Tuesday, 26 April 2011

Economist: The case against globaloney (globalisation)

Schumpeter in this week's The Economist has an interesting article pointing up—and reviewing positively—the imminent publication of an important new book on globalisation by one Pankaj Ghemawat. Entitled World 3.0, the newspaper characterises its thesis: "At last, some sense on globalisation":
Geoffrey Crowther, editor of The Economist from 1938 to 1956, used to advise young journalists to “simplify, then exaggerate”. He might have changed his advice if he had lived to witness the current debate on globalisation. There is a lively discussion about whether it is good or bad. But everybody seems to agree that globalisation is a fait accompli: that the world is flat, if you are a (Tom) Friedmanite, or that the world is run by a handful of global corporations, if you are a (Naomi) Kleinian.

Pankaj Ghemawat of IESE Business School in Spain is one of the few who has kept his head on the subject. For more than a decade he has subjected the simplifiers and exaggerators to a barrage of statistics. He has now set out his case—that we live in an era of semi-globalisation at most—in a single volume, “World 3.0”, that should be read by anyone who wants to understand the most important economic development of our time.

Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP. Some of the most vital arteries of globalisation are badly clogged: air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels.

Far from “ripping through people’s lives”, as Arundhati Roy, an Indian writer, claims, globalisation is shaped by familiar things, such as distance and cultural ties. Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past.

What about the “new economy” of free-flowing capital and borderless information? Here Mr Ghemawat’s figures are even more striking. Foreign direct investment (FDI) accounts for only 9% of all fixed investment. Less than 20% of venture capital is deployed outside the fund’s home country. Only 20% of shares traded on stockmarkets are owned by foreign investors. Less than 20% of internet traffic crosses national borders.
And what about the direction rather than the extent of globalisation? Surely Mr Friedman (author of “The World is Flat”) and company are right about where we are headed even if they exaggerate how far we have got? In fact, today’s levels of emigration pale beside those of a century ago, when 14% of Irish-born people and 10% of native Norwegians had emigrated. Back then you did not need visas. Today the world spends $88 billion a year on processing travel documents and in a tenth of the world’s countries a passport costs more than a tenth of the average annual income.

That FDI fell from nearly $2 trillion in 2007 to $1 trillion in 2009 can be put down to the global financial crisis. But other trends suggest that globalisation is reversible. Nearly a quarter of North American and European companies shortened their supply chains in 2008 (the effect of Japan’s disaster on its partsmakers will surely prompt further shortening). It takes three times as long to process a lorry-load of goods crossing the Canadian-American border as it did before September 11th 2001. Even the internet is succumbing to this pattern of regionalisation, as governments impose a patchwork of local restrictions on content.

Mr Ghemawat also explodes the myth that the world is being taken over by a handful of giant companies. The level of concentration in many vital industries has fallen dramatically since 1950 and remained roughly constant since 1980: 60 years ago two car companies accounted for half of the world’s car production, compared with six companies today.

He also refutes the idea that globalisation means homogenisation. The increasing uniformity of cities’ skylines worldwide masks growing choice within them, to which even the most global of companies must adjust. McDonald’s serves vegetarian burgers in India and spicy ones in Mexico, where Coca-Cola uses cane sugar rather than the corn syrup it uses in America. MTV, which went global on the assumption that “A-lop-bop-a-doo-bop-a-lop-bam-boom” meant the same in every language, now includes five calls to prayer a day in its Indonesian schedules.

Mr Ghemawat notes that company bosses lead the pack when it comes to overestimating the extent of globalisation. Nokia, for example, spent years trying to break into Japan’s big but idiosyncratic mobile-handset market with its rest-of-the-world-beating products before finally conceding defeat. In general companies frequently have more to gain through exploiting national differences—perhaps through arbitrage—than by muscling them aside.

This sober view of globalisation deserves a wide audience. But whether it will get it is another matter. This is partly because “World 3.0” is a much less exciting title than “The World is Flat” or “Jihad vs. McWorld”. And it is partly because people seem to have a natural tendency to overestimate the distance-destroying quality of technology. Go back to the era of dictators and world wars and you can find exactly the same addiction to globaloney. Henry Ford said cars and planes were “binding the world together”. Martin Heidegger said that “everything is equally far and equally near”. George Orwell got so annoyed by all this that he wrote a blistering attack on all the fashionable talk about the abolition of distance and the disappearance of frontiers—and that was in 1944, when Adolf Hitler was advancing his own unique approach to the flattening of the world.
Clearly, a most interesting publication and one vital to our understanding of this phenomenon—an opportunity to gain some perspective on one of the most characteristic international phenomena of our age.

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