4 May 2020 | Reading 5 mins.

Quo vadis Europa post-corona?

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Katharina Krell
Entrepreneur, manager, project developer, senior expert in low-carbon economy topics

Katharina Krell, Entrepreneur, manager, project developer, senior expert in low-carbon economy topics

Are we really going to return to business as usual as soon as possible to resume the hyper-globalized frenzy of chasing the margins through global arbitration? Insights from Katharina Krell.

Have you noticed how nature enjoys the fact that we humans are confined? The other day a pheasant was spotted in downtown Brussels, the sky is unscarred of aviation exhaust, the air in the city suddenly smells much better, and it is so quiet in the streets.

Well, we cannot stay home forever, and this is not the way to save the environment. However, this is the moment to think about our economic model and how we’ve arrived where we are today.

Until 1990, globalization was fairly conventional, rebuilding essentially the open economy of 1913 – but then something happened that Dani Rodrik calls “hyper-globalization”, meaning that the same product at various stages of production is being shipped around the globe several times before coming together in a final product. We saw a huge increase of trade of intermediate manufactured goods in the last three decades.

Internet had made the world ‘flat’. Communication had become cheap and instant, and logistics followed suit. At the same time, global trade had been largely liberalized by a string of international trade rounds. The average tariff levels fell from about 22% in 1947 to 5% after the World Trade Organization’s (WTO) Uruguay Round in 1999. China joined the WTO in 2001, and new free trade zones reduced the cost of trading goods. With the result that arbitrage was now happening on a global scale, with companies taking advantage of price differences between their home markets and the now accessible emerging markets on the other side of the world.

Arbitrage:

the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset

At the same time, environmental damages were still treated as negative externalities that were not priced into the equation. Arbitrage was thus not only taking advantage of lower personnel costs in China or Bangladesh, for example, but also of the lower environmental standards that made the cost of manufacturing cheaper, not to speak of worker safety and social rights…

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