By Tracy Corrigan Last Updated: 5:03PM GMT 09 Dec 2008  It is almost always a mistake, I have noticed, to try to call the end of anything. The end of history, the end of boom and bust – like the musings of happy couples in Hello! magazine, such pronouncements inevitably seem to trigger a reversal of fortune.  So I’m not going to predict the end of globalisation. It has, after all, only stalled: a temporary casualty of the economic crisis. Instead, I am opting for the – I hope – safer bet of identifying a new trend, most notably in financial markets. I am not talking about the usual shifting around of assets in search of safe havens, but rather the mass repatriation of capital in an effort to sort out financial problems back home. This is globalisation in reverse – you could call it “parochialisation”.  There are two prerequisites for globalisation: a reasonably low level of protectionism and a mood of expansionism. The first is still in place, for now. Although there are obvious barriers – from agricultural tariffs to the French government’s refusal to allow PepsiCo to bid for that jewel of French industry Danone – these have merely slowed the apparently unstoppable march of globalisation.  The second prerequisite is that companies or investors are prepared to take the risk of acquiring assets or building businesses in foreign markets. In recent years, however, the availability of cheap financing and confidence in healthy economic growth, particularly in emerging markets, have made overseas investment a no-brainer.  Times have changed. The World Trade Organisation is trying to finalise an agreement to lower trade barriers before the end of this year, but these efforts have been in train since 2001, so the odds on it happening don’t look great – particularly since hard economic times and heavy job losses (half a million in the US in November alone) have increased political pressure to protect vulnerable industries.  Even without new tariffs, state subsidies – and the injection of taxpayers’ money into the US car industry would amount to just that – will hamper foreign companies’ ability to compete.  This might be enough to bring globalisation stuttering to a halt, but the financial crisis has applied a far more powerful brake: the collapse of business confidence, the evaporation of cheap financing and the advent of government money.  As credit conditions have tightened, government has rapidly become a crucial provider of capital, particularly in the financial sector. Governments’ – in other words, taxpayers’ – interests are by definition rather more parochial than those of empire-building executives, and they are starting to reallocate capital where they feel it is most urgently needed – in the domestic economy.  In the UK, the Government has a majority stake in Royal Bank of Scotland, which has, in recent years, provided billions of pounds to acquisitive private equity funds and expanding companies. Simultaneously, it has become a global institution, with a big capital markets business and a strong Asian franchise (through its otherwise spectacularly ill-judged acquisition of ABN Amro).  Now, its new boss, Stephen Hester, is conducting a strategic review. The bank has committed itself to maintaining the availability of lending in the UK next year. Given the scarcity of capital, it is likely to have to prioritise its British business over overseas operations.  That will only go some way to bridging the gap left by departing foreign investors: in 2007, Britain was the second largest recipient of foreign direct investment after the US.  But China and the oil-rich Middle-Eastern powers – among the biggest exporters of capital in recent years – are drawing back. Their sovereign wealth funds, which provided much-needed financing to banks such as Barclays and Citigroup, have had enough. The head of China Investment Corp said last week that he “does not have the courage to invest in financial institutions” following heavy losses. In any case, China has other priorities, having put together a £373 billion package to bolster its domestic economy.  Parochialisation is not a healthy development, particularly for a small economy such as Britain’s. It is, however, a useful reminder of the pitfalls of the rather mindless globalisation frenzy which characterised the boom years.  Doing business in other peoples’ countries carries additional risks which may not be obvious in the good times. Losing control of key industries to foreign companies will prove painful if they pull back to their domestic markets in times of trouble. Some of our strongest global companies will buck the trend, but let’s see how irrelevant the foreign ownership of the UK car industry turns out to be.  Like capitalism, globalisation has not been discredited. But the idea that, unfettered, it is always a positive force has proved similarly flawed.
Tracy Corrigan says that worldwide plans are now on hold as domestic economies    call for attention