Will the Recession Make the World Smaller?
That’s the premise of a new book by a longtime source of mine, Jeff Rubin, the former chief economist for CIBC World Markets in Canada. I remember back when oil spiked to $147 in July of 2008, I interviewed Rubin about how nosebleed oil prices would change the world. His take was that we’d see a major rollback in globalization, with manufacturing once again being done at home, flying becoming a major luxury, and dinner plates getting a lot more bland with staples like imported salmon or asparagus no longer affordable. Basically, life would be some sort of cross between the 1940s and the 70s, with gas lines, victory gardens, newly re-empowered American working men turning out steel, cars and appliances for sale here at home.
That’s still Jeff’s take, and his new book theorizes that the recession will only speed this trend (he still sees oil rising in the next couple of years, off the back of an economic rebound in China and India). But I have to say, I have my doubts. I’ve blogged and written lots about how we’re just not seeing the sort of Great Depression style trade protectionism that would be one of the main factors in a globalization backlash. Meanwhile, the wage gap between America and Asia, which encourages companies to move abroad, is going to get bigger. According to McKinsey research, the absolute gap between Chinese and U.S. labor costs per hour is projected to increase to more than $26 in 2013, up from about $17.50 in 1996.
Jeff’s response to this would be that high oil would negate that effect by making the costs of transporting cheap goods from Asia too high. But the oil price question, which is dependant on a complex and ever-changing set of variables (including global conflict, refinery capacity, the whims of dictators, and weather) is very much up for grabs. I had a briefing at the East-West Center last week with Fereidun Fesharaki, one of the world’s top energy forecasters, and he’s betting on long-term prices of $80 a barrel. Higher than now, but not enough to turn back the tide of globalization.
Like The Daily Beast on Facebook and follow us on Twitter for updates all day long.
Rana Foroohar is the deputy editor in charge of international business and economics coverage for Newsweek. She conceives and edits a weekly section of breaking news stories, features and guest articles. She also writes economic cover stories and opinion pieces, and pens a bi-weekly column on the global economy.
Foroohar oversees Newsweek's team of global correspondents and stringers, directing their reporting on the week's business news. She edits regular columnists such as hedge fund manager Barton Biggs, Morgan Stanley emerging markets head Ruchir Sharma, Yale professor Jeffrey Garten and PIMCO CEO Mohamed El-Erian. She is in charge of economic coverage for Newsweek's annual Davos special issue, which features pieces by world leaders and economic thinkers, and also chairs panel discussions while at the World Economic Forum in Davos.
Prior to taking this New York based position in 2007, Foroohar spent six years as Newsweek's European Economic Correspondent based in London, covering Europe and the Middle East. During this time, she was awarded the German Marshall Fund's Peter R. Weitz Prize for transatlantic reporting. She has also worked as a general editor at Newsweek, a reporter for Forbes magazine, and as a writer and editor at various other national and international publications. Foroohar graduated in 1992 from Barnard College, Columbia University, with a B.A. in English literature. She is a life member of the Council on Foreign Relations.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
Comments