As Ian Bremmer says on March 4 (Ian Bremmer, Putin may win the battle for Ukraine, but he has already lost the war, GZERO World with Ian Bremmer, March 4, 2022), Putin's invasion of Ukraine is riddled with miscalculations. The Russian army is weak, Ukrainian resistance is stubborn, the West is tightly united, and Russian civil life suffers. "Putin's likely 'victory' on the battlefield guarantees that he will never achieve his core political objective and the one reason he chose to invade Ukraine in the first place: to make Russia great again." I would like to see Russia withdraw militarily, but even if that does not happen, I think that Russia's power will be weakened politically through this war.
But if Putin's regime and Russia's political power are weakened politically, what will be the economic consequences? The changes brought about by sanctions against Russia will be irreversible, and the effects will be felt throughout the global economy. As Bremer puts it, "The rapid and forced decoupling of the Russian economy from the global trading and financial system will head toward severe economic stagnation (i.e., double-digit recession and inflation), impoverishing both ordinary Russians and oligarchs alike." The problem is that it is unlikely to be just during this war. Unless Putin's regime falls and a Western-friendly government is immediately installed in Russia, this decoupling will continue to some extent even after the war comes to some conclusion. Russia may try to return to the global economic system. Still, it will consider the global economic system dominated by the U.S. and the EU. Moreover, it will try to build another economic bloc with countries with the same awareness of the problem, i.e., China and its friendly countries.
Of course, this is not a reversion to the Cold War economy. The Russian economy does not carry the same weight in the world as the Soviet economy did in the past. Nor is Russia or China a planned economy, nor do they intend to build an economy that is closed to the outside world. Nevertheless, the war of aggression against Ukraine and the sanctions to Russia will result in a more fragmented world economy than we have seen so far. I don't want that to happen, but as an economist, I predict it.
The world economy may well be at the end of post-Cold War globalization. While some may argue that globalization is economically inevitable, a distinction must be made between globalization in general and "Post-Cold War globalization" in particular. We must not close our eyes to the difference between the two. However, since the term "globalization" itself is ambiguous, I will limit my discussion here to economic globalization, i.e., the actual progress of trade and investment liberalization based on policy guarantees.
Economic globalization in the post-Cold War era means the following. After the end of the Cold War and the collapse of the Soviet Union and Eastern European planned economies, the economic development strategies of most countries in the world had to be based on trade and investment liberalization with certain political reservations. This period, which lasted for about 30 years, does not mean that the universal truths of market fundamentalism and economics of freedom of trade and investment have finally been realized. Even after the collapse of the Soviet and Eastern European regimes, various regimes continued to exist in world politics. China and Vietnam continued to advocate socialism politically, although their economic reality is capitalism with strong state intervention. Some countries had broken away from socialism but still favored authoritarian rule, such as Russia. So while Branko Milanovic said that "Capitalism Alone" remained in the world, there was not single free, democratic market economy like a textbook, but rather a competition between "liberal meritocratic capitalism" and "political capitalism." There are two kinds of capitalism, no matter how small the estimate. And it is possible to think of much more varied capitalism, and they are being discussed.
Economic globalization in the post-Cold War period was not automatically realized because economics was right. Nor was it because a single regime covered the world with agreement on the details of the political regime and the market economy. Globalization, in general, is a kind of abstraction. In reality, post-Cold War globalization has promoted trade and investment liberalization for the past 30 years while maintaining a political consensus that dares to put aside political and diplomatic differences. There was a widespread political agreement to pursue the economic interests of both sides, with "market economy" and "trade and investment liberalization" as somehow common terms. Of course, there were various interpretations of the terms "market economy" and "trade and investment liberalization." But an agreement to remain committed to those terms was crucial. Some might say there was no agreement, only compromise, but either is acceptable here.
This agreement or compromise was already crumbling due to the U.S.-China confrontation. It became impossible to put aside differences in political and foreign policy for free trade of semiconductors for 5G base stations and smartphones. It became difficult to choose the location of semiconductor factories based solely on economic calculations. And now, a rapid collapse is coming. The U.S., EU countries and Japan can no longer tolerate the Russian central bank managing foreign currency reservations, Russian banks conducting international payments through SWIFT, and Russian aircraft flying over Europe.
Even in this phase, it is possible to defend the benefits of globalization in general from the standpoint of economics, or rather economics alone. For example, the "second unbundling" promoted by ICTs, which Richard Baldwin describes in "The Great Convergence: Information Technology and the New Globalization" or the benefits of the international division of labor between processes, continues to exist. So it is possible to ask public opinion and policymakers to respect economic rationality. However, it is no longer possible to persuade them to put aside political and diplomatic differences solely based on mutual benefits from economic rationality, as has been the case for the past 30 years. It became gradually more difficult at the time of the U.S.-China decoupling and is unthinkable now in the face of the Russian invasion of Ukraine. Just as considering economic interests objectively, it has become challenging to promote globalization if one looks at current international politics objectively.
Post-Cold War globalization is coming to an end. The era in which liberalization of trade and investment can be promoted with the involvement of almost all countries of the world, leaving political and diplomatic conflicts aside, is coming to an end. I do not want it to happen, but I think it will be a high probability.
