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Selling Globalization: The Myth of the Global Economy

Michael Veseth

Lynne Rienner Publishers, Inc.

1998

1. Global Visions

 

Globalisation is a trend that has spawned many conventional wisdoms. The freedom of employers to locate factories wherever labour costs are cheapest is said to have reduced the power of labour. The ability of companies to choose countries with user-friendly tax and regulatory regimes is alleged to have undermined the power of the nation state. Income inequality in the developed world is often attributed to the globalisation of production. While there is an element of truth in each of these assertions, they are all potentially misleading.
—Financial Times 1  

This book is about the G-word: Globalization. Globalization is one of the most powerful and persuasive images of today’s world. The image of globalization—as promise or as threat—is invoked daily to justify actions and to rationalize policy. Managers are encouraged to “think global.” Investors sink their cash into “global” mutual funds. Politicians at every level in every country push to plug into the global web. Globalization is big and it is hot.

But is globalization more than an image? What is the real nature of this process and what does it hold as promise or as threat? I believe that the “globe” is experiencing real and important change, but it is not globalization. Or at least the most important element is not the global element.

In this book I argue that globalization is badly misunderstood. It is quantitatively and qualitatively different from the conventional wisdom. In particular, it is fundamentally different from the extreme visions of globalization—hyperglobalization—with which we are constantly bombarded in newspapers, on television, in popular books, and in scholarly journals. 2

In fact, I argue, the popular hyperglobalization images of seamless global markets and a borderless world are impossible from a practical point of view, whatever their theoretical or emotional appeal may be. Global financial markets have a built-in tendency toward chaos and crisis, and the instability worsens as the markets expand. Without a stable financial base, an integrated global economy is out of the question. Truly global firms are rare animals in this world of chaos and crisis. The emerging “global economy” that we hear so much about is really something else.

If globalization as we commonly think of it does not exist, then how did we come to think of it this way? My answer is that hyperglobalization and its image of the seamless global economy are useful. Many people are able to further their own economic, political, and intellectual interests by painting in vivid, memorable colors a picture of hyperglobalization at work. Globalization is sold, and we buy it. But globalization is really a delivery system, not a final product. When we accept the image of hyperglobalization, we simultaneously accept, usually without question, a number of other images—political, economic, and intellectual.

Globalization is the Marlboro Man of international political economy. People are attracted to the advertised image and buy the product associated with it. It makes them feel good and look cool, and they are soon addicted. Then one day they wake up with emphysema. This process is misleading and potentially dangerous. It is time that this globalization business was more closely scrutinized.

This first chapter presents short case studies of how globalization is understood, misunderstood, and used to sell a variety of policies, programs, and ideas. I then outline the argument that I make in the main part of the book, so that you will know what you are getting into and will be better prepared to put specific analysis and particular case studies into a broader context. After I have convinced you that actual globalization is different from what the conventional wisdom suggests, I sketch my own image of globalization. But I save that for Chapter 8.

 

Four Faces of Globalization

Globalization has many faces. It is in fact a complex dynamic process. Because it is so complex, however, its true image is hard to grasp, and it is easy—too easy—to see what you want or have been conditioned to see. To a certain extent globalization is a mirror that shows us the face we are looking for, not the one that’s really there. Much of this book is devoted to a more detailed analysis of what globalization is versus how it is perceived and why.

Let me show you four faces of globalization that made the news in the dog days of summer 1997 when I was writing the first draft of this chapter. It seemed as if whenever I picked up the newspapers, I found advertisements for globalization among the news stories and editorials. These stories were mundane—the sort of stories that you find in daily newspapers during any month of any year. (I have saved the best cases for more extensive treatment in other parts of the book.) The mundane regularity with which globalization gets sold is important. Globalization is so widely marketed for so many different reasons that it has infiltrated our understanding of the world in a fundamental way. We no longer really think about globalization in assessing an argument that is based on it. This is a fundamental error. If we are interested in understanding the changes that the world is experiencing today, it is a fatal error.

So I am going to tell you four stories from the summer of 1997. In the first story, which features Nike, I want you to see how the threat of globalization can be used effectively to promote private interests even in a situation in which the global connection is clearly irrelevant. In the second story, I want to show how the image of globalization can be manipulated and used to promote public policies that are at best tangentially related to global markets. These two stories should help you understand how powerful the image of globalization is and how important it is to “sell” globalization in order to sell other things.

The third story, which is about the Boeing–McDonnell Douglas merger, shows how the consequences of actual globalization do not always follow the hyperglobalization model. Bigger markets do not necessarily mean the end of the state, for example. This almost makes you wonder if the bigger market/smaller state mindset is not missing something. And finally, the fourth story looks to the prodemocracy movement in Indonesia to provide an example of how globalization can be used to promote all sides of an issue. These two stories question whether globalization is really what it is advertised to be—or if, in fact, it is something entirely different.

In short, my goal in this first chapter is to create a context that questions the common understanding of globalization.

Case 1: Globalization and the New Nike Factory

Nike, the company that makes shoes and equipment for the likes of Michael Jordan and Tiger Woods, is the quintessential “global firm.” Of the four business case studies I present in Chapter 3, it is, in fact, the only company that satisfies my definition of a truly global firm. In the summer of 1997, Nike announced that it wanted to construct a major U.S. production facility outside of its Oregon home (where little actual manufacturing takes place). Who wants our business? Who will make us the best deal? What will you give us to build the factory in your town, Nike seemed to ask.

Nike’s announcement fits the conventional picture of how global firms are supposed to operate. They can produce anywhere and sell everywhere, the story goes, so local governments must bid for their business. This is the classic case of the footloose global firm versus the intimidated, powerless state. I became aware of the event because Nike’s plans involved the Puget Sound region of Washington state, where I live and work. The News Tribune reported on August 10, 1997, that

Representatives of Nike Inc. are scheduled to meet with officials in Pierce and Thurston counties next week about possibly building a manufacturing plant and offices for up to 5,000 employees.

Snohomish County economic development officials confirmed that they, too, are courting Nike for what may be a major Puget Sound expansion outside of the sports equipment company’s Beaverton, Ore., world headquarters

At this point, any talks with Nike are considered very preliminary. Washington is competing with sites in Colorado, New Mexico, Nevada and British Columbia, and it isn’t certain Nike will select any of them

“We’ve been in contact with a number of states and have asked them to look at a particular tax scenario,” Nike spokesman Lee Weinstein said. “How could it affect us and our taxes?” 3

Nike seemed to be playing the various state and local governments against one another, looking for the best deal. They could build their factory anywhere—even in Canada—bringing jobs and revenues to whatever location they might choose. This mobility gave them power to extract concessions from state and local officials. A related News Tribune article provided context.

The immediate catalyst behind Nike’s current search for a second campus site, one outside Oregon, is a land-use dispute the company is having with Metro, the Portland-area regional government. Metro wants Nike to have housing built on part of its campus adjacent to a light-rail station; Nike wants to put more offices there

Also at issue is Nike’s growing sense that it has done a lot for Oregon, while the state hasn’t offered it anything in the way of tax cuts. Tax incentives played a major role in building the “Silicon forest” around Portland. In comments to The Oregonian, Clarke wondered why Intel and other semiconductor companies get tax deals and Nike is ignored

Knight’s inquiry isn’t a guarantee a second Nike campus will be built outside Oregon. Metro and the state of Oregon could patch things up with Nike. Knight, a native Oregonian, might decide to continue to keep the bulk of his operations there

It’s possible, some Washington officials say, that Nike is turning to other states solely as a bargaining chip to use in its struggle with Metro. 4  

When I first read these articles, I recognized Nike’s strategy as a variation on the hyperglobalization theme. The idea that global corporations are free to move about in a “borderless” world and can therefore dominate and coerce geography-bound states is an important aspect of the conventional wisdom about globalization.

As I thought about it some more, however, I realized that the article was also about something else. Nike was basically asking governmental units to compete for their investment funds. The fact that these governments can compete shows that they have power to at least control scarce and valuable resources. These governments control something that Nike wanted. Interesting. The much-heralded death of the state may be exaggerated after all. The state is not dead; that is not what is new here. What is new is the degree of competition among different governments, which has nothing to do with the conventional wisdom. To a certain extent, what we misinterpret as “globalization” is often increased intergovernmental competition, which attenuates the power of individual governments without necessarily reducing state power overall.

What is also new is the fact that Nike can shape this competition to its corporate advantage. It was able to do so, of course, because the image of hyperglobalization makes everyone believe that Nike could or would build a new factory just about anywhere. This image gives Nike power over governments—not limitless power, but power just the same. Power and authority are no longer so concentrated in the state, but diffused unequally throughout a more competitive international political economy of governments, firms, and other institutions. Oregon has some power and so does Nike; neither can rule, and both can bargain in a competitive environment. This is an interesting new environment, but there is nothing fundamentally “global” about it.

What should we make of the fact that Nike invited offers from only a few states? That doesn’t seem very global. Perhaps these states are known as the most competitive and willing to make concessions. This would put more pressure on Oregon officials to make concessions of their own, which seems to have been Nike’s strategy in this situation. About the only thing that the targeted states have in common with each other (and with Oregon) is the availability of excellent winter skiing. If this is indeed the key factor in Nike’s global plan, then I guess the image of globalization as the “end of geography” will need to be revised.

Nike’s plan worked, by the way. And it worked fast. The News Tribune reported on August 20 that

It was a day to schmooze the swoosh

When Nike Inc. representatives—clad in shorts, athletic shirts and hiking boots with those trademark swooshes—came to the South Sound on Tuesday to scout a home for a new manufacturing plant, they were met by men and women in business suits, crisp white shirts and heels

They were served Snapple in wine glasses, cookies on platters and Starbucks Colombian blend coffee. They had breakfast at the Tacoma Club in Pierce County and lunch at the Indian Summer Golf Course in Thurston County

And they heard local representatives’ best sales pitches, all meant to persuade the athletic-shoe giant to tap them on the shoulder with its magic wand when the time comes. 5

The very next day, The News Tribune reported that

Nike got half of what it wanted from the Beaverton City Council this week

The athletic shoe giant objected to Beaverton’s plans to designate 15 acres of Nike property north of the light-rail line for residential use

Nike also opposed plans requiring it to provide a public access road across its land to the new Beaverton Creek station of the light-rail line

The City Council has decided to absolve Nike of any responsibility to use part of its property for housing. But it required Nike to provide the public access road. 6

The moral of the story? “I should have worn shorts,” according to one of the jilted local government suitors that Nike used to extract concessions from Beaverton. 7   No, it probably wasn’t a question of style, although it must have been hard to interpret the Nike style of business dress as a serious statement of interest in making a multimillion dollar investment.

No, the moral of the Nike story is this. Nike was able to bargain with local governments for concessions in part because of its image as a footloose global firm. Although Nike is footloose and global in many respects, the image is probably wrongly applied to this specific case. But the belief in footloose globalization as a general feature of corporate behavior was enough to induce local governments to scramble to offer concessions to Nike, which improved Nike’s position in bargaining for its Oregon home turf. Hyperglobalization (swoosh!) was a useful image that served Nike well in these negotiations.

Case 2: Globalization and the World Trade Center Luncheon

Globalization is a powerful tool for private interests, but its use is not limited to “global” business firms like Nike. Globalization is equally useful in the public sector. The real beauty of globalization is that it can be made to seem relevant at all levels of analysis, even at the local Rotary Club or Chamber of Commerce luncheon. The News Tribune, my source for local news here in Tacoma, commented on one such luncheon in its July 23, 1997, editorial column.

he downtown luncheon held Tuesday by the World Trade Center Tacoma was a signal event in Pierce County’s economic history

It wasn’t merely the fact that Gov. Gary Locke was the keynote speaker, although his presence—and what he had to say—were both significant

Most impressive was the unprecedented, community-wide focus the event brought to bear on the need to make Tacoma and Pierce County a genuine player in the global marketplace

For much too long the concept of international trade in Pierce County has centered mainly on the Port of Tacoma. The port, blessed with deep water, a handy proximity to the Pacific Rim and an abundance of terminal space, has grown dramatically as a handler of container cargo

But the South Sound region must look “beyond the boxes,” as a City Club of Tacoma report once put it, to truly make a place for itself in the burgeoning global economy. More small and medium-sized local businesses—not just the Boeings and Weyerhaeusers—must seek new markets abroad. And if the region fails to capitalize on the present opportunity, it risks losing its best chance to build an enduring prosperity. 8

The key to Tacoma’s success, the News Tribune opined, is globalization. If Tacoma can become “a genuine player in the global marketplace” it will grow and prosper. If it does not, it is doomed to a stagnant backwater fate. This idea is not ridiculous when applied to Tacoma, since historically its existence has been based on international trade and finance. Still, the same argument is made at civic luncheons everywhere, it seems. Every town with a port, railroad, airport, satellite dish, or fax machine thinks it sits, at least potentially, at the center of the earth. Probably you have heard civic leaders in your town say the same thing.

The publisher of the News Tribune thought the matter important enough to have his own luncheon remarks published in full a few days later. We have reached a point where participation in the global economy is critical, he said.

Why is this moment historically special? Part of the reason is the legacy we have inherited:


 

All correct so far. Tacoma is relatively well prepared to enter the global world of the twenty-first century. This isn’t an accident, however. Tacoma was originally built to take advantage of the global economy that existed one hundred years ago, when the nations of the world were in some respects even more economically integrated than they are today.

So what are the implications of globalization? Where does the logic of global markets lead? Surprisingly, I think, global logic calls for policies that have an extremely local focus, according to the News Tribune publisher.

We are beginning to shape the vision but we haven’t done the real work yet:


 

But we are fixing those things. 10

I agree with everything that the publisher put on his list. These are all serious local problems that need to be addressed in my city and state, and the sooner the better. But are they globalization problems? No. Is globalization a reason for reforming university governance or dealing with neighborhood decay? Not really. Or rather, if globalization is the only reason or the best reason, then the case cannot be very strong.

I understand the logic that connects the two parts of the speech, local problems and global markets. Urban neighborhood redevelopment is related to globalization in the following way. To compete in global markets, you need to attract global investment. To attract global firms, you need to be able to offer an attractive business and living environment. Neighborhoods that “suffer because they are arrayed on the fringes of a dilapidated core” make Tacoma’s living environment less desirable, discouraging the people who work for the firms who compete on the global markets who make the footloose investments—who live in the house that Jack built. If you’ve got suffering neighborhoods, you can kiss global investment good-bye. Simple as that.

I am intentionally being overly critical of this argument, not because it is especially offensive, but because it is such a common way of thinking and arguing. The argument works, too, I think.

Globalization, international trade, and competitiveness may be reasons to confront issues such as education, neighborhoods, and the environment for small and medium-sized businesses. But there are probably ten or twelve better reasons. These issues and globalization are important, but they have little to do with one another.

The publisher’s speech uses something that is hot —globalization—to promote something that is not —urban neighborhood redevelopment. By linking this local issue with a global one, the local issue becomes more attractive and easier to sell to public officials and private taxpayers. Selling globalization is the key to selling everything else.

Case 3: Globalization and the Boeing Merger

People look at globalization and tend to see what they want to see—or, perhaps, what they have been conditioned to see. For many people, globalization is the triumph of the market and the death of the state. But if you want to believe that global firms are running amuck and national interests are being trampled to bits, do not read about the merger of Boeing and McDonnell Douglas, which was finalized at the end of July 1997.

At first glance, the merger of two global industrial and technological giants, creating the largest aerospace and defense manufacturer in the world, seems to be quintessential hyperglobalization. The advent of global firms to fill global markets is a fundamental feature of the conventional wisdom. These global firms are more powerful than any government, it is said, and can pretty much do as they please.

What a surprise, then, that regulatory questions about the merger’s competitive consequences were sticking points as the merger deadline neared. Stunningly, it was not the U.S. government that questioned the merger, but the European Union (EU). The EU threatened to impose crippling fines and sanctions on Boeing if the merger with McDonnell Douglas went through as planned.

This is a puzzling development, especially if you have bought the hyperglobalization argument. Globalization is supposed to be about the extension of private market power, not public regulatory power. States are supposed to have lost the ability to regulate global markets. It is hard to make sense of a globalization that produces global regulatory power.

The specific issue that raised EU concern over the merger was the fact that Boeing had signed exclusive twenty-year supply arrangements with three U.S.–based airlines. The EU said that it was concerned that the merger unfairly limited competitive prospects for Airbus, Europe’s own commercial aircraft producer. In fact, this issue was a red herring. McDonnell Douglas is no longer a major player in the commercial aircraft market, so the merger could not possibly concentrate market power. The issue was really Boeing—Boeing versus Airbus, and the United States versus the state interests of the EU. In this supposed face-off between “market” and “state,” the Financial Times reported that

In the end, it was Boeing that blinked. A last-minute concession by the U.S. aerospace manufacturer yesterday on the terms of its planned merger with McDonnell Douglas ended months of brinkmanship with Brussels, which had threatened to turn into the most bruising transatlantic confrontation for decades

The Boeing offer was faxed to Mr. Karel Van Miert, the EU competition commissioner, on the eve of a Commission meeting which was widely expected to outlaw the merger. The offer met the last of Mr. Van Miert’s main objections by proposing to scrap the exclusive 20-year supply agreements which Boeing has signed with three U.S. airlines

By dint of bluff, bluster and browbeating, Mr. Van Miert had already persuaded Boeing to yield on two other points. It had agreed to limit defence technology “spillovers” into the merged group’s commercial operations and to publish separate accounts for the Douglas civil aircraft business

Boeing had also offered to shorten the exclusive supply agreements to 13 years, and to sign no more for a decade. But the company had refused, almost to the end, to abandon exclusivity altogether. Unless that happened, Mr. Van Miert insisted, Brussels would veto the merger

Had the Commission done so, it would have unleashed a potentially uncontrollable chain reaction. Mr. Van Miert had said that if the companies then pushed ahead with the merger, which U.S. anti-trust authorities cleared last month, the EU would impose swingeing fines and business restrictions on them

Such penalties would almost certainly have prompted U.S. retaliation. Washington has been considering measures, ranging from filing a complaint against the EU in the World Trade Organisation to imposing anti-dumping or countervailing duties on exports of European Airbuses to the U.S. 11  

The merger did nothing to alter the competitive dynamics of the commercial aircraft market, but it gave the EU a convenient opportunity to impose some constraints on Boeing and thereby give Airbus a modest competitive boost. The EU action was not about monopoly power; rather, it was about national interest. The Boeing–McDonnell Douglas merger pushed the United States and the EU to the verge of a trade war.

Does this case illustrate the power of the market, a point that those who promote globalization like to stress, or the surprisingly potent authority of the state? Both stories can be told here. In fact, state and market almost reverse their roles in some markets, such as aerospace and military hardware.

Firms (like Boeing) behave almost like states, adopting foreign policies, engaging in diplomacy, and negotiating with other states. All these activities highlight state power, which is an unexpected theme of the case studies I present in Chapter 3. States, on the other hand, act more like firms, promoting products and using their influence to seal profitable deals. Although the state hasn’t been slain by the market, things have definitely changed.

Case 4: Globalization and Democracy in Indonesia

Globalization is the death of democracy, according to many who write on this issue. As global firms and markets gain power, citizens lose it. My colleague David Sousa has authored an exceptionally clear-headed statement of this idea. The issue, he writes, concerns

the conflict between the logics of the market and democracy. The democratic impulse is to bring decisions on issues affecting the society at large under popular, or public, control. But in free market systems, a whole range of decisions with important public consequences are private, held in the hands of rational, profit-seeking business leaders. Citizens may prefer more government spending for universal health care, or tighter environmental and workplace safety regulations. They may organize to win higher wages and better working conditions. But these popular impulses may undermine profitability in ways that are unacceptable to business managers—democratic claims often violate the logic of the market. 12

In hyperglobalization analysis, the rise of the private market unambiguously shrinks the domain of democratic public controls. Globalization is dollar dictatorship.

Given this aspect of the conventional wisdom, I was surprised on July 24, 1997, to come across a New York Times op-ed column by Thomas L. Friedman about globalutionaries —democratic revolution through globalization. The focus of Friedman’s column was the struggle for power in Indonesia, where the Suharto regime has held tightly to power for thirty years. A democracy movement has appeared, but those involved do not seek to extend democracy by pushing back the market, as hyperglobalization rhetoric suggests. These revolutionaries are different, Friedman writes, and

What’s interesting is their strategy. The Suharto regime allows no space for a democratic opposition to emerge. So what the pro-democracy, pro-clean-government forces are relying on is not a revolution from below, not a revolution from above, but a revolution from beyond

Their strategy is to do everything they can to integrate Indonesia into the global economy on the conviction that the more Indonesia is tied into the global system, the more its government will be exposed to the rules, standards, laws, pressures, scrutiny and regulations of global institutions, and the less arbitrary, corrupt and autocratic it will be able to be. Their strategy, in short, is to Gulliverize the Suharto regime by globalizing Indonesian society. As a military analyst, Juwono Sudarsono, put it: “The global market will force upon us business practices and disciplines that we cannot generate internally.” Or as another reformer here remarked to me: “My son and I get our revenge on Suharto every day by eating at McDonald’s.” 13

The issue of globalization and democracy seems complicated and more than a bit fuzzy. On one hand, I do believe that market forces impose constraints on public policy, affecting the range of choices from which democracies can choose. On the other hand, the threat of globalization can be used by political entrepreneurs to gain power—globalization is an attractive foe that one can run against as well as run from. Political entrepreneurs can exploit what we call globalphobia, a term used to refer to a fear of globalization: “Globalphobia is proving a potent force in US politics and foreign policy. The administration has tried to ignore it, confident that bombarding the public with good economic figures—the best growth, inflation and unemployment for a generation—would cure it. But globalphobia is holding its own against the statistical barrage, and even gathering strength.” 14

The public threat of global markets can be used to promote the private interests of candidates. Ross Perot, for example, used the fear of global competition to fuel his run for the U.S. presidency in 1992. And now I read that globalization, or the threat of globalization, can also be a tool of globalutionaries to promote democracy when the status quo is a nonmarket dictator such as Suharto.

Globalization can apparently destroy democracy, create it, and be used by political enterpreneurs to manipulate democracy. This globalization must be a terrible, wonderful thing.

 

A Universal Elixir

The fascinating thing about globalization is its versatility, acting as a universal elixir. It can be used as an excuse or reason to do almost anything. I have shown four faces of globalization, but it really has a thousand faces, many of which I examine in later chapters. I cannot think of a public policy or private interest that could not be justified in some way as a response to globalization’s positive or negative perceived effects. Selling globalization makes it possible to sell anything. No wonder globalization has been so thoroughly and successfully marketed by so many for so long.

The selling of globalization occurs at all levels. However, it is an especially well-developed enterprise in the business world. Business consultants advise their clients to “think global, act local” and promote the global market as “Prometheus unleashed.” The business of selling globalization (and associated consulting services) is itself a global business.

Selling globalization is also an important academic industry. At about the same time as the events in the four cases just discussed, the scholarly journal New Political Economy published a special issue devoted to globalization and the politics of resistance. 15   Fourteen articles manipulated globalization in various ways, mostly promoting various forms of political, social, economic, or intellectual “resistance.”

In the Preface to this issue, John Kenneth Galbraith writes emphatically in defense of the welfare state.

Capitalism in its original form was an insufferably cruel thing. Only with trade unions, pensions for the old, compensation for the unemployed, public health care, lower-cost housing, a safety net for the unfortunate and the deprived and public action to mitigate capitalism’s commitment to boom and slump did it become socially and politically acceptable. Let us not be reticent: we are the custodians of a political tradition that saved classical capitalism from itself. 16

Globalization, Galbraith writes, is not the death of the welfare state, but a reason to extend it globally. At precisely the time when the relevance of the nation-state is being seriously questioned, Galbraith looks ahead to a return of Camelot. “We can even have a measure of sympathy for those who oppose us,” he concludes in an almost Marxian tone. “We, not they, are in step with history.” 17

Only days after New Political Economy appeared, the Review of International Political Economy published a special issue devoted to a discussion of “The Direction of Contemporary Capitalism.” 18   The following is a list of some of the articles this volume contains:

With globalization now filling whole issues of academic journals, the concept inevitably will be both used and exploited. 19   Some authors use their theory to illuminate aspects of global market diffusion, but just as many are probably guilty of using globalization to sell their own theories, recycle their earlier ideas, or further their academic careers.

The academic selling of globalization occurs even where it is basically unnecessary. Two of the best recent books about international political economy are Has Globalization Gone Too Far? by Dani Rodrik and Globalizing Capital: A History of the International Monetary System by Barry Eichengreen. 20   Both books are excellent and I discuss Rodrik’s ideas in detail in the last chapter of this book. But neither book is especially about globalization. Both authors say smart things about international economic and political relations, but the global dimension is essentially irrelevant to what they have to say. (Globalization does not even appear in Eichengreen’s index, for example.) But globalization sells and helps get these books sold and read, although I think that these books would be successful with any title.

Globalization is as highly marketable a product in the ivory tower as it undoubtedly is in politics, business, and the media. So useful is this concept, in fact, that if it did not exist, we might need to invent it.

 

Globalization Limited

Globalization is hot, and it is useful—but is it real? Does the borderless world with its global markets really exist? The question sounds foolish, and many people, I suspect, think me a fool for even asking it. But I am suspicious of globalization, especially when taken to extremes.

The belief in hyperglobalization, which is the easiest kind of globalization to sell, requires a particular vision of the market. You must imagine the market to be like the ocean in the paintings of J.M.W. Turner at the Tate Gallery in London: The market is smooth and calm and seems to extend infinitely in all directions as it disappears into the mist. This kind of market seems to cover the earth. It is destiny. It is fate.

But markets are not like this, or at least not all markets all the time. When I imagine a market, especially an international financial market, I envision river rapids—turbulent cascades full of twists and turns. Financial markets do not spread out to the horizon; they flow through well-developed, relatively narrow channels. They sometimes flow smoothly, like a broad river, but they also rumble, tumble, and boil. The markets I see look like Leonardo da Vinci’s hydrodynamic sketches in the Codex Leicester. Working as an engineer first and an artist second, Leonardo da Vinci drew currents that swirled and splashed in turbulent patterns that we now call chaotic and that we can model using the mathematics of nonlinear dynamics (like the models of international financial markets I present in Chapter 5). His sketches look like markets. They display the dynamic character of markets. But they do not look at all like Turner’s globalization.

It is hard to picture globalization built on a foundation of turbulent global financial markets. In fact, this is exactly the problem with globalization. The key to globalization in general and hyperglobalization in particular is the existence of smooth, efficient global financial markets. But there is reason to believe that global financial markets are like Leonardo’s cascades—unstable and turbulent. The instability of global financial markets creates a natural limitation to globalization.

You need not look far for evidence of instability in global financial markets. During the summer of 1997, for example, currency markets in Southeast Asia erupted into chaos that distorted trade and investment patterns throughout the region and beyond. The New York Times of July 29, 1997, reported that

The fast-growing countries of South and Southeast Asia, regarded for years as the most economically promising of the world’s developing nations, have been shaken this summer by a speculative assault that has sent their currencies tumbling.

While the crisis has reached outward to Malaysia, Indonesia, and the Philippines, its epicenter has been Thailand, where hard-willed global currency traders first sensed profit in a looming financial crisis stemming from a buildup of debt and a slowdown in growth...

From small towns to meetings of top Asian leaders, the talk is of devaluation, economic stability (or instability), and the perfidy of the West. But underlying the pain and the polemics, there is a spreading concern over whether the supercharged growth of the past is ending, whether the economies of South and Southeast Asia are approaching a crossroads

“Asia has to be prepared for much slower growth in the coming 10 years,” said Nikhil Srinivasan, a vice president at Morgan Stanley in Bangkok. “These tigers are going to be roaring much less loudly.” 21

Most readers of this essay probably know that the currency rumblings we heard in the summer of 1997 were just the prelude to a much bigger explosion. As of December 1997, there is great concern that Japan and China may join a list of collapsing Asian economies that began with Thailand and now stretches to include Indonesia, Malaysia, and mighty Korea. It is said that an International Monetary Fund (IMF) stabilization fund of as much as $60 billion may be needed to keep Korean financial markets from imploding. News reports speculate that Asia may have lost a decade of economic growth in just a few weeks, that the “Asian miracle” is over, and that the United States and other industrialized countries will now also decline as dynamic Asian export markets dry up. 22   The proposition that global financial markets can be unstable and that this instability can have real and important consequences does not seem as extreme today as it did a year ago.

The particular sort of market instability that was reported in Asia in 1997 is called a currency crisis and was due to a speculative attack, although there can be other causes. If you want to imagine a currency crisis, think of the famous print, “The Great Wave,” by the nineteenty-century Japanese ukiyo-e artist Katsushika Hokusai—a beautiful scene of blues and pinks and grays. First you see the great wave rising up from left to right, powerful and beautiful. The motion of the wave leads your eye to the horizon, where a snow-crowned volcanic peak rises. Your eye follows the volcano’s sides down, and you see the slender boats that are being tossed about on the waves with their rows of miserable, doomed passengers. They are about to be crushed by the Great Wave. This is what it must feel like to be in a small “global” business during a currency crisis.

Exchange rates can rise or fall by extraordinary percentages during a currency crisis, which is a very serious matter. A change in the exchange rate between two nations affects all the relative prices of all the traded goods in all the markets in the two countries. If prices matter, then currency crises cause all trade-related markets to be knocked out of kilter. (If prices do not matter, then how can we think about global markets?) It is hard to figure how globalization can be carried on the back of institutions that are as unstable as today’s currency markets. It is no wonder that the future prospects of export-driven economies are so uncertain.

Worse, there is some evidence that currency markets are also subject to systematic instability in the form of chaos—that currency markets experience exactly the kind of unpredictable turbulence that Leonardo da Vinci saw in the chaotic hydrodynamics of the rapids on the Arno River. Even currencies that avoid crisis may be subject to chaos, which adds another layer of risk and uncertainty to international and especially global strategies and transactions.

True economic globalization is rare, or at least much less common than the conventional wisdom realizes. Globalization requires markets as smooth as a mirror pond, and not many of these markets exist.

Globalization is so useful, so easy to sell, and serves so many different interests, that it does not matter, apparently, that neither the seamless global web nor the borderless world exist. Or at least that they do not exist in the form that the conventional wisdom holds. This book tries to make sense of the whats, hows, whys, and so whats of selling globalization.

 

Outline of the Book

Selling Globalization is divided into eight chapters. The first and last chapters can be thought of as “So what?” chapters. In this first chapter I have tried to build your interest in the subject, make its relevance clear, and give a taste of my analysis and conclusions. Hopefully you are already a little disturbed and maybe even ready to argue with me, which is the mood I’d like you in for what comes next.

The second and third chapters are “What?” chapters that examine what globalism is in theory versus what it is in practice. In Chapter 2 I work my way through what I think are the globalization myths. I try to convince you that much of what is said about globalization is exaggerated, misleading, or just plain wrong. In doing this I may be accused of building a hyperglobalized “straw man” and then knocking him down. However, I do this intentionally, since I believe that this artificial straw man is the one that globalization sellers rely on and therefore the one that must be confronted. 23   Chapter 3 presents four brief case studies of real “global” firms that reveal a good deal about what actual globalization looks like and how considerably it differs from the myth.

Chapters 4 and 5 are “How?” chapters. They explain how global financial markets experience crisis and chaos and how this limits globalization. These are the only chapters that contain anything like technical economic analysis, but case studies and real world examples make this material easy to digest. Be careful what you swallow here, however. These chapters explain but do not absolutely prove how currency market instability limits globalization. It is very hard to prove a negative, especially given the empirical difficulties of chaos analysis. So you should retain a healthy skepticism in these chapters and consider how the case made here compares with other evidence I present.

Chapters 6 and 7 are the “Why?” chapters. They ask why the myth of globalization is such a powerful force, and they find the answer in a set of political and intellectual interests that are supported by the image of an invincible, infinite global market structure. Both politicians and economists have stakes (different stakes) in the persistence of the globalization myth. It is important to understand why this trend has received so little critical examination, given its obvious importance.

Chapter 8 is the final “So what?” chapter. Here I try to make sense of the muddle we have made of understanding and misunderstanding globalization. I also discuss how we should view the dramatic changes that we see about us today. If not globalization, then what?

 

Endnotes

Note 1: “The G-Word” (leader), Financial Times, July 30, 1997.  Back.

Note 2: I will use the term hyperglobalization when I am talking about visions of globalization that seem to me to be excessive or extreme and are, I think, more a marketing tool than an accurate description of the worldwide expansion of markets. I borrow this term from Jonathan Perraton, David Goldblatt, David Held, and Anthony McGrew, “The Globalization of Economics Activity,” New Political Economy 2:2 (July 1997), pp. 257–277. These authors put Kenichi Ohmae and Robert Reich in the hyperglobalization school, which I think is right. You will encounter these and other hyperglobalists in Chapter 2.  Back.

Note 3: Karen Hucks, Cynthia Flash, and Jim Szymanski, “Representatives of Oregon Sports Equipment Company Will Meet with Pierce and Thurston Officials About Possibly Building Plant for up to 5,000 Workers,” News Tribune, August 10, 1997.  Back.

Note 4: Christine Carson and Cynthia Flash, “Nike Studying Strategies for Long-Term Success: Physical Expansion to be Accompanied by Move into Other Product Lines,” The News Tribune, August 10, 1997.  Back.

Note 5: Karen Hucks and Mike Maharry, “Romancing the Swoosh, S. Sound Style: Lacey, DuPont Put Their Best Feet Forward When Nike Comes to Town,” The News Tribune, August 20, 1997.  Back.

Note 6: “Beaverton yields to Nike on 1 Issue,” News Tribune, August 21, 1997.  Back.

Note 7: This is an authentic quote that appeared in Carson and Flash, “Nike Studying Strategies for Long-Term Success,” News Tribune, August 10, 1997.  Back.

Note 8: “Building a Future on Global Trade” (editorial), News Tribune, July 23, 1997.  Back.

Note 9: Kelso Gillenwater, “Cooperation Can Guide Region into Future,” News Tribune, July 27, 1997.  Back.

Note 10: Ibid.  Back.

Note 11: Guy de Jonquières, “Boeing: Brussels Wins Fight,” Financial Times, July 23, 1994.  Back.

Note 12: David Sousa, “Democracy and Markets: The IPE of NAFTA,” in Introduction to International Political Economy, ed. David N. Balaam and Michael Veseth (Upper Saddle River, NJ: Prentice Hall, 1996), p. 252.  Back.

Note 13: Thomas L. Friedman, “The Globalutionaries,” New York Times, July 24, 1997.  Back.

Note 14: Patti Waldmeir, “US: Scare Stories in Washington,” Financial Times, December 2, 1997.  Back.

Note 15: Barry K. Gills (editor), “Globalization and the Politics of Resistance” New Political Economy 2:1 (special issue; March 1997).  Back.

Note 16: John Kenneth Galbraith, “Preface,” New Political Economy 2:1 (March 1997), p. 5.  Back.

Note 17: Ibid.  Back.

Note 18: Andrew Chitty (guest editor), “The Direction of Contemporary Capitalism,” Review of International Political Economy 4:3 (special issue; autumn 1997).  Back.

Note 19: The two journals that are mentioned in this section are not especially guilty of the criticisms that follow, which are aimed at academic journals in general.  Back.

Note 20: Dani Rodrik, Has Globalization Gone Too Far? (Washington, DC: Institute for International Economics, 1997). Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton, NJ: Princeton University Press, 1996).  Back.

Note 21: Edwarde A. Gargan, “Speculators Shake Currencies and Poise of Asians,” New York Times, July 29, 1997.  Back.

Note 22: See, for example, Stephen Fidler, “Might Asia Lose a Decade?” Financial Times, November 27, 1997; or “The curse of contagion,” Financial Times, November 22, 1997.  Back.

Note 23: That is, the image of globalization that is sold to the public is different from the far more nuanced vision that the best scholars in the field perceive.  Back.