As world openness retreats, you’re about to get a lot poorer
BY DAN HANNAN
Things are about to get a lot worse. A world made poorer and more protectionist by the pandemic is responding to the Ukrainian war by withdrawing further from globalization. The effect will last for decades. A lot of people will end up cold, hungry, and broke.
The direct impact of the war is already being felt in the spike in food and fuel prices. I was vaguely aware that a lot of wheat came from Ukraine — the “breadbasket of the world” accounts for 10% of the global supply — but who knew that those fertile steppes provide Europe with 88% of its sunflower oil and half its canola oil? This would be a good moment to start planting those crops.
Add in an effective embargo on Russian oil, and we are looking at a massive fall in living standards. Energy is not just one among many commodities. It is the vector of all economic growth. When energy becomes more expensive, so does everything else.
The story of human progress is, in essence, the story of falling prices. Specialization meant that lots of things, especially food and energy, got cheaper. This meant that we could work shorter hours while living better. We banked some of those extra hours as leisure, but we used most of them to invent, buy, and sell new stuff. That’s the miracle that made the modern world.
The miracle has been thrown sharply into reverse, with living standards expected to fall by around 5% over the next 12 months. But that is not the worst of it. Even more alarming than the price rises is the way governments around the world are reacting. As the economic effects of the shortages are felt, they are withdrawing into the madness of autarky.
The process had already begun even before COVID-19. According to the World Trade Organization, 2019 saw a fall in the proportion of traded goods and services and a retreat from liberalization. That process was accelerated during the lockdown as politicians responded to the irrational demand for “self-sufficiency.”
The view somehow got around that every country should be able to make its own vaccines and protective kit and that the coronavirus had shown the “fragility” of globalization. In fact, it did no such thing. Countries were able to buy vaccines far more cheaply because they were being produced competitively across the world. Supply chains for food and other essentials continued to function despite a simultaneous global stress test. If you want to see fragility, let me show you a closed economy, vulnerable to every local disruption.
But logic plays only a small part in politics. People respond to uncertainty by wanting to produce their own food, energy, and other essentials. The feeling may be utterly unreasonable — security comes from having a wide variety of global suppliers, not from concentrating production on your territory — but it is no less potent for that.
How must sanctioned Russia look to China’s leaders? They will see a country that was relatively open to global brands, a country that had Facebook and Twitter, McDonald’s, and Pizza Hut, but is now being hit by their withdrawal. China’s decision to build its own versions of Western companies and banking systems must now seem, at least from the perspective of its autocratic leaders, entirely vindicated. Now, Chinese President Xi Jinping wants to go further.
“There is no room for any slightest relaxation on the issue of food security,” the supreme leader told his rubber-stamp parliament. “You should not rely on international markets to solve it. China must depend on itself and feed itself.” His solution? To reserve 296 million acres of agricultural land for food production.
At the other end of the scale, Ukraine is doing the same thing. With no fuel, little seed, and few open roads, drilling cannot take place. Ukrainians carry a folk memory of the monstrous famine of 1933, when grain was still being exported to meet Josef Stalin’s quotas, and have banned the export of oats and wheat.
Imagine for a moment what the world would be like if other countries started doing the same. Imagine if we all banned exports and sought to feed ourselves. Actually, you don’t have to imagine. You just have to look at how the world was before the 19th century — a world of constant famines and wars.
We can choose whether or not to revert to such a world. The coronavirus might have been foisted on us, but we made a decision to shut our economies in response. Putin might have started this war, but we are now making a decision to respond with trade barriers. Whatever happens, this part is on us.