Globalization 3.0: COVID-19 Further Flattens The World

The far-reaching global ramifications of the Coronavirus pandemic

Most people who are familiar with critically acclaimed author Nassim Nicolas Taleb’s work assume the Coronavirus pandemic is a “black swan” event, a rare and unpredictable outlier with extreme impact. However, the author has publicly clarified that COVID-19 is actually something many people confidently predicted would eventually take place. Some might even go as far to say that a global pandemic was unavoidable, based on the structure of the modern world with its increased connectivity and over optimization. Therefore, according to Taleb, the COVID-19 pandemic is actually a “white swan” event. Regardless of how you categorize it, the impacts of this virus are significant and widespread and we are only just starting to understand the ramifications.

In Thomas Friedman’s internationally best-selling book, The World Is Flat: A Brief History of the Twenty-First Century, he offers a thought-provoking analysis of globalization in the modern era. The title of the book is a metaphor for viewing the world as a level playing field, wherein all competitors have an equal opportunity which have been realized based on aspects that he refers to as ten “flatteners.” Most of these flatteners are a direct result of technology, which has enabled the world to become connected in real-time. For example, outsourcing is a flattener enabled by the availability of the global fiber optic network. This allows organizations to split service and manufacturing activities into components, which can then be subcontracted globally and performed in the most cost-effective manner. Friedman has segmented globalization into generations and he refers to the current economic environment as “Globalization 3.0,” a period that started at the dawn of the current millennium just after Y2K.

Critics of Friedman argue that his premise that the world is flat is not accurate, and that globalization has actually created even greater inequality than we’ve ever seen at any point in history. The rich, industrialized countries get richer as a result of interconnection, while the poorer, developing nations continue to suffer. Domestically, this has manifested itself in urban areas, with higher population density growing rapidly and becoming more successful, while rural areas become more isolated.

Maintaining A Balance of Power

An interesting but often overlooked aspect of Globalization 3.0 is that although the internet has created unprecedented opportunities for individuals around the world to collaborate, huge multinational companies have still managed to maintain the balance of power. This is primarily due to the fact that these companies have traditionally controlled access to online infrastructure, enabling  professionals and organizations to connect. This infrastructure was typically centralized in physical office locations, most often in urban centers which were best equipped to offer the essential services to a large population of workers based on its high density infrastructure, investments in modern technology, access to mass transit, etc.

In early 2020, COVID-19 created a major global disruption. Companies were forced to rapidly decentralize their infrastructure and transition to virtual working environments. Although the initial transition appeared to happen almost seamlessly, Newton’s Third Law teaches us that for every action, there is always an equal and opposite reaction. So it should be no surprise that a revolutionary change of this magnitude has altered the globalization dynamics, with far reaching ripple effects.  

Revolutionizing How and Where We Work

In the traditional style of working, a job was defined as supervised attendance at a place of work. This was generally understood to be a specific physical space in an office provided by an employer. Measurements of an employee’s performance were usually relative to time spent at the workplace with direct management supervision. The transition to a fully virtual work environment has completely changed this concept. People can now do their job remotely with little to no management oversight, and physical and geographic boundaries have been eliminated.

The additional freedom has created more opportunities for skilled individuals, shifting the balance of power away from organizations and resulting in a hyper-competitive talent landscape. Individuals are empowered to look outside their traditional market for employment opportunities, and companies are strengthening their workforce by hiring talent based on capability rather than geography. This global redistribution of labor is already starting to affect the talent landscape, increasing attrition, lowering retention, and contributing to an increase in labor costs. For risk takers, it is also fueling growth in the freelance economy; although, individuals need to exercise caution and consider all relevant factors as they may be taking for granted longer term security and benefits offered by established employers.   

The transition to remote work has also demonstrated that individuals do not require access to urban infrastructure, as most rural areas in developed countries are equipped with services which are more than capable of serving the needs of modern information workers. Not to mention the social and physical distancing aspects of COVID-19 have encouraged people to seek out areas of lower population density, which often has the added benefit of offering a lower cost of living than urban centers. Without the need to commute to work on a daily basis, individuals can expand their horizons and look for more desirable places to put down roots. Companies have responded by downsizing their now vacant offices and setting expectations that in the future, employees will be expected to perform the majority of their work from home and other remote locations. However, if this de-urbanization trend continues, economists are concerned that it will impact economic growth because cities have traditionally generated enormous economies of scale and have proved to be remarkably effective incubators of creativity and innovation.

Government Steps In

In order to manage the spread and effects of the Coronavirus, governments have been forced to intervene with restrictive policies. And since the long term effects of interventions are nearly impossible to predict, these policies have greatly affected the flow of worldwide goods and services, thus impacting the global economy. Most countries have instituted rigid travel bans, thus eliminating business travel and severely constraining personal interactions between suppliers and their clients. There has also been a rise of protectionist measures as countries prioritize the safety of their own citizens. This has resulted in a halt on emigration as governments have frozen the processing of work visas to foreign workers. Emigration restrictions have forced companies to rely more heavily on domestic resources; creating more onshore jobs and strengthening the nationalist perspective. However, this usually comes with an increased cost to the business, something that may only be resolved by raising prices in the longer term.

COVID-19 has also created a reduction in client spending as they elect to delay non-essential projects in favor of protecting their bottom line. And although these reductions may be temporary, it still creates a major challenge for service providers as they try to maintain their current staffing levels. The real risk of a transition to a fully virtual business model is the erosion of existing client relationships and the commoditization of service offerings. Social interactions build trust and loyalty whereas social distancing reduces familiarity and weakens personal connections. It also tends to lower the perceived switching costs of moving from one provider to another, increasing the probability of major account transitions or losses.

Crisis Does Breed Opportunity

However, it is also important to recognize that every crisis also breeds opportunity. Opportunistic companies are moving quickly to acquire high-quality talent, intellectual property, and new capabilities. These investments can be critical to long-term resilience while also helping distressed companies preserve capabilities and talent versus facing potential insolvency. Companies with fortitude, a strong balance sheet, and a healthy stock price are aggressively pursuing the most promising growth technologies, solutions, and sectors to gain first-mover advantage in a post-COVID world. Many industries are also experiencing consolidation as larger companies take aggressive steps to both fortify and grow their market share, product lineups, geographical reach, and customer base. 

In early 2020, many people believed the global response to the Coronavirus was temporary and life would soon return to “normal.” However, there now seems to be a consensus that we will not return to our old ways of working. New standards for health and safety prioritize social and physical distancing, and these standards will permanently influence the nature of the workplace and how work is done. In this respect, it seems that Friedman’s Globalization 3.0 observations may be more accurate than ever.

Some companies will certainly emerge stronger from this pandemic. In order to do this, they will need to exhibit another of Taleb’s concepts which he describes as “anti-fragile.” Anti-fragile businesses are not only resilient, they actually become stronger as a result of volatility and stress. The winners who emerge from this crisis will be those who are diversified and synergistic, prioritize capacity over efficiency, and leverage human adaptability. They will also need to successfully navigate the paradox of risk, neither placing all of their eggs in one basket nor placing their eggs in too many baskets. Diversified but focused will continue to be a winning formula, regardless of any pandemic.