Atlantic Council

Even as projections of global recovery in 2010 flow from the IMF, the global economic meltdown has spawned a buzzword that seems to be on the lips of the chattering class: deglobalization. Look no further than Joshua Kurlantzick's "The World is Bumpy"  for a recent sampling.

"Many economists believed this global integration had become so deeply rooted it could never be undone. They were wrong. As the global financial crisis deepens, the world is undergoing exactly the reverse of the 1990s--a wrenching period of deglobalization in which governments throw up new walls and the ties binding nations together rapidly unravel. Nations like the United States, Japan, and Germany may suffer, but they will survive, as will powerful developing nations like China or Brazil that have large cash reserves, diversified economies, and enough political clout to protect their industries. On the other hand, poor and trade-dependent countries that remade their whole economies to take advantage of globalization will be devastated. Having opened up, these nations are now highly vulnerable to global financial currents, without the cash on hand to weather the storm. Perhaps even worse, these financial shifts are likely to spark massive social unrest and could take down one government after the next. If you thought globalization was destabilizing, just wait to see what deglobalization will do."

Whether or not the undoing of what many have viewed as an unshakable trend of the post-Cold War is really occurring is still, at best, an open question. But certainly economic and financial developments are afoot that may raise doubt about the assumptionsthat globalization is an irreversible reality of our times.

It's worth recalling, however, that this was also the conventional wisdom a century ago, when the first version of globalization wove together trade and finance so tightly worldwide, that leading intellectuals like Norman Angell argued that the interdependence of global trade and finance made war obsolete. World War I and the Great Depression ended Globalization 1.0.

But is a similar process of deglobalization underway now? This is the argument advanced in Kurlantzick's New Republic piece, and a notion widely discussed in the blogosphere as any Google search of the word "deglobalization" will quickly reveal.

Certainly, as Kurlantzick chronicles, there is no dearth of troubling signs, starting with the first negative global growth rate since 1945. There is the drying up of capital flows to developing countries that fueled export-led growth in from Cambodia to Columbia. There is a widespread adoption of protectionist measures, albeit modest ones such as the "Buy America" provisions of Obama's stimulus package, which illustrate how susceptible the ideal of free trade is to domestic political pressure.

From France to China other major economies have also been tempted by similar economic pressures, and the failure to advance global trade talks in the Doha round has not helped either. Even as the G-20 has made pronouncements supporting free trade, its members have nibbled at the edges of new restrictive trade measures. The economic crisis has strained European unity, as key European states wallow in recession, bestow new subsidies on already coddled farmers and struggle over new financial regulations and how to deal with desperate central European economies from Latvia to Ukraine.

Worse still, the economic crisis has dried up investment flowing to many hard hit developing nations like Cambodia whose export markets have shriveled. And countries like India, Pakistan, the Philippines and Mexico dependent on remittances from émigré workers have lost much of another key source of revenues. The uncertain fate of some five million Indian workers in the Arab Gulf states highlights how easily snapped may be sinews of economic integration. How severe the economic and political fallout in fragile states from Central America to Central Asia and Africa will be before things turn around remains to be seen.

But does all this really add up to a longer term trend of undoing economic and financial integration?

Probably not. But it does demonstrate that dynamic integration and a virtuous circle of global growth and prosperity are not something that occurs easily or permanently. The business cycle was not banished by the Age of Information.

It is difficult to see global supply chains and markets of scale disappearing altogether and being replaced by an alternative model. Nor are a wave of  protectionist measures of Smoot-Hawley proportions rippling through the world's major economies. And we are seeing the world's leading and emerging economic actors in the G-20 not drifting toward conflict, but struggling to rewrite the rules of financial discourse. But it neither are we likely to see global financial markets flowing at anything resembling levels or the global reach of the decade prior to the 2008 financial meltdown.  And a generation from now, the dollar may well be seriously challenged as the world's reserve currency.

But on reflection, we are more likely to see a redefinition of globalization at a more modest pace and perhaps a less comprehensive scope if, as what many economic analysts envision as a modest, gradual economic recovery, unfolds in 2010-11 than a move away from the process entirely. The challenge of broadening and deepening globalization will be that much harder What the social and political consequences will be to such a new reality may be felt most by those most recently woven into the globalized world and particularly those on the margins of it.

Robert Manning is a senior advisor to the Atlantic Council.  The views expressed here are solely his own, not those of any U.S. government agency. Photo: Getty Images.