The world stands at a crossroads and faces some serious choices. In the worst case scenario, nations may return to the malign pre-war mercantilism which led to economic, social and political upheaval. 

That is the warning of Professor Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. 

He says that the aftermath of the global financial crisis (GFC), coupled with the impact of the COVID-19 pandemic and geopolitical tensions between the US and China has created a perfect storm, during which a hugely damaging return to an era of pre-globalisation and protectionism has become more likely, a move which risks seeing the world repeat the mistakes of the past. 

He said: “The worst case scenario is that the kinds of things we’re seeing now get a lot worse over the next decade, and the world moves more into the kind of scenario we had in the 1930s.” 

A retreat from globalisation

Malign mercantilism in today’s world is underpinned by three components, says Professor Sally. 

The first is a move away from the market towards the state, as governments make direct interventions to restrict and shape markets. 

The second is countries acting in their own national interests. Increasingly they no longer view other nations as partners, but as rivals, at the expense of global cooperation. 

The third factor is geopolitics, which the Professor says is exemplified by the US-China rivalry. All combine to create malign mercantilism, and if it sounds familiar – that is because the world has been here before. 

Alarmingly, it happened during the interwar period of the early 20th Century, a period marked by social and political instability, strong-arm rulers and eventually – a global military conflict. 

Trumpism as a symptom, not the cause

The rise in populism has undoubtedly been one of the most obvious and some would say – damaging – aspects to the international cooperation which formed the bonds of globalisation for decades after the end of the Second World War.

With his mantra of ‘America First’, withdrawal from the Paris Climate Agreement and repeated admonishment of NATO, the World Health Organisation and the European Union among others, few would argue that Donald Trump was a leader with a global outlook. 

Indeed, many observers view the former President as the man who did more than any to tear up the post war rulebook for how the world – particularly the Western world – cooperated on issues ranging from trade, to health and geopolitical strategy. 

But rather than a cause of the recent backtracking from the long-established global order, Professor Sally views Trump’s rise more as a symptom.

He said: “It started before Donald Trump, there’s something structural going on and that’s continued since he left the White House.

“I think it would be misleading to put this down to one or two overpowering personalities, it goes further than that.”

The external shocks

The Professor puts the origins of the current move to the mercantilist era down to a number of factors. 

The concept of the external shock is a familiar one to economists, but in this case he says there have been two. 

“This (the external shock) is something which hits you completely unexpectedly and takes a long time to recover from, first I think was the global financial crisis and then the pandemic.  

“If we take the global financial crisis, what we know from the great depression is that a financial recession bites deeper than a normal recession. It means there’s a bigger contraction in the economy, it takes a longer time to get out of it and even when you do, growth is lower than it was before. More jobs are lost and inequality tends to rise.”  

He says that this, coupled with lower growth, leads to ‘cracks’ in society during which factors like anti-globalisation sentiment and a preference for populist ideology can ferment. 

But if the seeds of economic and social discontent were sown during the GFC, then the pandemic has served only to make matters considerably worse. 

He says: “This time the whole world is affected, we’ve seen a bigger drop in output and many more jobs lost. We’ve seen a big public health crisis which was not the case with the GFC – we’re going to see effects which are longer-lasting. The upshot of that is even more divisions.”

Geopolitical tensions

As well as the dual shocks which have created and fanned social and economic disparity and discontent, the move towards a mercantilist world order has also been impacted by tensions between the world’s last remaining superpower, and the nation which would seize its crown. 

“Since the GFC, we’ve seen more geopolitical divisions and tensions than in previous eras and that has everything to do with the rise of China and the relative decline of the US and even of Europe.

“Since the GFC, we have had declining US leadership which was so vital between 1945 and 2008, to keep the world open for globalisation. 

“At the same time, China has risen and posed more of a threat and alternative to the existing world order. That’s certainly made matters more difficult.”

The legacy of COVID

Much has been made of the fact COVID has ushered in an era of global cooperation unprecedented in the sciences, with the exchange of information worldwide taking place at a speed and scope not seen before. Likewise, manufacturers and supply chains have had to be similarly cooperative in order to realise the monumental human achievement of developing, and deploying, multiple vaccines.

But despite seemingly having brought many aspects of humanity together in a common, existential cause – the Professor says the way the pandemic has been handled encapsulates the essence of mercantilism. 

He says: “If we’re looking to pinpoint mercantilist features right now, it’s the fact we can’t travel across borders, often it’s been done in a tit-for-tat way. 

“Much more than vaccine cooperation, we’ve seen vaccine nationalism. 

“Governments have in the first instance sought to protect their own citizens. This is especially the case in democracies where voters in the first instance are not going to be thinking about the Third World, they want safety and security at home.”

Is there an alternative?

If the traits of mercantilism do sound worryingly familiar, it would be understandable to fear the worst – given that the last era that found itself engulfed in the same brand of economics and politics culminated in the Second World War. 

But the Professor said it was still not too late to change course. 

“I’m not optimistic but not fatalistic either, I don’t think anything is pre programmed. There are forks in the road and we could go in that direction or this direction.” 

He said that key to this is embracing and protecting the aspects of globalisation which still exist and work well, including global finance and trade. 

He says: “During the pandemic, global supply chains did not collapse. 

“By and large they were pretty resilient. We did not have huge shortages in the supermarkets and for that we have to thank these global supply chains.

“There are the existing networks of globalisation from which we all benefit as consumers, workers, managers and owners of capital and we have to find ways to safeguard them and keep borders open.”