Energy is the backbone of our civilization, and the clear enabler of globalization of business and our great agricultural and manufacturing productivity. Cheap energy has allowed us to be comfortable and prolific, increasing the world population rapidly during the past century, and making my enjoyment of the apple on my desk, which came from several thousand miles away, possible. This is just one of the myriad benefits of globalization that would never have occurred without cheap energy, and I admit to enjoying it. Unfortunately, the era of cheap energy must come to an end, but how might that come about?
Many indications of the future are visible and reported on today. While globalization has shifted huge numbers of jobs to “low cost countries” and enabled mass movement of products and raw materials over long distances, at costs low enough to make the moves profitable, fossil fuels will inevitably become increasingly scarce and prices will be driven higher, taking the profit back out of the global movements of goods. This will redistribute jobs to both new markets and the older and more developed areas where globalization previously took them away. Thus, the rust belt of the United States, for example, will likely see some (but not all) of its lost manufacturing jobs returning over time. Steel for sale in U.S. markets is reported to already have become more profitable to make in the U.S. than China (pg. 5), for example.
Sustainability combined with increasing scarcity of fossil fuels will localize the products we use. Unfortunately, the steady (and sometimes rapid) run-up of energy prices will result in the eventual moth-balling of many ocean freighters, but their steel will help feed the once again less-centralized mills of the world, and the oil they consume will find ready customers. I expect before long I will no longer be eating New Zealand apples one week and South African oranges the next, but will instead be eating high quality U.S. fruit, and my local orchard may see a profitability it hasn’t known for decades.
The developed countries will be driven to serious efforts to develop alternative energy sources. As fossil fuels run out, the developed countries (including China and probably India) will marshal their resources to make a big push for fusion power, among other sources, and might actually achieve it within the next 20-50 years. This will maintain most of the economic differences between the developed and undeveloped countries, who will scramble for fossil fuel and less costly alternatives for decades more. Energy shortages will plague the developed countries in the interim, and cause significant economic fluctuations, but politicians will scramble to fund alternative energy research when it becomes especially evident that falling standards of living in North America will endanger their jobs, and that may accelerate the realization of alternative energy sources.
In the near term, globalization will slow and adjust downward, and the move towards a “level playing field”, economically speaking, will be slowed with it. In the long term, globalization will slow until much larger and sustainable alternative energy sources are in place, and may not return to its current level again for decades, and possibly more than a century.
CIBC Research Piece On Energy Costs – Globalization Is Reversible, May 29, 2008, Jeff Rubin, www.democraticunderground.com
Will Soaring Transport Costs Reverse Globalization, May 27, 2008, Jeff Rubin, Strategecon, CIBC World Markets Inc.
Will Energy Costs Drive Business Back to U.S.?, June 13, 2008, Nathan Bomey, Michigan Business Innovation, www.mlive.com