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Selling Globalization: The Myth of the Global Economy
Michael Veseth
Lynne Rienner Publishers, Inc.
1998
2. The End of Geography and the Last Nation-State
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Every age has its defining terms. In our day, one of those terms is “globalization,” which conveys the widely held belief that we are living in a borderless world. Sovereign states appear incapable of controlling transnational flows of goods and services (much less people), and in many places the state itself is collapsing. One can visualize globalization every night, as the Cable News Network broadcasts its latest reports from Somalia and the former Yugoslavia to television viewers around the world. |
| —Ethan B. Kapstein 1 |
Seeing is believing and Ethan Kapstein’s epigraph is correct: We live in an age of global visions, where differences in time, space, nationality, and culture seem to have melted away, leaving a vast landscape before us. The globe stretches out at our feet. You and I can see deceptively clear images of this global vista with our own eyes. The television news, the World Wide Web, the Reuters quote screen: We are there, engaged in global transactions of all sorts, with even greater ease and efficiency in this virtual world than in our real daily lives.
In real life you’ve got to hunt for the newspaper in the groggy predawn gloom, pick over produce to find the least unripe tomatoes at the supermarket, and worry about what language the cab driver is speaking as you zoom from the airport into uncharted territory. The actual world is local, complicated, inconvenient, incompatible, poorly lit, poorly managed, understaffed, overregulated, and, well, real. Our electronic lives are much more efficient. The news comes to us, hard-wired in, via cable connection. Shopping is a snap—just point and click and you’ve bought it, whether the “it” is a book on global businesses or shares in an emerging markets mutual fund. Language and culture differences are reduced to their least common denominators.
Seeing and experiencing all this, we can easily convince ourselves that we have entered a new age—the global age—that represents a qualitative change in how people live, how they work, and how human arrangements of all sorts are defined and conducted. Hyperbole rolls easily off the tongue as we envision ourselves the center of a well-connected universe of opportunities and experiences. The virtual world presents to us the image of a borderless globe as if it were not only real but better than real. But is it? And if it is, what are its implications?
In this chapter I explore the idea of globalization and try to put it into perspective. I think that although the forces or general dynamics of globalization that surround us are real, they are not so powerful or all-conquering as their video display images lead us to believe. These forces have changed human arrangements, but not to the vast extent that some people say and some people believe they see. In short, I want to deflate the global myth—not entirely, but just enough so you will be able to appreciate in later chapters what globalization really is and means and why it has turned out this way. Before I can deflate the hyperglobalization myth, however, I need to pump it up.
Visions of a Borderless World
There is something very powerful about the image of a borderless world, where goods, services, capital, and people move about freely, with no apparent effort. This vision, once it has grabbed the imagination, drives otherwise reasonable and intelligent observers to enthusiastic extremes of overstatement. However, the reality of globalization, as important as it is, is a whole lot less than this vision and the language used to describe it. Let me give you a few examples of globalistic overkill.
Lester Thurow is one of the most sensible economists. He has made a career of saying sensible things with just enough attitude to draw attention to them. Confronting the global landscape in his 1996 The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World, however, he experiences visions of a qualitatively different nature. He writes that
For the first time in human history, anything can be made anywhere and sold everywhere. In capitalistic economies, that means making each component and performing each activity in the place on the globe where it can be most cheaply done and selling the resulting products or services wherever prices and profits are highest.... Sentimental attachment to some geographic part of the world is not part of the system. 2
Globalization is thus the end of geography. The world is at once a giant factory and a massive shopping mall. Businesses shop for low costs without regard for distance or national policy, and consumers shop for low prices irrespective of culture or tradition.
Globalization is thus the end of the nation-state and the end of history as we have come to think of it. Global markets dictate; national governments accommodate. Anyone who thinks that states can control their fate is living a dream.A global economy creates a fundamental disconnect between national political institutions and their policies to control economic events and the international economic forces that have to be controlled. Instead of a world where national policies guide economic forces, a global economy gives rise to a world in which extranational geoeconomic forces dictate economic policies. With internationalization, national governments lose many of their traditional levers of economic control. 3
To make the global economy work requires giving up a substantial degree of national sovereignty, but the political Left and Right are both correct when they argue that this is undemocratic. It is undemocratic rule by foreigners or, even worse, rule by international bureaucrats. It could only be democratic if there were an elected democratic world government, yet Left and Right would both be the first ones to object to any such government. 4
Globalization is therefore the end of democracy, too. The only level of government that could regulate the global market would be a global state. But whereas an all powerful global market is easy to imagine, a democratic global state seems a foolishly naïve notion. Obviously people are too divided by culture, language, and ideology for that to occur. (I mean this statement to be ironic; it is hard to imagine a world that is both as diverse as people believe when they think with their brain’s political lobe, and simultaneously as homogeneous as it appears, when considered by the brain’s economic lobe.)
Within the developed world the issue of cultural protection will be central. The American press often makes fun of French efforts to protect French culture.... But the only really ridiculous feature of the French argument is that France is economically the fourth largest country on the globe and is the owner of a powerful long-lasting culture that is in no real sense threatened by an Anglo-Saxon media culture.... Small countries if they wish to preserve their national heritage have something serious to worry about. One can legitimately argue that protecting one’s culture is a matter of life and death for human societies. 5
Finally, of course, cultural diversity is also destroyed by the powerful waves that the winds of globalization drive. The world is McDonaldized and Disneyfied, these being the principal forms of Anglo-Saxon media culture. Les pommes frites cannot survive the attack of the Large Fries. It is life or death.
Of course there are good reasons why sensible people like Thurow say these things. Extreme notions of globalization’s effects are in a way both necessary and useful. They are necessary implications of a particular way of thinking about markets, and they are useful stories to attract attention for policies and programs that might not otherwise attract the audience they deserve (these are points developed in detail in Chapters 6 and 7). In short, the threat of globalization—especially the threat of extreme hyperglobalization—is a useful device. 6
I don’t want to overly criticize Lester Thurow for these overstatements or to make fun of him, because he is far from the worst offender in this regard. In any case, Thurow has sensible policies and programs to sell in a political environment not overly friendly to new ideas. Extreme visions of globalization like these help create a market for his policies of educational reform and infrastructure investment. People who will not support educational reforms for good reasons may be convinced to support it as a response to the threat of globalization.
Other writers have a more direct interest in exaggerating globalization’s reach. Their hyperglobal visions, by design or coincidence, help create a market for their services as global business consultants and metamanagement gurus. Kenichi Ohmae, a former senior partner of the global consulting giant McKinsey & Company, is the best known of these. I think he may have coined the image of the “borderless” world that seems so firmly to capture our imagination.
Ohmae’s 1990 book The Borderless World: Power and Strategy in the Interlinked Economy gives a good account of his views. Although much of the basic business advice he provides is sensible and would be useful guidance to almost anyone at any time, the motivating force for his analysis is another extreme global view: “On a political map, the boundaries between countries are as clear as ever. But on a competitive map, a map showing the real flows of financial and industrial activity, these boundaries have largely disappeared.” 7
The competitive world is borderless. Markets have no national character. Borders don’t matter except for political purposes, which means that they don’t matter very much.
Walk into a capital goods factory anywhere in the developed world, and you will find the same welding machines, the same robots, the same machine tools. Likewise, all trading rooms for stocks, bonds, and currency look identical to the Reuters and Telerates terminals; so much so that the traders switch companies quite liberally. When information flows with relative freedom, the old geographic barriers become irrelevant. Global needs lead to global products. 8
The global market rules and so businesses are forced to align themselves with global needs, producing global products, which leads to global culture and the rest. Again, and not to belabor the point too much, the basic business advice that derives from this hyperglobalization is perfectly reasonable: pay attention to quality, don’t assume that customers are captive, treat all your customers equally well, and so forth. But extreme visions can be contagious and mass hallucination can result. Economists, journalists, and business consultants spread hysteria to historians, political scientists, and policymakers. Here are a few short examples.
The distinguished historian Paul Kennedy featured global forces in his 1993 bestseller, Preparing for the Twenty-First Century. Starting with Ohmae’s borderless image, Kennedy assembled a collage of financial, telecommunications, and biotechnological forces all driving business to uncontrollable extremes: “Indeed, the real ‘logic’ of the borderless world is that nobody is in control—except, perhaps, the managers of multinational corporations, whose responsibility is to their shareholders, who, one might argue, have become the new sovereigns, investing in whatever company gives them the highest returns.” 9 In Kennedy’s view, only the global corporation has the reach to begin to control global forces. The meek shareholders shall inherit the earth, although the corporate managers who read Kenichi Ohmae’s books will actually run the show.
Richard Rosecrance is a respected political scientist who has written wisely about the rise of the trading state in international affairs. Infected with global vision, however, he imagines actual states evaporating and being replaced by the virtual state: “Today and for the foreseeable future, the only international civilization worthy of the name is the governing economic culture of the world market. Despite the view of some contemporary observers, the forces of globalization have successfully resisted partition into cultural camps.” 10
The economic culture of the world market has become the only international culture.
Less-developed countries, still producing goods that are derived from land, continue to covet territory. In economies where capital, labor, and information are mobile and have risen to predominance, no land fetish remains.... The virtual state—a state that has downsized its territorially based production capability—is the logical consequence of this emancipation from the land. 11
Only Third World countries think that territory still matters. The rest of us understand that life exists exclusively on the World Wide Web and the Cable News Network. States have to give up their “land fetish” and find a new role, for “the world is embarked on a progressive emancipation from land as a determinant of production and power.” 12
A more evolved institution, a virtual state, is needed to deal with this process. We have left the earth behind and live lives in a virtual space without dimension. (Well, that is an overstatement; but it is an overstatement of an overstatement.) To be fair, again, Rosecrance says many smart things in his writings on this theme. And at least he seems to think that states still matter, albeit in only a virtual way, whereas so many others assert that global markets make states irrelevant artifacts of a previous era. I admit that I am not really sure what the virtual state is, except that it has stopped caring about land and is focused on mobile resources. As a way of refocusing attention from one set of issues to another, the virtual state seems like a useful globalization derivative. However, as a stand-alone concept, it doesn’t seem very realistic.
Robert Reich has been one of the more successful global thinkers, both as a political economist and as a high government official. 13 Reich’s 1991 book The Work of Nations: Preparing Ourselves for 21st Century Capitalism based its analysis on the notion of a global web that spans the earth, connecting up people and businesses without much attention to geography, government regulation, or anything else. High-tech, knowledge-intensive connections to the global web are the source of wealth and power in Reich’s world, and a sort of global class system arises that is based on access to the web, much as an industrial class system based on access to capital appeared to Karl Marx.
Access to the global web divides workers of the world into routine production workers, the drones of the global workshop, in-person service providers, who fill an intermediate role, and symbolic analysts, the highly trained and educated top class who surf the global web, networking with other symbolic analysts around the world. The production workers build things but suffer from the fact that most things can be built anywhere and capital is more mobile than people. So production tends to move where wages and other costs are lowest. Production workers in Ohio thus compete with production workers in Malaysia and the Philippines to see who will work for the lowest wages. This creates a global class of workers trapped in a destructive competition to attract capital by cutting costs. Anyone familiar with Marx’s proletariat class will recognize the routine production workers.
The in-person service providers constitute the largest share of the population in the industrialized economies. Service providers are attorneys, nurses, hair dressers, and others who provide the wide range of services we all use. The economic well-being of service providers is entirely local—it depends on the fate of their client groups, whether production workers or global webmeisters. This is a global class, but one with distinctly local interests.
Symbolic analysts rule the web. They share no important interests with the production workers who live near them and have only a little more in common with their service providers. Their keenest affinity is to the global class of symbolic analysts with whom they interact in global web dealings. Symbolic analysts, in Reich’s global vision, represent a higher level of evolution even than the transnational corporation (TNC). Although symbolic analysts might work for TNCs, they do not tie their careers to a particular organization. Instead they contract and recontract with one another in a sort of virtual business environment. The symbolic analysts float above constraints of the routine business enterprise in the same way that Rosecrance’s virtual state floats above its territorial boundaries.
Robert Reich may really see globalization’s web sifting people into these three classes, but the vision of the great global web is probably more of an attention-attracting device. It is true that within nations education and training are more important and less equal than ever. As a domestic dilemma, this stratification is old news. Attach the global web, however, and the problem becomes more important, along with the sensible but otherwise unexciting policy solutions that follow.
Hirst and Thompson state, for example, “This image is so powerful that it has mesmerized analysts and captured political imaginations.” 14 I could go on in this way, citing examples of sensible people making exaggerated claims for globalization. Since I first recognized this problem, I have accumulated a nice collection of excessive statements—Global Dreams inspired by Global Visions—including even some of my own work. If these broad statements exaggerate globalization, then what is globalization, anyway?
Globalization Defined
There is no standard definition of globalization or even a standard model of how it works. 15 It is one of those fuzzy but familiar concepts that, to paraphrase Walter Bagehot’s analysis of “nation,” we understand when we are not asked about but cannot very quickly explain or define. 16
The most important definitional issue is how a global system of political economy differs from an international one. We have had a more or less international system throughout the modern era and significant international elements, at least in important regions, for hundreds of years before that. The Italian economy was international to the extent that international trade and finance were key elements of both the political and economic structures by the fourteenth century, if not before.
Ricardo Petrella has made some progress towards a working definition of globalization. 17 Petrella considers internationalization to be a process in which raw materials, goods, and services are exchanged across national borders. Goods move from where they are produced to where they are consumed. Multinationalization is a further development in which especially capital but also some labor moves across national borders as part of the production process. Multinationalization in Petrella’s analysis seems closely related to the expansion of multinational corporations. It is a system in which businesses with a specific geographic base point engage in international production and distribution.
Petrella finds globalization too vast an idea to express in a single sentence, but he tries to capture the notion in a list of seven concepts:
Globalization of finances and capital ownership
Globalization of markets and strategies, in particular competition
Globalization of technology and linked R&D and knowledge
Globalization of modes of life and consumption patterns; globalization of culture
Globalization of regulatory capabilities and governance
Globalization as the political unification of the world
Globalization of perception and consciousness 18
Petrella’s list is useful in that it suggests the multidimensional nature of globalization, but it suffers the obvious flaw that it defines globalization in terms of itself. Globalization writ large derives from (items 1 to 3 above) and implies (items 4 to 7) many particular types of global arrangements.
Given that I have titled this section Globalization Defined, I think I should try to define this difficult term a bit more clearly. Globalization is the process of economic, political, and social change that occurs when all agents in a system have access to a common pool of resources. The idea of the common resource pool is meant to include especially markets for capital and goods and services, but it also encompasses science, technology, and cultural goods. These resources may be available in what I call local or national pools, but the process of globalization is driven by the existence of the common resource pool.
Access to global resource pools changes the economic, social, and political dynamics of the system. Efficiency increases, but the nature of competition changes. Economically, access to the global resource pool provides efficiency advantages over those situations in which these resources are unavailable or unevenly available. The nature of competition changes because individual firms benefit to the degree that they draw from the global resource pool without bearing all its costs. This may occur, for example, if firms are able to employ labor and natural resources in a region without making long-term investments that help pay for education, training, or environmental protection. In the global market, it is possible to use up the resources in one place and then to move somewhere else in the pool. An element of the “free rider” problem is created. Firms that can draw resources without paying all their costs experience a temporary competitive advantage; the profit incentive encourages them to “exploit” the common resource pool in ways they might not exploit a local pool, where benefits and costs are more clearly linked.
The efficiency element I have just noted accounts for the widespread enthusiasm toward globalization among economists, whereas the competition aspect explains in part both the anxiety of agents in precarious competitive niches and the marketing success of global business consultants like Kenichi Ohmae, who are able to sell their books and services to these agents.
Politically, the existence of the global resource pool seems to weaken state power simply because, by definition, the state cannot control access to it and so loses a set of policy levers it might have previously employed. The assumption is that the global resource pool strips the state of its power. Logically, the main limits to access must derive from power (the state) and costs (technology). State actions and technological advances are both logically and actually the critical forces in globalization, and of these two, state actions have been the more important. The main limits to common pool access in the twentieth century have been political, not technological.
Socially, the global resource pool provides access to a wider range of cultural goods and social arrangements. Although some authors of globalization argue that the pool swamps the individual social systems it encounters, the definition of globalization I present focuses on access to these resources, not forced consumption of them. How this access conditions behavior depends on human nature and cultural norms. In general, local cultural pools are not swamped by globalization, and access to Michael Jackson recordings is not a serious threat to real cultural values. I explain my views of political and social globalization in more detail later in this chapter.
Financial markets are the element of the global resource pool imagined and, I will argue, the element that comes closest to being truly global in today’s world. A global capital pool would consist of a set of capital markets capable of channeling global savings to global borrowers and investors, pretty much regardless of where in the economic geography of the system these markets access the pool. If any resource pool can be truly global, it is the capital market.
I do think that global resource pools are getting bigger and deeper, even if they are not yet truly global common property. This kind of globalization is not, however, a particularly new phenomenon. What is surprising about the current condition is not that we have become so global so fast but that by the 1990s we have achieved a degree of globalization comparable only to what the world experienced one hundred years ago, during the Golden Age of Globalization.
The Golden Age of Globalization
Some measurements of the degree of financial integration in the world economy indicate that at the beginning of the twentieth century the world was more interconnected than at any subsequent time (including the 1990s, despite the trillions of dollars of daily currency movements). These measurements examine the behavior of saving and investment levels. Investment and savings were coordinated on a global level, with the result that a surplus of investment in one area or state (that is, a balance of payments current account deficit) could be smoothly financed by the export of surplus savings from another area. Even in the highly integrated 1980s and 1990s, such transfers were much more difficult and raised many more political eyebrows than in the golden age that preceded the First World War. 19
Finance is a global resource pool now, but it was also a global resource pool then. In fact, I suspect that it was a more efficient pool in the 1890s because more stable exchange rates made the consequences of international capital flows more certain and therefore more efficient. At the end of the twentieth century, on the other hand, exchange rates exhibit extravagant forms of instability that add significant elements of risk to international capital movements. In extreme cases, these instabilities break down the global financial market. This argument is presented in detail in Chapters 4 and 5.
Globalization’s rise and fall is illustrated fairly clearly by trade flow data. Table 2.1, for example, presents data on the relative importance of exports for selected years since 1890. By this measure of different economies’ “openness” (i.e., how much they dipped into the export market resource pool), it took until the 1990s for western developed nations (including the United States and Europe) to achieve the degree of globalization that existed in 1913. Data for Japan tell a different story: Japan is apparently less global in the 1990s than it was in the 1970s and very much less global than in earlier periods.
| Table 2.1 Exports of Merchandise as a Percentage of Gross Domestic Product | ||||
| Year | Western Developed Countries | United States | Western Europe | Japan |
| 1890 | 11.7 | 6.7 | 14.9 | 5.1 |
| 1913 | 12.9 | 6.4 | 18.3 | 12.6 |
| 1929 | 9.8 | 5.0 | 14.5 | 13.6 |
| 1938 | 6.2 | 3.7 | 7.1 | 13.0 |
| 1950 | 7.8 | 3.8 | 13.4 | 6.8 |
| 1970 | 10.2 | 4.0 | 17.4 | 9.7 |
| 1992 | 14.3 | 7.5 | 21.7 | 8.8 |
| Source: Paul Bairoch, “Globalization Myths and Realities: One Century of External Trade and Foreign Investment,” in States Against Markets: The Limits of Globalization, Robert Boyer and Daniel Drache, ed. (London: Routledge, 1996), Table 7.4, p. 179. | ||||
Note the peculiar data for Japan. Is Japan really less global now than in the past? Certainly this is not the impression that most consumers have as they wheel their shopping carts full of Sony and Panasonic products out to their Honda station wagons. The deep market penetration of Japanese goods is perhaps one of the reasons most cited by casual empiricists for the globalization phenomenon.
One way to explain these data, however, is to consider how many of those Japanese products are no longer produced entirely in Japan. They are produced in Thailand, Indonesia, and even in the United States. Many “Japanese” goods are no longer produced in Japan because Japan’s businesses are drawing on global resource pools to streamline their production. This is an indication of globalization’s force and not an argument against its spread. On the other hand, part of the trend is also caused by exchange market swings and protectionist political threats against Japanese products, which run counter to the globalization trend. It is hard to know, therefore, what to make of these data on Japan.
Data are dandy, but policy economists (like me) learn early in their training that one well-told story is more powerful than a hundred econometric studies or a thousand illustrative tables. Empirical evidence of the golden age of globalization, therefore, must be supplemented by a first-hand account. The following account is from The Economic Consequences of the Peace (1920) by John Maynard Keynes.
What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914.... The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages.... He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could dispatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself most greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent. 20
When I read this passage to my students, they first think that this is an account of the present, or perhaps the near future. There is nothing particularly Victorian about this image of Keynes, propped up in bed with his newspapers and telephone, effortlessly shifting resources around the globe like a skilled expert in cyber-finance. Trade, finance, travel, all effortlessly, or nearly so. Yes? Well, to a degree. Certainly Keynes was different from most people, with special connections and abilities and a certain grand vision of things. Certainly most people in England in 1910 could not even have imagined the global vision that Keynes presents. Clearly the global resource pools existed prior to World War I. The breadth of their domain was probably not so great as today, but this is a question of degree, not existence.
Most people probably perceive technology as the driving force for globalization. This is natural, since global market expansion has taken place in the last part of the twentieth century alongside great advances in telecommunications and microelectronics. But Keynes’s experiences force us to ask whether these two trends (globalization and telecommunications advances) are not perhaps less closely related than is commonly assumed. Just what are the technological requirements for globalization? Pre–World War I globalization seems to have been based on the building of the Suez and Panama Canals and improvements in ship design, which reduced transportation costs, and the laying of the transoceanic telegraph lines, which made faster global communications possible. The domestic phone line that connected Keynes’s bedroom to the global financial network was a convenience that he surely appreciated, but it probably was not really necessary to the global market process. The bottom line is that the golden age of globalization was a pretty low-tech affair.
The notion that globalization is based on recent technological advances takes an even greater beating if we look back in history a few more years—to the era of the early Renaissance in Europe, for example.
The idea of a world financial system is very old—at least as old as the fact of long-distance trade.... In the fourteenth century, merchants in the Mediterranean developed the negotiability of foreign bills of exchange. By the sixteenth century, bills drawn on Genoese or Seville or London houses could be traded, endorsed, and discounted hundreds of miles away.... The result of this period of innovation was the creation of what might be termed an integrated international capital market. 21
The global financial networks constructed especially by the Italians—the Bardi, the Peruzzi, and the Medici among them—were very low tech in terms of hardware. No fax or telegraph existed, obviously, but there was a surprisingly efficient courier system that delivered commercial news (especially price information) and financial documents, especially letters of credit, to any of the major market cities in only a matter of weeks. Goods moved much more slowly than this, and apparently that was all the speed that was necessary.
The fact that globalization is not a new or novel phenomenon helps us better understand it, but the fact is that some of these previous experiments in globalization came to bad ends. The Bardi and Peruzzi disbanded in the 1340s when the European monarchs they were backing defaulted on their “sovereign” debt. The global infrastructure investment boom of the late nineteenth century, which is mirrored by the “emerging market” investment rush (and crash?) of today, also featured episodes of default, collapse, expropriation, and nationalization. Looking back at this history, I am nearly convinced that the present enthusiasm for globalization really is the triumph of hope over experience. 22
Summing up, globalization is not as new or as technologically driven as most of us think. The telecommunications and microelectronics revolutions have made global resource pools more widely available to people within particular nations by reducing the transactions costs, but most of the information that needs to move between and among nations can flow comfortably through a few transoceanic telegraph lines. Technology makes international information available to more people within each nation, and this is the key change we are experiencing today. From a technical standpoint, if these “global” pools are broader or deeper now, it is due more to changes within nations than between them.
If technology has not been the limiting factor on globalization in the recent past, then what accounts for the dramatic decline in global economic structures after World War I and the extremely slow rebuilding of global pools after World War II? In simple terms, the answers are financial instability and state power. 23 Financial instability in the 1920s and 1930s made global capital markets an unstable foundation for a more fully integrated global economy. In reaction to this fact, the architects of Bretton Woods designed a system that was more stable but that used state power to separate and insulate national capital markets. Capital controls made global finance impossible even as GATT (General Agreement on Tariffs and Trade) pursued the goal of global free trade. Global finance, and with it globalization generally, was possible only when state power over these capital controls was finally loosened.
Before we explore the nature of actual globalization today, we need to deflate even more thoroughly the great globalization myths. That is, I want to address head-on the most powerful images of globalization: globalization as the End of Geography, the End of the Nation-State, and the End of Culture. Until we have these images out of the way, I don’t think we will be able to see real globalization clearly, along with the forces driving it and the factors limiting it.
The End of Geography
The popular image of globalization was captured best in the subtitle of Robert O’Brien’s influential little book, Global Financial Integration: The End of Geography. 24 Much of what is written about globalization is based on this idea. The notion that distance and geography are outdated concepts inspired The Economist to ask “Does it matter where you are?” and to provide this tongue-in-cheek reply:The cliché of the information age is that instantaneous global telecommunications, television and computer networks will soon overthrow the ancient tyrannies of time and space. Companies will need no headquarters, workers will toil as effectively from home, car, or beach as they could in the offices that need no longer exist, and events half a world away will be seen, heard, and felt with the same immediacy as events across the street—if indeed streets still have any point. 25
This powerful image, inspired as it is by “gee-whiz” technology, lies at the heart of Robert Reich’s notion of the global web and Kenichi Ohmae’s borderless world. In the real world, however, geography still counts. As The Economist noted,
Save for transport costs, it should not matter where a tradable good or service is produced.... The reality is otherwise. Some economists have explained this by pointing to increasing returns to scale (in labour as well as capital markets), geographically uneven patterns of demand and transport costs. The main reason is that history counts: where you are depends very much on where you started from.
The new technologies will overturn some of this, but not much.... The weight on mankind of time and space, of physical surroundings and history—in short of geography—is bigger than any earthbound technology is ever likely to lift. 26
Real reality, in other words, is at least as important as virtual reality. Most serious studies of the actual organization of industrial competition end up concluding that it does matter where you are, or at least that businesses organize themselves as if location matters. A 1996 study undertaken by Morgan Stanley demonstrated the unsurprising persistence of place in international business management. 27 Morgan Stanley analysts throughout the world were asked to identify companies with a “sustainable competitive edge worldwide.” Of the 238 “global” companies they found, more than half (125) were based in the United States. Both the small number of global businesses and the large geographic concentration in the United States come as a surprise to those who subscribe to the End of Geography line of reasoning.
Why so few global firms? The interpretation provided by Morgan Stanley is that a sustainable global competitive edge derives from either successful product differentiation or consistently lower-cost production techniques. Apparently the ability to sustain either of these advantages on a global scale is an unusual condition.
In the automobile industry, for example, the three firms that Morgan Stanley identified included one successful differentiator (BMW) and two successful cost controllers (Toyota and Honda). No U.S. firms? No. General Mills and Ford sell vehicles worldwide, but the basis is neither persistently cost advantage nor product difference. The Morgan Stanley analysis concluded that these firms are not global so much as what I call multilocal.
Multilocal enterprises operate in several different countries but establish a distinct local presence in each and compete in each based on local, not global, advantage. They are international businesses, in a technical sense, with international and sometimes global investment and production structures. However, they compete within local markets that are not fully integrated parts of a global pool. The characteristic of their market and its customers is local, and therefore their competitive strategies are also local, with limited external application.
One of the necessary conditions for the end of geography is that many markets are really global consumption pools, where nongeographically differentiated consumers collectively draw from a market for a universal commodity. Coca-Cola and McDonald’s are the most commonly mentioned global products.
These global consumption pools are probably rarer than is commonly assumed. In part, this is because globalization has not produced the end of culture, an issue that I address later in this chapter. Generally, however, local differences in incomes, relative prices, distribution networks, history, language, religion, and the rest all still matter a great deal. Because most markets are more local than global, the spread of global firms is limited.
Since Coca-Cola and McDonald’s are the quintessential global businesses in most people’s minds, it is useful to consider the degree to which they really remain multilocal enterprises. The value of their global trademarks cannot be denied. (Only Coke is the Real Thing.) But a trip through the Coca-Cola museum in Atlanta reveals surprising degrees of product adaptation to local market conditions. The Coca-Cola product line—its flavorings, packaging, and distribution system—are all very much tailored to local tastes and conditions. Coca-Cola is a successful global brand precisely because it is so successfully multilocal.
In the same way, McDonald’s product lines adapt to local market conditions to a surprising degree. The new stores in India, for example, make their hamburgers from lamb. The “global recipe” was changed to meet the requirements of the local Hindu market pool. Similarly, the McDonald’s in Munich sells draft beer. In the past, McDonald’s has relied on local suppliers, a high degree of local ownership, and its ability to adapt to local consumer demands, which is a multilocal strategic arrangement. In the future the corporation hopes to create a more integrated regional supply strategy, but marketing will remain multilocal. James Cantalupo, head of McDonald’s International, has said that “You don’t have 2,000 stores in Japan by being seen as an American company. Look, McDonald’s serves meat, bread, and potatoes. They eat meat, bread, and potatoes in most of the world. It’s how you package it and the experience that you offer that counts.” 28
Really global businesses need to develop global consumption pools for their products and to draw from a global supply pool for productive inputs. The Morgan Stanley study, along with only casual analyses of Coca-Cola and McDonald’s, suggests that these actual global business conditions are not so common as many people believe. When truly global conditions don’t exist, which is apparently most of the time, then the local pools create local markets and firms are international or multilocal, but not global. 29 Geography matters.
In fact, one of the most influential recent books on business management in this age of globalization—Michael Porter’s 1990 business bestseller The Competitive Advantage of Nations—takes as its premise that local pools are the key to global competitiveness. Porter distinguishes between several different types of international competition that are useful to us here. At one end of the spectrum is what he calls the multidomestic enterprise, in which competition within each nation is based mainly on domestic supply and demand characteristics, regardless of whether the firms have international ownership structures. This is like the multilocal concept I have proposed. At the other end is the global industry, in which events in one market affect competition in other markets through the shared impacts on the global production or consumption pool. 30 In either case, however, Porter’s case study analysis indicates that local factors matter considerably. Porter writes that
Companies, not nations, are on the front line of international competition. They must increasingly compete globally. Yet globalization does not supersede the importance of the nation. We have seen how its home nation plays a central role in a firm’s international success.... A global strategy supplements and solidifies the competitive advantage created at the home base; it is the icing, not the cake. 31
At the heart of Porter’s analysis is his discussion of four factors that—separately and through their interaction—are associated with global success. A thorough discussion of these sources of competitive advantage goes beyond our purpose here, but I do want to note that each is decidedly a local pool property. Competitive advantage derives from the combination of desirable elements:
Factor conditions. The quality and dynamic nature of local labor and resource pools contribute to the success of the firms that draw from them. The success of local firms in turn stimulates the growth and development of factor pools, giving a further advantage to local businesses. This cycle gives local firms a competitive advantage over those in regions with shallower, less dynamic factor pool conditions. The global web is a thin structure. Most productive resources exist in local pools, not global webs.
Demand conditions. If the standards and expectations of buyers in the local consumption pool are high, local firms are forced to raise their own standards of quality and innovation. The assumption here is that local markets set standards for producers, who then take these standards into the global market. If this is true, then it is an advantage to have demanding local customers and a competitive disadvantage to aim for some global least common denominator.
Related and supporting industries. The notion here is that every business depends for its success on the quality of other firms to whom it sells and from whom it purchases goods and services. These related and supporting industries form another resource pool that is more local than global.
Firm strategy, structure, and rivalry. Finally, the nature of competition among local firms conditions their success in global markets. Essentially, Porter argues that intense local rivalries, especially when combined with desirable factor, demand, and related industry conditions, force the rival firms to achieve levels of quality, efficiency, and innovation that produce global market success. 32
Globalization is clearly not the end of geography. No amount of electronic technology can eliminate the importance of local factors to global businesses.
The End of the Nation-State
Globalization is a zero-sum proposition, or that at least seems to be the dominant view of those who write about expanding global markets. More market means less state. Kenichi Ohmae typically takes an extreme view of this process and its implications. Follow the logic of the argument closely.
In today’s borderless economy, the workings of the “invisible hand” have a reach and strength beyond anything Adam Smith ever could have imagined. In Smith’s day, economic activity took place on a landscape largely defined—and circumscribed—by the political borders of nation-states; Ireland with its wool, Portugal with its wines. Now by contrast, economic activity is what defines the landscape on which all other institutions, including political institutions, must operate. Business and government are just beginning to live with the consequences. 33
Here we begin with the extreme view that economics is all that matters. Economic activity defines the (borderless) landscape. All other institutions (all!) must deal with the consequences: “Most visibly, the nation-state itself—that artifact of the eighteenth and nineteenth centuries, has begun to crumble, battered by a pent-up storm of political resentment, ethnic prejudice, tribal hatred, and religious animosity.” 34 Interesting. Now suddenly it is cultural factors that really matter. Global markets make local cultural resource pools more important. The state is attacked from above and below by these two forces. The argument seems reasonable: Global markets weaken unified states and thereby become more prone to attack by the traditional local forces of division. This fact, if it is a fact, appears to make the state more important, not less, but let us continue.
Since nation-states were created to meet the needs of a much earlier historical period, they do not have the will, the incentive, the credibility, the tools, or the political base to play an effective role in the borderless economy of today. By heritage and by experience, nation-states are comfortable with the market’s invisible hand only when they can control and regulate it.... The bottom line is that they have become unnatural—even dysfunctional—as actors in a global economy because they are incapable of putting global logic first in their decisions. 35
This is interesting. Globalization increases the need for states to deal with local problems, which were in fact the sorts of problems that they were designed to deal with. But they cannot deal with local problems because they are unwilling to put global logic ahead of local logic. They are dysfunctional and unnatural because they insist on using local logic to deal with local problems. Try to follow this line of reasoning:
Nation-states are no longer meaningful units in which to think about economic activity. In a borderless world, they combine things at the wrong level of aggregation.... In a borderless economy, the units that do make sense are what I call region state... the natural economic zones. They may or may not fall within the boundaries of a particular nation. If they do, it is an accident of history. In practical terms, it does not really matter. 36
So here is Ohmae’s vision of the nation-state. It is meaningful only if its boundaries overlap the regional resource pools that he assumes to exist. Nation-states do not matter, in practical terms, except to the extent that their borders are aligned with economically significant landmarks.
I find it hard to take this argument seriously. The obvious reason, from what I have quoted and written above, is that it is so badly confused and internally inconsistent. The notions of states, markets, regions, and globalization seem to expand and contract to fit the needs of the rhetorical devices at hand and the metaphors that come to mind. It is hard to have much faith in a viewpoint that is argued in this way. This notion of globalization goes down smooth as silk and even tastes yummy, but you don’t want to look closely at the nutritional analysis—these are empty calories.
There is also a practical reason for my skepticism. On December 5, 1996, U.S. Federal Reserve chairman Alan Greenspan commented during an after-dinner speech that financial markets seemed to be driven by an “irrational exuberance” that could not indefinitely sustain the then high stock values. The following day global stock markets lost billions, perhaps trillions of dollars in value as investors (in a fit of irrational exuberance?) dumped stocks. They feared that Greenspan’s remark was a signal that he might be thinking of higher interest rates sometime in the future and wanted to prepare the markets for a soft landing.
Global markets dictate; national institutions accommodate. That’s the core of the End of the Nation-State literature. Someone should tell Greenspan about this. Otherwise he might mistakenly conclude that governments and central banks still have real power over market forces.
Lowell Bryan and Diana Farrell are both more exuberant and yet more reasonable than Kenichi Ohmae in their global business book Market Unbound: Unleashing Global Capitalism. Their basic argument is much the same as Ohmae’s, although their focus is more clearly on financial globalization rather than on global markets generally.
We are moving toward a world where the capital markets constrain what government can do—not the other way around....
The engine behind this change is the growing power of the global capital market. Its power is coming from its overwhelming and increased scale and ability to integrate and act as a single market. Individual national financial markets are losing their separate identities as they merge into a single, overpowering marketplace....
This revolution will be sufficiently powerful to change the traditional roles of governments. The world will move from closer nationally controlled systems toward an open, global system under no one’s control. At the center of this open system, a global capital market will motivate businesses to become more productive and motivate governments to dismantle restrictive regulation, cut deficits, and pursue sound monetary policy....
National governments have long been the most powerful agents on the planet and are used to exercising control over most aspects of their local economy.... However, the ability of a single national government to control its own financial system is being undermined by the growing power of the global capital market. 37
Bryant and Lowell take this basic argument to a pair of extremes, and their metaphors get way ahead of them: “Like Prometheus, the global capital market is unbound. The release has taken nearly 50 years, but the global capital market has just about thrown off its bonds.” 38
The death of the nation-state is at least as oversold as is the dominance of a fully integrated global capital market. It is amazing that people seriously think the nation-state is doomed by the slow advance of globalization. To think this, it seems to me, one must be blind both to the current world, where national power persists and prevails, and to history, where the forces of globalization and nation building often have coincided.
The nation-state is a badly strained institution today, but globalization may be one of its lesser problems. 39 Population dynamics both within and among nations probably impose more constraints on national policy than does globalization. The bases for many political and economic problems that the nation-state faces today lie in birth rates, death rates, life spans, population age and momentum, and relevant differences among nations in these factors. These demographic factors, especially when combined with vastly differing economic growth rates, put all sorts of stresses and strains on the framework of national policy. Compared to these real social, political, economic, and cultural forces, the constraints imposed by global money markets are small change.
This doesn’t mean that I think globalization does not change things for nation-states. Many regulatory aspects of national policy are certainly complicated by the expansion of global resource pools and the industries that draw from them. The state’s role in this changing environment is certainly changed but is not especially lessened.
Ethan B. Kapstein’s recent study of this problem, Governing the Global Economy: International Finance and the State, takes an especially level-headed view of the situation. Kapstein concludes that financial globalization has weakened domestic regulatory powers in three ways: 40
The existence of global financial markets increases the cost of domestic stabilization policies that must attempt to offset market pressures that are transmitted through global capital and foreign exchange markets.
Government’s ability to regulate macroeconomic forces is reduced because the costs of regulation are increased.
Global financial markets increase the risk of domestic crises that are caused by the international transmission of financial problems. External sources of instability impose internal costs.
Increased competition exists among nation-states for global resource pools, just as greater competition exists among the global businesses themselves. This competition imposes a cost on nations that choose to deviate from global regulatory standards or that adopt more stringent regulations on commerce or finance.
Kapstein is right that all three of these factors make it more costly and difficult for nation-states to do their mainly local jobs in an increasingly global world. External forces like these do divert resources from internal priorities. But I think Kapstein understands that this makes states more important than before, not irrelevant, as some authors suggest. Weak states, or states that merely ride global waves up and down, would merely transmit global instability and crisis to local and national citizens. Strong states are needed to dampen the effect of global instability on local resource pools and to shape global forces to accommodate local needs.
Leon Grunberg has made this point in another way. In a world where global businesses are increasingly demanding of local governments and increasingly likely to attempt to exploit local resource pools, state power is even more important, especially in less developed countries. States can provide public goods and help create more competitive local factor pools, for example, and they can also serve as more effective bargaining agents for local resource owners. Increased market power creates a need for increased state power, Grunberg argues. 41
I think the argument that strong states are needed to deal with global instability is especially important and underappreciated—at least it was until the 1997 Asian financial crisis. The state will persist because the need for the state has grown, but also because the local resource pools and socioeconomic problems on which states are based are undiminished. But what will become of culture?
The End of Culture
If you have watched the television show Star Trek: The Next Generation, you have probably encountered a most peculiar alien race: the Borg. The Borg are a collective race. They do not exist as separate individuals, except in the trivial sense that they live in separate physical bodies. They are like networked computers—individual keyboards and screens linked to a common processor and memory. Once assimilated into the Borg collective, individuals are hard-wired into a collective intelligence. They lose their ability to think or act as individuals. The only pronouns they are capable of using are plural forms: I think becomes we think, and so forth. On Star Trek, the Borg is (are?) the ultimate irresistible foe. “Resistance is futile,” they say, “you will be assimilated.”
The Borg collective civilization is a metaphor for the global financial markets and their impact on local cultures. Is “Borg” some sort of anagram for the global market? I say this because perhaps the most durable notion about globalization is that it assimilates local cultures and destroys them. Resistance is futile; you will consume Coca-Cola, eat Big Macs, watch junk television, adopt western dress and customs, listen to pop music, and generally cast off all the characteristics that differentiate societies, civilizations, and religions. Globalization is Borgization. In the end, all parts of the globe will be indistinguishable, with the same people in the same clothes, driving the same cars, listening to the same music, eating the same food. There will be just one culture: the materialist culture of the United States. That is the end of culture.
Casual empiricism confirms every bit of the Borgization hypothesis. If you want to see it, you have only to look around for signs of the End of Culture. The evidence appears mainly in the form of widespread consumption of western-type goods and services, especially brand-name items, and increasing urbanization, which seems to leave a western cultural stamp on whatever society experiences it.
Now the problem here is that you can see the End of Culture if you look for it, but you can also see different and even opposing trends, if that’s what you are looking for. Cultural globalization is even harder to measure than economic or financial globalization. The evidence is all anecdotal, which means that it persuades without convincing. You can think what you want to think and see what you want to see. In other words, the End of Culture is as serious a problem as you want it to be. I think that the End of Culture is a more serious matter than the End of the Nation-State, but I do not think it is as serious a problem as is preached by the prophets of hyperglobalization.
Culture is a strong force in human societies. Whereas some people see global capitalism destroying every last shred of local culture, however, I see a world in which the persistence of local differences actually limits the expansion of multinational business on nearly every front. International business texts are filled with examples of global businesses that fail in specific markets because they cannot overcome even the most trivial cultural barriers. Language, for example, is so obvious a barrier to globalization that we all assume that smart managers successfully overcome it. But they don’t.
A story of a subtle cultural business barrier is currently being passed around the Internet. Like many Internet items, it may be true or it may be urban legend. The story goes that a Japanese computer firm wanted to try to break into the U.S. market with a particular product. This firm wanted to make the product user friendly and also differentiate it from other similar items. With this in mind, they licensed the rights to Woody Woodpecker, the popular cartoon character, to use as an on-screen image. Users were instructed to “point your pecker...” at this or that icon to make the program work. Only at the last minute did the company learn of the slang definition of “pecker” in the United States. True or not, this story illustrates the same point documented by hundreds of business school case studies: that local language, culture, and institutions represent a significant but not impregnable barrier to foreign businesses.
Although I do not think that globalization is the End of Culture, I am not so naïve as to believe that the processes associated with globalization leave local cultures completely intact. Societies that become more open economically are also necessarily exposed to foreign social, cultural, and political influences. Some of these are presented passively, whereas others are actively sold through the various advertising media. People everywhere seem to be attracted to the image of a more sophisticated foreign culture and seek to emulate it in superficial ways. In Malaysia this may mean wearing NBA–logo clothing and eating Kentucky Fried Chicken. In Seattle it means drinking espresso and wearing Italian shoes. Neither of these attempts to replicate another culture and achieve sophistication is completely successful.
Not all the cultural implications of the process of globalization are superficial, however. Globalization is associated with the expanding sphere of the market, and the culture of the market is “rationalistic and anti-heroic,” to use Schumpeter’s phrase. 42 Science replaces magic. Profits and losses replace heroes and villains. This is no small thing. It is quite the opposite, in fact, not in the least because cultural diversity is sacrificed at the margin: There are more varieties of magic than there are varieties of science. But rationalistic beliefs are not what seem to worry people who write about this issue. They are more concerned about Coca-Cola, Nike, and McDonald’s and the consumption of nonindigenous cultural goods and services generally. Here is my take on this aspect of cultural globalization.
Globalization is associated with changing income distributions, especially in less-developed countries. The processes that we associate with globalization in less-developed countries tend to increase the size of the urban middle class. This growing class has vulgar tastes; in the original sense of that word, they are common, uneducated, unrefined. They are the sort of tastes you see in reruns of Married with Children. What we find offensive about cultural globalization is that the dominant tastes are vulgar middle class tastes, not quaint traditional tastes or refined elite tastes. We associate these middle class tastes with the United States because the United States is Number One in the production and consumption of vulgar goods. However, the fact that these tastes rise up and demand attention as the urban middle class expands does not mean that globalization causes the particular tastes we observe. 43 The United States may produce a lot of vulgar consumer goods and services, but it is simply wrong to think that, through globalization, it has caused the rise of this sort of culture everywhere.
Although global business does in some ways transform local societies as I have just described, it is much too soon to write off local culture. Culture is an effective counterforce to the process of globalization. Local culture is so strong that foreign businesses are forced to adapt and change their practices to accommodate local language, customs, and beliefs. The Economist has noted that
Would-be multicultural multinationals are struggling to solve a dilemma that has bedeviled their predecessors: the clash between global standardisation and local roots. The first offers huge advantages of both scale and speed.... But local knowledge can help Davids slay Goliaths; and ignorance can fell Goliaths even if there are no Davids around....
In the end, running a company in a borderless world is about trying to resolve a number of apparent contradictions. Firms have to be responsive to national needs, yet seek to exploit knowhow on a worldwide basis, while, all the time, striving to produce and distribute goods globally as efficiently as possible. Many companies manage to achieve one, even two of these objectives. It is hard to think of any company that has yet managed to balance all three simultaneously. 44
The challenges of being a multicultural multinational are significant. This is probably one of the most important reasons why the Morgan Stanley survey found so few truly globally competitive firms.
If the challenges are so significant, then why is it so easy to see signs of globalization’s impact on culture at every turn in every part of the world? One answer is that it is easy to see global culture if you do not look too deep or too hard. Coca-Colaization and Disneyfication are pretty shallow concepts and pretty modest threats to real cultural heritage and real religious tradition, for example.
Samuel P. Huntington has argued in a series of Foreign Affairs articles and a book, The Clash of Civilizations and the Remaking of World Order, that what we think of as the End of Culture is really a different dynamic: modernization.
Advocates of the Coca-Colaization thesis identify culture with the consumption of material goods. The heart of a culture, however, involves language, religion, values, traditions, and customs. Drinking Coca-Cola does not make Russians think like Americans more than eating sushi makes Americans think like Japanese. Throughout human history fads and material goods have spread from one society to another without significantly altering the basic culture of the recipient society. 45
Huntington argues that there is a difference between global culture (which is often equated with westernization) and the broader and fundamentally different forces of modernization. Modernization, which includes especially the process of urbanization, is driven by different forces, including simple population growth. Modernization produces a structural transformation of society, to be sure, but it would do this whether globalization was present or not:
Modern societies have much in common, but they do not necessarily merge into homogeneity. The argument that they do rests on the assumption that modern society must approximate a single type, the Western type; that modern civilization is Western civilization, and Western civilization is modern civilization. This, however is a false identification. 46
In fact, Huntington argues, modernization actually makes the difference in local cultural pools far more important because it is the understanding of their differences rather than their similarities that is most important.
Barrie Axford has also stressed the durable nature of local cultural resource pools in his complex and interesting book, The Global System: Economics, Politics, and Culture. Fundamentally, Axford argues, it is important to appreciate the difference between material goods and cultural beliefs. Perhaps some of us have become so materialistic, or think that society has so evolved, that we fail to appreciate this important difference. But, Axford notes,
The main objection to the idea of global culture is that spatialized communities are the ‘containers’ of real culture, of meaning and identity, not the ‘virtual’ communities created by forms of electronic communication, and the networks built around flow of goods and services.... It is wise to be cautious... since it would be very easy to slip into the assumption that, because global flows constrain local production and consumption, they must also modify local cultures and identities. 47
If globalization is really the End of Culture, if Coca-Cola equals the end of meaning and identity, then culture is not much of a loss in my view.
Borders in the Borderless World
This chapter has looked at extreme visions of globalization and found them to be inflated and oversold. It can be argued that in doing this I have set up an especially weak straw man in the form of hyperglobalization just so that I could knock him down. Aren’t there more sophisticated visions of globalization and more considered arguments concerning globalization’s effect on the state and on culture? Yes, of course, and I will come back to these arguments later. But sophisticated scholarly notions about globalization are not what concern me in this book. Public debate is framed by the ideas of hyperglobalization that I have discussed in this chapter. Before we can discuss what actual globalization looks like, we must understand that the image of hyperglobalization is wrong.
At different points in this chapter, I have briefly touched on two ideas that will be addressed in much more depth later in this book. One reason why the processes of economic, political, and cultural globalization are so incomplete is that they must be built on the foundation of financial globalization, and financial instability makes that foundation inherently unstable. Financial instability limits globalization. This issue is explored in Chapters 4 and 5.
Second, globalization remains an important issue, despite its built-in limits, because the globalization myth serves certain political and intellectual interests. I think that Hirst and Grahame got it right when they titled the first chapter of their book “Globalization—A Necessary Myth?” Some interests absolutely depend on globalization to be an unchallenged concept, an accepted force. I’ll outline these arguments in Chapters 6 and 7.
Before going on to these issues, however, I think we should get a better idea of what actual globalization is, so that we can better appreciate how it differs from global dreams. I do this in the next chapter, through an analysis of the theory of multinational corporations and short case studies of four representative “global” firms.
I want to close this chapter with a story that I think illustrates vividly the myth of the borderless world. Kenichi Ohmae concludes his book The Borderless World with an account that reveals the fundamental poverty of the “end of geography” argument. 48 It seems that for many years the Ohmae family has spent their summer vacation in a home on Vancouver Island, Canada, which is only a few hours away via car and ferry from my home in Tacoma, Washington. It is a great place; I love it. Ohmae explains that he had heard stories from many people about a beautiful place called Campbell River located further north on the island, on the inside passage. It is a good place to fish for salmon, observe whale pods, or just watch the eagles soar. Year after year the Ohmae family was tempted by tales of Campbell River’s natural beauty, but they were always held back by uncertainty. How long would it take to get there—one day or two or three? Were the roads good? Would they enjoy the drive? Would they like it once they got there? All the uncertainties of real life and its solid geometry kept them frozen in the island’s main town of Victoria, which admittedly is not a bad place to be stranded.
One year they finally resolved to go up to Campbell River, no matter how long it might take and what hardships they might have to endure along the way. The trip from Victoria to Campbell River takes only a few hours to drive, over good roads, through beautiful scenery. The Ohmae family had a wonderful leisurely drive, saw all the sights, had time to catch a salmon, and were back home in Victoria by dinnertime the next day.
The conclusion that Ohmae draws from this story is that living in a borderless world requires a change in mindset. You’ve got to confront your anxieties and break out of old patterns of doing things. When you try to live beyond the old borders, you will experience the same pleasure and freedom as his family did when they finally drove off for Campbell River. Ohmae uses the story to illustrate how easy it is to adopt global vision.
For me, Ohmae’s story has a different moral. Even a world traveler and global business consultant is still tied to the land, to the security of familiar territory, and is conditioned by the uncertainty of what lies around the next bend. Geography still counts; it really is a barrier. The gap between the borderless virtual world of our imaginations and the border-defined world of our daily experience has shrunk, but not so much as you might think.
Endnotes
Note 1: Ethan B. Kapstein, Governing the Global Economy: International Finance and the State (Cambridge, MA: Harvard University Press, 1994), p. 1. Back.
Note 2: Lester Thurow, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World (New York: William Morrow, 1996), p. 114. Back.
Note 6: Chapters 6 and 7 explore the uses of hyperglobalization for economists and policymakers. Back.
Note 7: Kenichi Ohmae, The Borderless World: Power and Strategy in the Interlinked Economy (New York: HarperPerennial, 1990), p. 18. Back.
Note 8: Ibid., pp. 21–22. Back.
Note 9: Paul Kennedy, Preparing for the Twenty-First Century (New York: Random House, 1993), p. 55. Back.
Note 10: Richard Rosecrance, “The Rise of the Virtual State,” Foreign Affairs 75:4 (July/August 1996), p. 45. Back.
Note 13: Reich was Secretary of Labor in President Bill Clinton’s first administration. Back.
Note 14: Paul Hirst and Grahame Thompson, Globalization in Question (Cambridge, UK: Polity Press, 1996), p. 1. Back.
Note 16: See David N. Balaam and Michael Veseth (editors), Introduction to International Political Economy (Upper Saddle River, NJ: Prentice Hall, 1996), p. 20. Back.
Note 17: Ricardo Petrella, “Globalization and Internationalization: The Dynamics of the Emerging World Order,” in States Against Markets: The Limits of Globalization, ed. Robert Boyer and Daniel Drache (London: Routledge: 1996), pp. 62–83. Back.
Note 18: See ibid., Table 2.1, p. 66. Back.
Note 19: Harold James, International Monetary Cooperation Since Bretton Woods (New York: Oxford University Press, 1996), p. 12. Back.
Note 20: John Maynard Keynes, The Economic Consequences of the Peace (New York: Penguin, 1988), pp. 10–12. Back.
Note 21: James, International Monetary Cooperation, pp. 12–13. Back.
Note 22: But, given how little history many people study, it might just be the triumph of ignorance over experience. Back.
Note 23: Financial instability and state power are offered here only as simple, tentative approaches to the answer to this large question. A fuller analysis goes beyond the boundaries of the present study. Back.
Note 24: Richard O’Brien, Global Financial Integration: The End of Geography (New York: Council on Foreign Relations, 1992). Back.
Note 25: “Does It Matter Where You Are?” The Economist (July 30, 1994), p. 13. Back.
Note 26: Ibid., pp. 13–14. Back.
Note 27: Tony Jackson, “Global Competitiveness Observed from an Unfamiliar Angle,” Financial Times, November 21, 1996, p. 18. Back.
Note 28: Quoted by Thomas Friedman, “Big Mac II,” New York Times, December 11, 1996, p. 23. Back.
Note 29: Thomas Friedman has coined the term glocal for the combination of global + local. We can only hope it is not widely adopted. Back.
Note 30: Michael Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990), p. 53. Back.
Note 33: Kenichi Ohmae, “Putting Global Logic First,” in The Evolving Global Economy: Making Sense of the New World Order, ed. K. Ohmae (Cambridge, MA: Harvard Business Review, 1995), p. 129. Back.
Note 37: Lowell Bryan and Diana Farrell, Market Unbound: Unleashing Global Capitalism, (New York: John Wiley, 1996), pp. 1–8. Back.
Note 39: Aurora Ferrari reminded me of this fact. Back.
Note 40: Kapstein, Governing the Global Economy, pp. 6-7. Back.
Note 41: Leon Grunberg, “The Changing IPE of Multinational Corporations,” in Introduction to International Political Economy, ed. Balaam and Veseth, pp. 352–354. Back.
Note 42: Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper & Brothers, 1942), p. 127. Schumpeter’s chapter, “The Civilization of Capitalism,” is necessary reading for anyone who wants to understand how globalization affects social values. Back.
Note 43: As the urban middle class grew during the Italian renaissance, tastes changed in just this way, and what we might call “western” tastes appeared. These tastes developed into the consumer culture we associate with globalization today. An interesting analysis of the rise of consumer culture in the Italian renaissance is found in Richard Goldthwaite’s Wealth and the Demand for Art in Italy, 1300–1600. Back.
Note 44: “The Discreet Charm of the Multicultural Multinational,” The Economist (July 30, 1994), pp. 57–58. Back.
Note 45: Samuel P. Huntington, “The West: Unique, Not Universal,” Foreign Affairs 75:6 (November/December 1996), pp. 28–29. Back.
Note 47: Barrie Axford, The Global System: Economics, Politics, and Culture (New York: St. Martin’s Press, 1995), p. 164. Back.
Note 48: The story is told in the Epilogue to Ohmae, The Borderless World, pp. 213–214. Back.
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