The Economist this week

We have two covers this week. In most of our editions we focus on the reinvention of globalisation. After the go-go 1990s and 2000s the pace of economic integration stalled in the 2010s, as firms grappled with the aftershocks of a financial crisis, a populist revolt against open borders and President Donald Trump’s trade war. No one knew if globalisation faced a blip or extinction. Now the pandemic and war in Ukraine have triggered a once-in-a-generation reimagining of global capitalism. Everywhere you look, supply chains are being transformed, from the $9trn in inventories, stockpiled as insurance against shortages and inflation, to the fight for workers as global firms shift from China into Vietnam. This new kind of globalisation is about security, not efficiency: it prioritises doing business with people you can rely on, in countries your government is friendly with. It could descend into protectionism, big government and worsening inflation. Alternatively, if firms and politicians show restraint, it could change the world economy for the better, keeping the benefits of openness while improving resilience.
 
In our Latin American edition we consider the region’s vicious circle of economic stagnation and popular frustration, and the warning this offers to the West. The kind of polarised choice facing voters in this weekend’s presidential run-off in Colombia has become worryingly familiar in Latin American elections. There no longer seem to be many takers for the moderation, compromise and gradual reform needed to become prosperous and peaceful. That matters not just to Latin America, but to the world. Despite everything, the region remains largely democratic and should be a natural ally of the West. But its economies have suffered a decade of stagnation or slow growth. Its people, especially the young, have become frustrated by their lack of opportunity. They have turned this anger against their politicians, who are widely seen as corrupt and self-serving, and have been unable to agree on the reforms needed to make Latin America’s economies more efficient. The consolidation of democracy used to be seen as a one-way street. But Latin America shows that democracies can easily decay—and that is a warning for democrats everywhere.

Lloyd Austin, the American defence secretary, urged NATO ministers meeting in Brussels to accelerate the flow of heavy weapons to Ukraine, as fighting intensified in the eastern region of Donbas, especially in the town of Severodonetsk. Although Russia has occupied most of it, Ukrainian forces are continuing to mount stiff resistance. The conflict, in its fourth month, has turned into a war of attrition, with neither side seemingly able to make big gains.

The Federal Reserve raised its main interest rate by three-quarters of a percentage point, to a target range of 1.5% to 1.75%, the biggest increase since 1994. It was thought the central bank would lift the rate by half a point, but a few days before its decision data showed that America’s annual inflation rate, as measured by the consumer-price index, increased to 8.6% in May, higher than had been expected. Grocery prices were up by an average 11.9%, the biggest increase since 1979. The average price of a gallon of petrol in America has now breached $5 for the first time, up by 50% since January.