A number of the greatest scientists and philosophers of the 20and century – from Karl Popper to Per Bak for example, have spent time thinking about how systems evolve and decay. Their insights are useful today, as globalization disintegrates and we wait to see “what’s next?” “.

In the systems literature, frameworks that have become obsolete or have not evolved are often undermined by events. Per Bak described it as a pile of sand, collapsing when a marginal grain is added. It is not the marginal grain of sand that leads to collapse, but rather the growing instability of the “system” over time (the fall of communism is one example).

New world

The crisis around Ukraine is another serious case, and it helps to clarify several things – the erection of a new barrier to trade from west to east, the arrival of new geopolitical constellations and a deeper divide between the democratic and non-democratic worlds. The day after the invasion of Ukraine, the German Foreign Minister said “we woke up to a new world”, but the fact is that the “new world” has been in the making for some time.

We have seen other tests in recent years – the subsumption of Hong Kong’s democracy and the many lessons to be learned from the coronavirus crisis, including the triumph of humanity and medicine and the failure of governments to collaborate . Taken together, they point to the end of globalization, or rather the “way we have lived” for the past thirty years.

While there is a growing debate on this important topic, the risk is that politicians, commentators and policy makers will remain warmly committed to the idea that globalization can continue and will suffer jolts in their consciousness of the type that Vladimir Putin administers. Emphasis should be placed on “what’s next?” “.

End of globalization

The main feature of the post-globalization world will be the emergence of a multipolar world, where instead of a singular (Anglo-Saxon) way of doing things, rival values-driven approaches will emerge in Europe and China. , to complement the American approach to political economy. The idea of ​​a multipolar world is something to which Vladimir attributes, although beyond a powerful army, his country has few ingredients – a strong economy, a financial system or a software power – necessary to maintain a geopolitical pole.

The picture that emerges is of a more fractured world (i.e. higher inflation or less lowflation), and regular readers will know that I have been working on this!

What is new is that corporations, financial institutions, international institutions and individual countries are being forced to choose sides as political-economic tectonic plates pull apart. The striking example is the Nordstream pipeline. The SWIFT payments hub could be another.

Companies take sides

The deeper the crisis in Ukraine, the more governments will be (or less) attached to alliances and values, and ultimately the more the geopolitical map of the 21st century becomes.

For example, Japan has sanctioned Russia but China is sticking to it. India, a longtime Russian ally, is an odd example of a democracy siding with a “strongman” which will strain its relationship with the United States and the United Kingdom. United. Poland is another example – this crisis and the security imperative it entails may present a chance to bridge the differences it has with the EU over “values”. Turkey could play an important strategic role, and could “pull itself together”.

Switzerland, which has potentially formidable financial power over wealthy Russians and Russian commodity traders, has done little, and the quid pro quo could be a much tougher attitude from European and US regulators towards its banks. Internationally, fintechs and payment companies will need to be more careful about where and with whom they do business.

In general, many large corporations have been tiptoeing around widening diplomatic divisions, will increasingly have to choose sides, not only vis-à-vis Russia, but also China. This will be particularly the case for those working in strategic industries – semiconductors being the best example, and for large multinationals with business ties to China (e.g. Apple

AAPL
). The flip side of geopolitical risk for large corporations is that, in some cases, they find it necessary to deepen their relationships with governments, in strategic areas like AI and data.

On this point, the team from the excellent Longview Economics points out that the asset values ​​of two of the players who have undermined American democracy (Facebook/Meta and the Russian state – ruble etc.) have collapsed in recent months.

restore democracy

In this regard, it is to be hoped that within political systems there is a hardening of views around the sanctity of democracy, and that politicians in the pay of foreign governments in the UK, the US, in France and in many other countries (Africa as we noted last week) expose themselves to sanctions. It is also to be hoped that the financing of political parties by external actors will be scrutinized and sanctioned more severely. In Russia itself, and perhaps even more so in Belarus, any sign of massive opposition to the invasion will be welcome.

A final point, for all those European policy makers assaulted by reality, is to think about what the new world should look like and think provocatively about how they can transform events, so that in ten years, Russia is applying to join the EU.