I first learned of the term globalisation in 1992 during my first year of A level’s. We were asked to write an essay on how the new paradigm of globalisation would affect the world, and in particular small island developing states like my home country, Saint Vincent, in the Caribbean. I was fascinated by this new transformation and sought as much research as possible. Fortunately, my close neighbour was a government minister, and gracefully provided documentation. For my efforts, my essay was selected amongst the top three for submission to the Royal Commonwealth Society competition, and whilst not winning first prize, I achieved a commendation.
Now, 30 years later, having spent half of that time as a supply chain logistician in the Royal Navy, I have come to appreciate the importance of the way the world is connected by supply chains. However, as seen by the supply chain shocks and financial crises which have continued in succession since 2008, the dream that was promised by developing countries who created the new structure has not been fulfilled.
The promises of the benefits of globalisation for citizens not only in developing states, but also in major economies never materialised. The Caribbean region saw their agricultural economies decimated as preferential agreements were lost. In the United States, the manufacturing rust belt regions lost thousands of jobs as companies moved offshore to benefit from cheaper labour and tax regimes. Instead, large developing economies such as China and India gained enormously, leading to the rising scale of inequality around the globe. This is highlighted by a few statistics:
- Between 1990 and 2016, China’s share of the world’s gross domestic product (GDP) rose from 4.1% to an astonishing 17.86%, whilst India’s share grew from 3.6% to 7.3%.
- The G7 economies—Canada, France, Germany, Italy, Japan, the United Kingdom and the United States—fell from more than 50% in 1990 to 30.96% in 2016. However, they remained relatively prosperous having started off from a high level of development.
- Countries in sub-Saharan Africa’s increased by less than half a percent; along with marginal gains in the Middle East and North Africa.
- Latin America and the Caribbean’s share of the world’s GDP actually declined from 10% to 7.9%. The small countries of the Caribbean were the worst losers in the region.
Thus, the globalisation process created significant challenges to small developing economies such as those in the Caribbean, which are already dealing with a number of issues in their pursuit of sustainable development. Consequently, many, if not all of them, are unlikely to achieve the much-vaunted 17 Sustainable Development Goals set out by the United Nations in 2015 in its “2030 Agenda for Sustainable Development”.
Globalisation has occurred for centuries. Since World War II, there has been the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information. The technology and infrastructure that supported these flows were developed in an analogue age, dependent on manual paper based processes and lack of interoperability.
For example, 90% of traded goods are transported by sea, however, the necessary documentation such as Bills of Lading and Letters of Credit for finance are still paper based. Additionally, financial flows and cross border payments are typically costly due to currency exchange costs, intermediary charges, and regulatory costs.
International trade is an important driver of development, as such the availability of finance is essential for a healthy trading system. In 1990, the total value of global flows of goods, services, and finance amounted to $5 trillion, or 24% of world GDP.
By 2014, this increased to $30 trillion worth of goods, services, and finance, equivalent to 39% of global GDP. According to the World Trade Organisation (WTO), up to 80% of global trade is supported by some sort of financing or credit insurance.
In particular, SMEs require access to credit for survival, with the estimated shortfall in financing for SMEs being $5 trillion. However, there are significant gaps in provision and therefore many companies cannot access the financial tools that they need.
Without adequate trade finance, opportunities for growth and development are missed; businesses are deprived of the fuel they need to trade and expand.
‘Decentralised Finance’ (DeFi) is neither a legal nor a technical term. Decentralised provision of financial services happens through a mix of infrastructure, logistics, markets, technology, and applications.
Decentralised provision of financial services means, provision by multiple participants, intermediaries, and end-users spread over multiple jurisdictions, with interactions facilitated by technology. Thus, DeFi is key to enabling open access, participation and opportunity in the new digital economy for everyone.
Globalisation was once driven almost exclusively by governments, large multinational corporations, and major financial institutions. However, the world has become more intricately connected than ever before. Today, artisans, entrepreneurs, app developers, freelancers, small businesses, and even individuals can participate directly on digital platforms with global reach.
Digitisation changes the economics of globalisation in several ways, as digital platforms become global in scope, they are driving down the cost of cross-border communications and transactions, allowing businesses to connect with customers and suppliers in any country. Digital platforms reduce the minimum scale needed to go global, enabling small businesses and entrepreneurs around the world to participate.
A new paradigm
The shift to a more digital form of globalisation changes who is participating, how business is done across borders, and where the economic benefits are flowing. This creates a new paradigm where not only large corporates, but also retailers, SMEs, and individuals can use international payments, integrated commerce, or trade interfaces regularly.
According to McKinsey, improving the global trade finance ecosystem could add many of the 600 million new jobs needed by 2030 to absorb the growing global workforce, as well as enable progress toward the goal of financial inclusion, which is particularly needed in developing economies.
Consequently, the adoption of DeFi through digital transformation and digital globalisation could become an opportunity to improve the economic, human, and psychological condition of citizens around the world.