Thursday, August 07, 2008

Followup to the End of Globalization

I want to make a couple of points related to my post of a few days ago on the end of globalization.

First, a few comments mentioned that globalization would not end so long as people made money off of it. Of course, this is true. But there are 2 important caveats here. First, globalization isn't going to make very much money anymore. Transportation costs increasingly threaten the profits that made globalization such a successful phenomenon. Second, the advantages of globalization will still be there for those who can pay for it. For the world's elite class, paying $2000 for a plane ride is not going to be a big deal. Neither will paying $10 for a mango. But it may soon cost that much for the exotic products and travel arrangements that we have come to see as normal in the last 10 to 20 years. For the majority of us, much of the benefits of globalization are quite likely to disappear very soon.

Also Jon Rynn, suggests that rather than seeing the death of globalization, we may be seeing the birth of what he calls "continentalization," or regional systems of production that provide many of globalization's benefits on a continental scale. But I'm not sure about this either. Part of the reason for globalization's success is that ocean transportation is insanely cheap per unit. Water transportation is far cheaper than ground transportation. If companies can't afford to ship things over the ocean anymore and consumers can't afford to buy those things, why would it work on a continental scale if that transportation is more expensive. Shipping something from Mexico to Illinois by truck is quite pricey per unit. It probably makes much more sense to ship things from France to New York than from Oregon to New York, because the cost is much lower across the water. This also speaks to some other comments to my post suggesting that Mexican agriculture can make up for the loss of Chilean or Australian produce. But again, I don't think the financial windfall is there so long as gas prices remain high. As they continue to rise over the medium-term, it will make much more financial sense for consumers and shippers to focus on locally grown produce and locally manufactured goods over even goods from 1500 miles away.