Does Germany need to rethink globalization?

Globalization has had a rough time lately. Worldwide, just-in-time supply chains suffered under stiff tariffs. COVID-19 shutdowns and travel restrictions caused further distress. Now, the war in Ukraine and sanctions on Russian companies are making matters even worse. Inflation and price increases have made energy and food more expensive. Ordinary customers, especially the poor, are suffering.

Is the world order falling apart? Is the status quo even worth saving? The world is changing, and our understanding of globalization must change, too, according to Moritz Schularick, president of Germany's Kiel Institute for the World Economy.

The focus of globalization can no longer be on squeezing the greatest possible profit from global value chains. It must also take into account "their reliability and their political implications," he wrote in a publication accompanying a discussion organized by the Federal Chancellor Helmut Schmidt Foundation (BKHS). "It will be a new world economic order compared to what we have been used to for the last 30 years, and it will challenge us."

In other words, while still enjoying many of the benefits of globalization, countries must avoid becoming too dependent on — or vulnerable to — trading with countries that are not close friends, something that Russia's war in Ukraine has shown a spotlight on.

Remaking globalization, from a German point of view

Germany, in particular, made three big bets that are not paying off as planned, says Schularick: continued growth through Chinese trade, cheap energy from Russia, and minimal defense spending under America's protective umbrella.

All three of these are coming back to haunt Europe's biggest economy now, he argues. Still, there is room for hope as Germany has great potential to improve in many areas. Importantly, it must look forward, not backward.

The lecture on December 4 at the Museum of Communication Berlin brought together a big audience to talk about the complicated issue. Schularick, who is also a professor of economics, led the discussion that focused on renewable energy, China, and closer European business integration.

Looking for solutions among problems

The time for cheap Russian gas is over. Germany and the rest of Europe must concentrate on building up renewable energy capabilities. In the meantime, new, non-Russian sources of energy must be secured to keep things running. Not only will this be better for the environment, as COP28 delegates in Dubai are currently discussing. Clean energy is also often local energy.

More complicated is Germany's relationship with China. Schularick encourages government officials to take a closer look at their foreign and security policies. They should be clearer about who are friends and who are not.

China poses a great challenge, not so much because it is so strong, but because its economy has weakened under a number of setbacks. This means fewer Chinese companies buying high-tech German exports. It also means China will likely turn to its own manufacturers as a way to grow and export its way to out of problems. This will make it a direct competitor to Germany, says Schularick. For German companies doing business in China "the fat years are over."

To counter this, Germany and the rest of the EU need to come together. This includes more digitalization, and strengthening the European Banking Union. The internal European market also needs to be liberalized and allowed to grow faster. It is a huge market, it just needs to be put to better use.

A to-do list closer to home

A single business, or even a whole branch of industry, can't make much headway alone. To make a real difference, businesses need to work with governments to plan for success, says Schularick.

This is a timely warning as many estimates about Germany's 2024 gross domestic product (GDP) growth come in at under 1%. But how can people be convinced about the need for radical change?

"I think we need a better network between academia and politics," Schularick told DW, "especially for these global issues." Precisely here he sees Berlin lagging behind locations like London, Paris, or Washington. Germany has many rules to avoid crisis, but is not prepared with crisis management skills to deal when a crisis actually arises, he says.

"We have to build up this intellectual infrastructure in Berlin, with think tanks, with media, with research and science, so that we can better anticipate what is happening in the world in the future."

Global security versus economic efficiency

This may seem a bit abstract. More concretely, a reorganization of globalization could mean having or bringing home some manufacturing production capacity to ensure supplies. It could also mean leaving behind some energy-intensive industries.

For companies, it means diversification in terms of where to produce and sell goods or services, while also securing sources of raw materials. These are all big changes that would upend decades of interdependence.

Still, Schularick is hopeful. Over the past two decades, globalization delivered on economic progress, and though it could have done better, many people enjoyed its benefits.

Yet, the world is not more peaceful or stable than 20 years ago. And it is this failure that needs rebalancing. In the future, there will have to be a tradeoff between efficiency and security. The question is: "What price are we willing to pay for less efficiency?"

Edited by Kristie Pladson