The Rise of the National Spirits: from globalization to localism.
The key element for the survival of capitalism is a transition from a globalized production model to one based on localism.
Globalization drove growth but hindered productivity. Localism, bolstering resilience, reshapes production despite potential inflationary waves.
The COVID-19 pandemic echoed the state interventions of World War II and the Cold War. During those periods, the world explored three alternatives: nationalism in Europe and Japan, communism in Russia and China, and the industrial policy era in the United States. Unlike nationalizing businesses, the U.S. leaned on fiscal stimulus and collaborated with industry on national security.
In today's multipolar world, fiscal and industrial policy drive the economy more than monetary stimulus. In the first Cold War, Europe and Russia banked on national champions, while the U.S. saw a formidable alignment between the state, security agencies, and corporate America. Now, in a new Cold War with different players, the economic landscape has shifted again.
The Shift in Economic Dominance
In the first cold war, the dominant sectors were automotive, oil and gas, manufacturing, consumer goods, and emerging technology and telecommunications. Companies like General Motors, Ford, Standard Oil, and General Electric were at the forefront, driving the U.S. economy and providing extensive employment. The manufacturing sector was the backbone, producing goods for both domestic use and export. The rise of consumer culture fueled the growth of companies producing household goods and food products, while early technology and telecommunications companies like IBM and AT&T began laying the groundwork for future growth.
Today, the landscape has transformed dramatically. The technology sector now dominates, driven by the digital revolution, the internet, and advancements in computing, software, and AI. Giants like Apple, Microsoft, Alphabet (Google), Amazon, and Meta (Facebook) have reshaped the global economy. The healthcare sector has seen significant growth due to an aging population, advancements in medical research, and increased spending on health services. Financial services have evolved with innovations in digital banking and payment systems, facilitating global trade, investment, and consumer spending.
The energy sector remains vital, though it has diversified with a growing emphasis on renewable energy sources alongside traditional oil and gas. Companies like ExxonMobil and Chevron continue to play crucial roles, thanks to the shale gas revolution.
Key Differences and Adaptations
The most notable change over the decades is the rise of the technology sector, which was in its infancy in the 1960s but now includes some of the largest and most influential companies in the world. The healthcare sector's expansion is driven by demographic changes and technological advancements in medical care. Financial services have transformed significantly, with a shift towards digital payments and fintech innovations.
Manufacturing, once dominant, has seen a relative decline in importance due to globalization and the shift towards a service-based economy. However, it remains an essential part of the economic structure, adapting to new technologies and production methods. The consumer goods sector continues to evolve with changing consumer preferences and the rise of e-commerce, maintaining its importance in the modern economy.
The Future of Capitalism: the transition from globalization to localism.
As we navigate this new era of economic competition, the survival bias of capitalism underscores the importance of adaptability and innovation. The sectors and companies that thrive are those that can pivot and respond to changing global dynamics. The lessons from the past highlight the need for a strategic approach that balances national interests with global opportunities, ensuring that the economic policies of today can withstand the uncertainties of tomorrow.
In this context, the alignment of state policies with industrial capabilities, as seen in the U.S. during the Cold War, provides a blueprint for contemporary economic strategies. By fostering collaboration between government and industry, nations can create resilient economies capable of weathering the challenges of a multipolar world.
The key element for the survival of capitalism is a transition from a globalized production model to one based on localism.
Companies Leading the Localism Opportunity
Globalization was a tremendous force for growth and democratization of Cold War innovations, but it also coincided with periods of declining productivity. Localism will likely bring high transaction costs and inflationary waves, but it also represents a chance to rewire the global production model. The real impact of AI on manufacturing, new materials, and automation will create numerous opportunities.
United States: Tesla Inc (TSLA), Parker-Hannifin Corporation (PH), GE Aerospace (GE), Illinois Tool Works Inc (ITW), Northrop Grumman Corporation (NOC), Lockheed Martin Corporation (LMT), Raytheon Technologies Corp (RTX), Emerson Electric Company (EMR), and Caterpillar Inc (CAT).
Japan: Toyota Motor Corporation (7203.T), SMC Corporation (6273.T), Mitsubishi Heavy Industries (7011.T), Keyence Corporation (6861.T), Mitsubishi Electric Corporation (6503.T), Kawasaki Heavy Industries (7012.T), IHI Corporation (7013.T), Yokogawa Electric Corporation (6841.T), and Komatsu Ltd. (6301.T).
Germany: Volkswagen AG (VOW3.DE), Festo SE & Co. KG (privately held), MTU Aero Engines AG (MTX.DE), Siemens AG (SIE.DE), Rheinmetall AG (RHM.DE), Airbus SE (AIR.DE), ThyssenKrupp AG (TKA.DE), and Liebherr Group (privately held).
Thanks for reading,
Guillermo Valencia A
Cofounder of Macrowise.
Medellín, May 26th , 2024