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25/05/2020

Glocalize!

Prof. René Schmidpeter

Author: Alexandra Rotter

Original source: https://www.die-wirtschaft.at/die-wirtschaft/glokalisieren-sie-197696

Glocalize!
Globalisation, as the Corona crisis and its consequences are already showing, has not only ecological weaknesses. But should we therefore become self-sufficient? There is a promising middle way. But it needs a clear vision.

Perhaps this is all a giant experiment. One that was not set up by China, but by a higher power that has been watching how we humans behave on this planet long enough. How we give nature and other living beings a role in the last place, while megalomania, greed and consumerism are in the front. How we shut ourselves off from each other instead of pulling together because we believe that the cake is no bigger than it is and everyone wants to get as much as possible. This power has watched the British isolate themselves from the EU and the US build walls and prefer not to hear about climate goals, the Iran agreement and other deals, the WHO or human rights. And how Russia is building its own internet and China wants to make itself completely independent of technology developed elsewhere. This power has perhaps put us to the test, according to the motto: Are you serious? It sent us the virus that delivered our most secret desires for independence in its purest form overnight. 

Wilfried Sihn, managing director of Fraunhofer Austria Research, says: “The biggest mistake would be to go back to business as usual when the upturn comes back”. Rather, we would have to ask ourselves: what are we learning from this health and global economic crisis? Do we need to make our economy more local again? Isn’t total globalisation the ultimate wisdom? The good news is that it does not have to be global, or not global at all. There is an intermediate path that makes the economy more crisis-proof. Sihn: “We’ve been talking about glocalisation for five years, but nobody was interested.” What is meant by this is a synthesis of globalisation and localisation. Now the topic is rising like a phoenix from the ashes. Every industry should think about glocalisation, so ask itself: where do we need global connections? And where does it make sense to become more local?

Megatrend Globalisation
The Zukunftsinstitut is also familiar with glocalisation. Managing Director Harry Gatterer says: “There is a tendency towards greater awareness not only of states but also of regions. What is economically and socially close is gaining in importance, but equally we must not cut ourselves off from the world”. Globalisation is still a major megatrend even after the Corona Impact - one of twelve megatrends currently defined by the Zukunftsinstitut. Its website explains this: While politicians are still trying to regulate global processes with old nation-state mechanisms, the global society is “long on the way to the future of the 21st century”. Even if Britain closes itself off, it will not be viable without Europe - and it will not be viable without the USA or China either. What is changing is the quality of globalisation and a trend towards glocalisation. Gatterer considers the Global Parliament of Mayors, where mayors of cities around the globe meet and exchange ideas to learn from each other, to be a wonderful example of a typical glocal project: “The global aspect of it is the informal framework of exchange, but then things are implemented locally. Even organisations like the WHO would have to reorient themselves in the future in a new and glocal way.

The economy has been decentralised for decades, making countries highly interdependent. Virtually everything is supplied across the globe. This even applies to medicines, medical devices and protective equipment. For medicines, for instance, there is a high level of dependence on China and India, which are the only suppliers of many components worldwide. The pandemic was a prime example of the negative impact of this, with unsatisfactory demand for face masks, soaring prices, confiscated supplies at borders, dubious offers and defective products.

The decade of resilience
Harry Gatterer points to our highly networked world and our complex economic system. The growing world population expands this complexity. This is why we need a smaller structure in “Small World Networks”, which function within themselves while being connected to larger networks. Gatterer: “Glocalisation is the necessary restructuring of a system that crosses a threshold of complexity - and we have crossed it. The current crisis, he says, has shown us in one fell swoop that movements like regionalisation and nearshoring are not yet sufficiently developed. For companies, this means that they must move away from the classic linear value-added thinking and think more strongly in terms of networks in order to be able to offer products as collectives or to buy them. Gatterer: “I am convinced that we will experience a shift from ego systems to ecosystems and that companies, for example in tourism regions, will position their offers in a more collectivist way. Although network structures are more expensive because they cannot be optimised as well as linear structures, they are “less breakable”. He is convinced that a surge of companies will now decide to switch from an absolute profit orientation and quarterly thinking to a long-term orientation that brings resilience: “From profit to resilience does not mean that they will not make a profit, but they will use the funds differently”. And thinking long-term also means thinking ecologically. Gatterer says: “I would say that the next ten years will be the decade of resilience. This requires stronger cooperation. For purchasing, for example, this means buying locally from different sources together to be more flexible. Gatterer cites 3D printing as an example: “Companies will jointly build 3D infrastructures and manufacture products on demand, from shoes to respirators.

Production back to Europe
Economics Minister Margarete Schramböck says: “In the crisis we have seen what is suddenly possible, for example in the field of digitalisation. Homeschooling or even telemedicine would have helped to keep the education and health system going: “I am convinced that we will increasingly rely on digital solutions in the future. Digitisation would also play a central role in climate protection. With regard to glocalisation, Schramböck said: “We do not know what the next crisis will look like. Therefore, a renaissance of production in Europe is needed in order to be able to react even faster in the future and be prepared for further crises”. Central areas that have now proved to be vital must be strengthened here and Europe’s self-sufficiency in critical products must be increased: “I am thinking here above all of sensitive areas such as the production of medicines or medical protective equipment. At the same time we must strengthen the value chains in future technologies and key areas such as digitisation and decarbonisation in Europe”. In the past, he said, this had already been achieved in the case of semiconductors or batteries, for example. Harald Oberhofer, professor of economics and Wifo economist, says: “It is possible to define strategically important sectors and then pursue appropriate settlement policies in order to attract companies and, for example, give them tax breaks or land”. Which industries and products these are has first to be defined. In any case, Oberhofer thinks it makes sense to keep protective equipment in stock, for example, even if a new pandemic does not break out and these stocks have to be replaced every few years: “The public authorities have to say: We have to afford this in order to be prepared in crisis situations.

Prize, export and peace
Of course not everything we want to consume should and cannot be produced locally. Oberhofer: “It sounds so nice and easy to bring back production from low-wage countries, but in reality it is not. The question was: “How can we manage to bring back the companies in terms of economic policy? For example, would you like to install a low-wage sector in our country?” Anything we do here on more expensive terms would certainly make the products more expensive. We are also dependent on other regions of the world for technical equipment because raw materials such as rare earths are not found here. In addition, our dependence on exports must be taken into account. The numerous world market leaders with export shares of more than 90 percent are the best examples.

And there is another reason to continue to rely on global trade: It promotes peace. Martin Selmayr, European Commission representative in Austria, says: “International trade often proves to be a cement for geopolitical fractures. It also contributes to economic growth and prosperity around the globe”. Selmayr points to almost 40 million jobs in the EU that depend on exports and that the EU Member States delivered goods worth more than 2.1 trillion euros to third countries and imported 1.9 trillion euros last year. While he considers it important that Europe strengthens sectors such as pharmaceuticals and industrial electronics “out of self-interest” and makes Europe, together with the member states in general, “as attractive as possible as a location for business, both for companies and for workers”, he also believes that the EU should be able to make the most of the opportunities offered by the European economy. But: “A policy directed against international trade would be a shot in the arm from a European perspective. There are limits to localisation - and it must under no circumstances lead to a situation in which Member States become divided into national groups”. 

Internal market goldmine
The EU internal market, which provides for free movement of persons, goods, services and capital, is a goldmine for export-oriented nations like Austria and will play an important role in the reconstruction of Europe’s economy in the wake of the Corona pandemic. And it will be “not a walk in the Vienna Woods, but rather a mountain tour in the Western Alps” and will require strong instruments. Selmayr underlined that the EU finance ministers had quickly put together a 540 billion euro package for the economy. Now it is important to make the EU financial framework 2021-2027 efficient and to use it in the best possible way for reconstruction with the help of innovative financial instruments. “If the Member States do not act as 27 lone fighters on the financial markets, but instead make the best use of the financial power of the EU budget, one euro from the taxpayer can quickly become at least ten in the real economy”. The fact that particularly crisis-stricken countries need to be supported has nothing to do with generosity, “but with a basic knowledge of economic interrelationships”. Austria, for instance, had to have a vital interest in seeing its second most important trading partner Italy get back on its feet quickly.

René Schmidpeter, holder of the Dr. Juergen Meyer Endowed Chair at the CBS, is convinced that crises are never overcome by restoring the old, but only by pursuing a new vision. With regard to the current situation, he says: “More than in a reconstruction, we are currently in a period of promoterism that is generating profound innovations. For example, he considers the demand for new scrapping premiums to be a structure-preserving tendency: “It irritates me how much energy we are wasting by wanting to return to the old. In order to gain orientation and move into a positive future, he says, a vision is needed first and foremost: “From studies of failed expeditions we have learned that those who have a long-term vision survive. 

The even bigger disaster
For Schmidpeter it is clear that this vision must be based on a sustainable economic system: “We can now see that we are so strongly interconnected by globalisation that the old ethics of trade-off no longer work if we do something in Austria, for example, but the problems arise in Africa”. Corona has shown: How the Chinese deal with wild animals even influences life in an Alpine valley. And climate change is the “even bigger catastrophe with even more far-reaching consequences, which in comparison to now actually require fundamental changes. Then there would be no place left to retreat to. But turning back globalisation is not an option, since worldwide cooperation is desirable in principle, for example for the development of a vaccine. Schmidpeter: “In the future we will therefore increasingly become a global world society. In a very strongly networked interglobal economic system, much like shares, it is largely a matter of psychology: “You have to create a positive narrative. We have it in our own hands. We can write history and change the future positively. And if the vision, the common goal, is in place, then - even if it seems paradoxical - it always needs “its own way”.

Nevertheless, there will also have to be adjustments to the old, such as shortening supply chains, which can help both the climate and reduce supply risks. Economist Harald Oberhofer says: “As long as it does not become more expensive to transport goods all over the world, the degree of globalisation will be great in economic terms”. If everyone agreed on “something like a CO₂ price”, it would also be easier to relocate. Hanno Lorenz, an economist at Agenda Austria, says that the last 30 years of extremely stable trade relations have made it possible to outsource many production steps. In doing so, it may also have been possible to become too dependent on certain regions. The risks have to be re-evaluated: “But the great danger is that we are now overreacting due to the global crisis and are acting out renationalisation or localisation tendencies”. Supply chains will have to be better protected against shocks, but strong localisation, he said, will increase rather than reduce the risk of supply chain collapse. 

Reshoring makes sense
In the medium term, according to Lorenz, we must learn from our mistakes and try to reduce both sectoral and regional dependencies, in industry as well as in tourism or energy supply, even though security can never exist because every crisis is different. Reshoring, i.e. bringing certain production steps back into the country through technology and digitisation steps, makes sense. Furthermore, according to Lorenz, work should be done to extend the internal market, which we know in the movement of goods, to other areas such as services, capital market or digitisation. Where a certain return of consciousness was already evident on the part of consumers, was when shopping at local suppliers, many of whom had set up online shops in a very short time. Lorenz: “The switch to online offers in times of distance rules was certainly the right step for many. But of course it would have made sense for many before that”. Amazon has also grown during the crisis: “If consumers had already been familiar with a broader Austrian offer, the loss here would certainly have been smaller and less market share would have been lost before”. 

The EU has now concluded more than 40 trade agreements covering more than 70 countries worldwide. What critics of globalisation are less pleased about, Martin Selmayr considers important in order to be able to play a role elsewhere: “These agreements secure market access for European companies and aim at maintaining high environmental and social policy standards in the partner countries. We must always ensure fairness in world trade and protect European industry from competitive disadvantages resulting from unjustified measures in third countries”.

Futurologist Gatterer has worked out four possible scenarios for the near future: Total isolation: all against all. System crash: permanent crisis mode. Neo-Tribes: retreat into the private sphere. And adaptation: a resilient society. How things continue depends on our vision of the future. Gatterer: “A crisis shows us what we have prepared for. It shows us what future we had in mind. He therefore proposes to think the present from the future, and he adds the all-important question: “What future do we have in mind now?

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