. And with the massive bailout plans happening in the West, banks and financial institutions in those countries are expected to face increasing pressure to retreat from international business and focus on their home markets.

The current economic slowdown has also affected migrant workers worldwide. A recent study by the International Labour Organisation forecasts global unemployment to rise to 230 million this year from 198 million in 2007.

Most countries are now gradually sending home foreign workers as priority is given to the locals. In Malaysia, the Government has recently cancelled the work visas of more than 55,000 Bangladeshis. In the months ahead, more foreign workers are expected to be sent home as unemployment in the country rises.