The tenets of neoliberalism were responsible not only for income inequality but also led to financial instability and crises on a regional and global scale. Starting with the Latin American debt crisis in the 1980s, the Asian Financial Crisis in 1997 and more recently the Global Financial Crisis that began in 2007, it became increasingly evident that financial deregulation created dangerous vulnerabilities.
For Indonesia, the dark side of hyperglobalization became painfully evident during the 1997 financial crisis. The sudden collapse of the rupiah brought down the entire economy and wrought not only immense suffering but also a prolonged period of political instability that at one point could have easily led to the balkanization of Indonesia.
It would take years before Indonesia would return to being stable, and the crisis brought home an important lesson: neoliberalism, or what other economists have described as market fundamentalism, was not a perfect panacea for development. Neither should the success of economic policies be measured primarily in terms of growth. Instead of blindly following the preachers of neoliberalism, countries such as Indonesia would have to find ways to gain better control over the fate of their economies.
It would take another decade after the Asian Financial Crisis before governments and policymakers started to take more seriously the risks of destabilizing capital flows as a consequence of hyperglobalization. In the 2007 Global Financial Crisis, or Great Recession, very few escaped unscathed. The recession, which was the largest and most severe economic downturn since the Great Depression in the 1930s, caused high levels of unemployment and a slowdown in economic growth in many countries around the world.
Serving as a sort of wakeup call, the Great Recession led to the realization that globalization could be a double-edged sword. Finally, deglobalization began in earnest. In fact, the ratio of global exports of goods and services to the world economy peaked in 2008 and has been on a constant decline. Foreign direct investment has also become a less prominent feature in the world economy: according to the World Bank, it peaked in 2007 at 5.3 percent of world GDP and was as small as 1.3 percent in 2020.
Still, it would take much more than a recession to convince the world that it was necessary to find new ways of thinking about our collective economic future–the huge costs associated with severe weather and crop failures as a consequence of climate change, the Covid-19 pandemic and the supply chain disruptions it caused, and finally the weaponization of energy during the Ukraine War are seismic events that have caused mass discontent and deeply underscored the need for deglobalization. For the first time, there is now an emergent political consensus for the urgency to fashion a post-neoliberal world.
Rather than globalization, leading economists and policymakers are thinking through how we can become more localized and regionalized. Instead of focusing on market efficiencies–a touchstone of classical economics–there is a move by corporations and governments alike towards seeking resilience as a means of withstanding future shocks and ensuring economic policies are more firmly aligned with national interests.