Supply chain ‘sovereignty’ will undo globalisation’s gains
Not so long ago the modish concept in the worlds of defence and national security was “agility”. States wanted flexible forces ready to adapt to myriad threats at a moment’s notice. Fashions change. Glance at today’s official strategies and the emphasis is on something called “resilience”. The havoc wrought by coronavirus has put the focus on unexpected shocks and the national vulnerabilities created by complex global supply chains.
Geopolitics and globalisation used to run on parallel tracks. Promises after the fall of the Berlin Wall that history had been consigned to the past may have been hyperbolic, but the defeat of communism surely had made the world safe for liberal democracy. Just-in-time production lines heedless of state borders promised likewise an unmatched recipe for prosperity.
Now, comfortable coexistence between the preoccupations of politics and the interests of businesses has been replaced by frequent collision. The vaccine nationalism unleashed by the pandemic has underscored what has been a decade-long retreat from the old shared assumptions about the benefits of borderless supply chains.
Boardrooms and chancelleries find themselves pulling in opposite directions. As I heard this week at a virtual gathering hosted by the consultancy Brennan & Partners, companies want efficiency and economies of scale while policymakers now prioritise local control of, and access, to critical supplies. The official buzz phrase is economic and technological “sovereignty”.
The 2008 financial crash delivered the first big blow to the old assumptions. Economic interdependence no longer seemed such an unalloyed benefit after the meltdown of the international banking system. Populist politicians — Donald Trump in the US, the Brexiters in the UK, and parties of the far right and left across Europe — saw their chance and waved the flag. Left-behind voters who felt cheated by globalisation followed.
Hot on the heels of the crash came the intensification of strategic competition between the US and China. Capitalism’s frailties were a spur to the global ambitions of Xi Jinping’s China — and nurtured, in turn, US fears that Beijing is pulling ahead in the digital technologies of the future. The economic interdependence that was once an assumed source of geopolitical stability is now seen as an Achilles heel. Republicans and Democrats in Washington have united in the cause of “decoupling”.
In a different landscape, Covid-19 might have taken the world in the opposite direction. After all, there are no local fixes for a virus that has shown itself immune to state frontiers, and few challenges where national and global interests so obviously converge. Nations first over the vaccine line will not escape the consequences. It’s no good reopening the airports if there is nowhere safe to fly.
Instead, the pandemic has prompted a stampede for national solutions — a competition first to secure the medical equipment to treat the casualties of the pandemic and, more recently, to grab the biggest share of available vaccines.
We should not be surprised. Viruses may be global but politics is local and rising populism has left governments in a defensive crouch. The fragmentation of the post-cold war international order and the return of great power rivalry has drained trust between allies.
The danger is that Covid accelerates the wider promotion of self-sufficiency over co-operation — that the lesson drawn by governments is that, as in digital technology, so in the biosciences and industries far beyond.
There is much to be said for promoting new sources of supply in selected strategic industries. It may also be sensible for states to build stockpiles and production facilities to tackle specific vulnerabilities. But the broad call for “sovereignty” is already driving the world towards protectionism. There is a fine line between autonomy and autarky.
There is also the small question of who pays. It is one thing to decide that the west must not become dependent on equipment from, say, Chinese technology company Huawei, and that China cannot be allowed to dominate production in pharmaceuticals. But someone has to pick up the bill to persuade other businesses to fill the gaps.
If politicians are serious about resilience, they cannot outsource it. As they consider where to draw the line between unacceptable and unavoidable risk they should bear two things in mind. Switching from just-in-time production and long supply chains to large inventories and stockpiles is expensive. And given the span of potential shocks that nations face it will also never be foolproof.
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