Globalization Myths Versus Reality, Continued

People who read this also read:

Some of the commentary on my last post took issue with my focus on levels of globalization, as embodied in my “10% presumption” chart— and suggested that I focus on trends instead. This is actually very useful to do because one of the standard evasions glommed on to by the purveyors of globaloney is that even if the world isn’t quite flat today, it will be tomorrow. In fact, I just heard Colin Powell say exactly that at an after-dinner talk.

So lets actually look at the trends on indicators of globalization—some of which I presented snapshots of in my last post. A number of indicators actually exhibit declines, depending on the time period employed. Thus, rough calculations suggest that the fraction of the world’s population accounted for by long-term international immigrants was slightly higher in 1900 -- the high-water mark of an earlier era of migration—than in 2005. The decline since 1900 in the size of net capital flows, measured by current account imbalances divided by gross domestic product, is even more marked. And while it would be nonsensical to look at the Internet over that long a time period, there is general agreement that localization/regionalization of Internet traffic has increased in the last decade, at the expense of true globalization, for reasons ranging from increasing peer-to-peer traffic to the development of alternatives to the U.S., which not that long ago, was the hub for virtually all international switching

For other indicators, new records are being set, but this has happened only relatively recently, and only after long periods of stagnation and reversal. For example, foreign direct investment (FDI) stocks divided by GDP peaked before World War I and didn’t get back to that level until the 1990s. In fact, based on such data as well as those presented above, some economists have argued that the most remarkable development over the last few centuries was the declining level of internationalization between the two World Wars, of which this is a particularly striking illustration.

And finally, while there are measures along which pre-World War I levels of integration were surpassed relatively early in the post-World War II period, e.g., trade, note that the trade-to-GDP ratio has increased from 20 percent in 1979 to 27 percent by 2004. Extrapolating over the next 25 years would imply a trade-to-GDP ratio of less than 35 percent by 2030 -- or perhaps closer to 30 percent, if one stripped out the effects of double-counting. Unprecedented yes, but hardly apocalyptic. Which is why international economists still focus on explaining shortfalls from complete integration rather than rapid progress towards that extreme state.

The broader point, then, is that the world is not only far from completely integrated today, but is likely to remain that way for the next few decades, at least. And for that reason, the question of whether globaloney is good or bad for you is of long-term rather than fleeting interest. So one more time—what’s your answer to that question?

Author’s note: These points on trends are backed up by my much more detailed review of the evidence in "Semiglobalization and International Business Strategy," Journal of International Business Studies 34, no. 2 (March 2003): 138-152.

HARVARD BUSINESS ONLINE RECOMMENDS:
Winning the Globalization Game (HBR Article Collection)
Dealing with Darwin: How Great Companies Cope with Globalization and Commoditization (BSR Article)
How Countries Compete: National Strategies for Globalization)

Comments

Sir, I enjoyed your recent post and have additional questions concerning:
In Globalization what do you feel are the benefits and vulnerabilities as the world market is evolving? I have read some articles on hidden vulnerabilities can you elaborate?

- Posted by Bill Lamar
September 25, 2007 12:08 PM

Globalization is one of the biggest myths of our time. Integration implies true mobility of all factors of production including people, absence of restrictions on trade, and the absence of any kind of cartels. When you have government-sponsored cartels like OPEC controlling the production and thereby the price of crude oil, we have no case to put forth for integration. Despite numerous trade agreements, quantitative and qualitative restrictions are still in place. Where is the scope for a MFN in a truly integrated world? Restrictions on the transfer of technology is yet another factor that impedes integration. In each of these cases, countries want to protect their own interests rather than looking at what is good for human kind as a whole. Integration is meaningless in the absence of a sensitized response to the millions dying of starvation and malnutrition in Africa while spending billions, perhaps trillions of dollars, on mythical fights against imaginary enemies. So long as this attitude persists, globalization and integration will continue to be a pipe dream.

- Posted by B V Krishnamurthy
September 27, 2007 1:24 AM

Sir,
The Globalization some 3rd world countries will and is benefiting, if you take the BRIC bloc, sub Saharan Africa they will benefit immensely, the poor countries will in a position to eradicate poverty by the following factors:
1.Investments: MNC will invest and in turn generate employment. The stander of living of these countries will increase.
2.Technology: Technology will be transferred, and absorbing of technology will is very critical factor in a developing country. Technology transfers is bound to happen and new technologies will get absordeb.
3. Interdependence: More we are interdependent you can avoid conflicts every country knows their economy will get jeopardize if
War or conflicts starts.
4. Bottom of the Pyramid: Globalization will help to reach all the 5 billion People who are in the BOP.
5. Global Standardisation: Globalisation will help in standardization of Technology, Management Practice, Education, Health Care, Governence and Global Human Capital Index will increase.
6. Competetion: Globalization will definitely increase fair competition, and competition will help global market maturity and product/service perfection.
7. Comparative Advantages: Ricardo's Comparative advantages will
Come in true sense and country’s Competitive Advantages will come in place and take a proper shape.
8. Cross Road of Capitalism: Capitalism will no more be a dirty word, Gobalisation will help to eradicate poverty and in turn will
erase corruption to some extent from 3rd World countries.
9.Transparency:Globalisation will hepl in tranparency both political and business wise.
10.Optimism: World will be nice place to live in protecting some very common interest like Global Warming and a common understanding between all the countries both rich and poor can
come together with direction oriented towards peace and harmony.

Debashish Brahma.

- Posted by Debashish Brahma
September 30, 2007 11:15 AM

From Mexico.

Recently I saw a list of forbes Magazine where the entrepreneurs of BRIC´s: Brazil, China, India, that began its procees of globalization in years 1960's & 1970's or before.

The four richest people in Mexico Begin in year 2000 to expand to countries in Central America and in the South like Brasil, specifically the company Telecomm of Carlos Slim, and Elektra of Ricardo Salinas.

¿What is the future of the companies in Latinamerica?

¿The biggest locals companies are going to be part of the globalization or they are going to fail, an to be fusioned by others?

Thanks.

- Posted by Alejandro
October 16, 2007 7:34 PM

The world is not flat -- the IT edition:

The Problem With "Chindia"

"... the lack of nuance that exists, particularly in the coverage of the global IT services market (read: offshoring), is downright scary."

- Posted by Stephanie Overby
October 21, 2007 11:12 AM

When I look at the book, The death of Economics and The World Is Flat, believe me, I swoon. Both Thomas Freidman and Paul are excellent writers.
To see the reality I switch on the TV, I see the GREAT 8 fighting a losing battle. Three steps climbed two steps down.
If this is Samuelson, Malthusian, Keynesian, it is a history.
I am I and you are you.
Globalization has taught me one thing. Mr. Bush holds the magic wand to give any one the seat deserved or not.
After wrangling about the World Bank Manager, Mr. Blair was to be nominated so the rumors had it. Then UN secretary. Now today 28th June 2007 just after he has handed all the problems of the last ten years and being very friendly with Mr. Bush, Mr. Tony Blaire bows good-bye to the 10 Downing Street leaving the office to be cleaned by the new comes to go to become the Envoy of the Middle East.
Now I call this the game. What exactly is Middle East? Simple the WMD failure and the oils now can be spilt between British and American. There is clear evidence in the newspaper “The Independent “of England that there are pilferages in oil. If Sunnis blast the mosque of Shias and if Shias bomb the mosques on Sunnis, the word is the mosques are the very holy shrines to both. So someone else moves the mouse and eats on the already to the bones chewed animal the vultures ride to see if they can take out few marrow from the skull just in case.
Mr. Blaire is involved in the oil pilferages.
Period. Iraq economy has to come to end, as Hamid Karzai dislikes the British and wants the British to get away from his soil. However, the British say they will stay.

Is this democracy, globalization or the rich becoming rich and poor becoming poor?
This is farce. DOW JONES hit 12000 in June 1999 and there was a jubilance ,Now it is above 13000 and the CPI index is still dicey not to show that there is no money in the coffer but there is a play some where there is no money and fiduciary issues are in the circle,

I thank you
Firozali A.Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania

- Posted by Firozali A.Mulla MBA PhD
November 4, 2007 12:53 PM

Dear Sir:

I have worked in marketing and communications for some 30+ years now and one thing I have learned (perhaps the only thing) is that to people perception is reality. Put another way it can be stated as "Don't confuse me with facts. My mind is made up."

Thus the reality presented by your research is completely irrelevant to the argument about globalization. The globaloneys KNOW that globalization is bad, is increasing, will increase the gap between rich and poor, and can be blamed for any and all ills suffered by (particularly) Third World countries.

It would be interesting to determine what is meant by "globalization" by the "globaloneyists". I suspect it is perception - McDonald's, iPods, jeans, American/European/Japanese cars "everywhere", and so on. Closely allied with that would be what is perceived to be, and not just by the French, the "destruction" of local culture by foreign movies, music, books, etc.

Yours sincerely/Marcis Esmits

- Posted by Marcis Esmits
November 5, 2007 11:46 AM

As one stated, perception IS reality. For most of the businesses with engineering, R&D and technical departments looking to survive in the next 40 or 50 years, the fact is that there is a shortage of skill sets coming. We need training, etc., but you also need the poeple to want to be trained to move into positions. If you don't have that supply, you need to get the talent from somewhere.

Where we have a dearth of talent, and a low wage cost to boot (today, may not be as cheap in 10 years) are companies like India, China, Phillipines, etc. Companies will have to look at bringing them in, or outsourcing the work.

For smaller companies with limited capital, this may be more of an issue as the lack of talent may puch salaries higher, and make it unaffordable or smaller companies to access the talent at a reasonable cost, or they may just want a small project or two done.

In any case, globalization is here to stay, and there is plenty of evidence to support. Just look around you at what you have, and determine how many of the things you buy are actually made in Canada or the USA.

- Posted by Sunil Godse
February 23, 2008 2:41 PM

	RSS Feeds
	Email Newsletters Management Tip of the Day Weekly Hotlist
	Twitter: @HarvardBiz
	YouTube
	Podcasts on iTunes IdeaCast Audio Podcast IdeaCast Video Podcast
	Harvard Business Mobile