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Selling Globalization: The Myth of the Global Economy
Michael Veseth
Lynne Rienner Publishers, Inc.
1998
8. Rethinking Globalization
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The social process is really one indivisible whole. Out of its great stream the classifying hand of the investigator artificially extracts economic facts. |
| —Joseph A. Schumpeter 1 |
There is something important happening in the world today, and we call it globalization. Having spent so much effort trying to debunk the myths surrounding globalization, I want to be very clear now that the forces we see and sense are real. But if the process called globalization is important—and it is—then it is even more important that we begin to understand what it really is, what is left when the rhetoric is edited out and the smokescreen is stripped away. When this rethinking is done, I suggest, we will both understand globalization more clearly and be able to conceive of a better name for what it is. 2
The Argument So Far
So far in Selling Globalization I have argued that globalization in practice is very much different from globalization in theory and especially the visions of globalization that drive political choices today. Actual global firms are relatively rare and the process of globalization is far less developed than most people imagine. By some measures, the world is less thoroughly integrated today than it was in the period before World War I that Keynes has idealized.
When I examined case studies of four “global” firms—Nike, Boeing, Microsoft, and Frank Russell—only Nike seemed to fit the definition of a footloose truly global business, floating effortlessly in a virtual market world, drawing on global resources for its production and global markets for its sales. When people think of globalization, for good or for bad, they think about a world of Nike, which is an unequal, envious, performance-oriented, capitalist world.
The other “global” businesses I studied were as unlike Nike as you can get. Boeing is a creature of the state and in the process of negotiating with states has become one, or nearly so. Microsoft is market driven, but it needs strong states to enact and enforce intellectual property rights laws; it cannot exist as a profitable enterprise without strong states to enforce its copyrights. Microsoft’s product lines illustrate the durability of local language, culture, and history (distinct national differences) by the extent to which they are tailored or customized to fit local markets. The Frank Russell Company, which looks from the outside like the quintessential virtual financial firm, turns out on the inside to be based on trust that is built through face-to-face personal relations, for which no electronic perfect substitute exists.
Globalization exists as a process, but it is less complete than many people think and of a different nature than is commonly assumed. Globalization in practice turns out not to be the triumph of the irresistible market force over all that stands in its way. The rumors of the deaths of distance and the state and culture and the individual all are exaggerated. These forces, which have always limited global market integration, still limit it today.
Among the many forces that limit the extent to which true globalization can happen is the fundamental instability of global financial markets. If globalization is to happen, I argue, it must draw on and perhaps be driven by global financial markets, which provide the economic means by which resources move around the globe. But these markets are an unstable foundation for globalization. Global financial markets are subject to both big instabilities caused by currency crises and to smaller but fundamentally more troublesome chaotic movements. Globalization can only proceed so far if exchange rates are as fundamentally unstable as I think they are. There is reason to believe that as global financial markets expand they become increasingly unstable. At some point, the instability is great enough to halt the forces of economic integration and perhaps to reverse them. If my analysis is correct, globalization is a self-limiting process. The world economy may never be much more “global” in a real sense than it is today or was in Keynes’s day.
If globalization is not new, not ubiquitous, and not unstoppable, then why does it get so much attention? I have provided two answers to this question. First, globalization gets attention because it is a useful concept. Politicians, policymakers, and intellectuals link their pet projects to the promise or threat of globalization and then sell globalization to us. Because globalization is such a large and vague idea, all sorts of policies and projects can be easily attached to it. And it is easy to sell this vague idea to the public during a period when there are many reasons for anxiety and concern. Globalization is such a useful concept that if it did not exist, it would have to be invented—again, not to describe the way the world works, but as a delivery device for all sorts of good and bad ideas that are packaged with it.
The second reason that globalization has been so effectively marketed is that attempts to provide a sound economic critique of this concept have thus far been ineffective. In some cases the economic analysis has been done, but it didn’t matter because economists tend to communicate using highly specialized and symbolic language and methods. Noneconomist “civilians” simply cannot understand what economists say for the most part, so a meaningful economic critique of globalization by a certified economist might as well be written in Martian on the back side of the moon for all the good it will do. More to the point, however, is the notion (which I advanced in the last chapter) that postwar economics has unintentionally defined itself in a very narrow way that effectively excludes the sort of analysis that leads to theoretical questions about global market forces. Crisis and complexity, which are the basis of my analysis of global financial markets, are not economics as most economists understand it. Expecting a critique of global markets from the economics profession, therefore, is like expecting a defense of usury from a group of Islamic clerics.
The bottom line here is that globalization is not what it seems to be. The question, then, is what is it?
Globalization and Complexity
The process that we call globalization is really a complex set of changes. It is driven by a number of forces that interact with one another in endlessly fascinating ways. Such a process is called complex in the language of nonlinear dynamics, and what we are seeing now is an example of complexity. There is no generally accepted definition of complexity, according to M. Mitchell Waldrop, whose bestselling book by that name helped to popularize the concept. 3 The subtitle of his book, however—The Emerging Science at the Edge of Order and Chaos—suggests a definition. If this is a definition of complexity, then globalization certainly seems to fit.
The key to misunderstanding globalization is to ignore its complexity. If you artificially extract facts about globalization in a simple way (to paraphrase Schumpeter’s epigraph to this chapter), then you will understand it as a simple process (e.g., demonic global market, impotent state, borderless world) and succeed in misconstruing what is going on. Worse, your misunderstanding will serve to confirm your highest hopes and worst fears.
The problem with complex social processes is that it is difficult to understand them in their complexity. So we simplify. This process is artificial, however, as Schumpeter says, and arbitrary. We must pick and choose the facts that we emphasize and those that we ignore. It is possible to see anything you want to see, if the process is complex enough. So we tend to choose what we want to choose and see what we want to see. This is a serious problem. When we misunderstand the forces of change, mistaking them for angels or devils of our own creation, we lose contact with reality. It becomes all too easy to mistake friend for foe and good effect for bad.
More to the point of this book, because global complexity has so many interrelated elements, it is easy for political and intellectual entrepreneurs to pick and choose their facts to suit their agendas. It is hard to understand global complexity but easy to sell “globalization” as the cure for this or the enemy of that. So long as globalization is thus misunderstood, it can be too easily abused and misused.
The historian David Cannadine has written about this problem—misunderstanding complex social processes—in the case of the industrial revolution. 4 The industrial revolution in England was like globalization is today in that it was a complex event of great importance, but also of great complexity. If we can manage to misunderstand the industrial revolution, even given the improved perspective of hindsight, then we clearly can misunderstand globalization today.
The way that historians, economists, and the informed public viewed the industrial revolution changed dramatically during the one hundred years after Toynbee’s Lectures on the Industrial Revolution. Without much change in the “facts” available, each generation was able to see in the industrial revolution a different image. 5 In each case it was an image of startling clarity and relevance to the contemporary situation. In each case it was the image that viewers wanted to see. Cannadine found four “phases” between 1880 and 1980.
In the 1920s, for example, historians saw the industrial revolution in terms of the social conditions of urban workers and the unemployed. The “facts” chosen were those that best reflected the then-current concern over social condition and poverty in England. What they (historians, citizens, and officials) saw in the Industrial Revolution was a mirror of their own times, and their reading of this history probably also influenced their reading of current events and policy. 6 The lesson of history was that industry is hard on the weak and devastating to the poor. Something should be done to change things before it is too late.
Economic historians who wrote from the mid-1920s to the mid-1950s saw a different industrial revolution. What they saw were the cycles in the economy, the ups and downs of the business cycle that seemed to characterize industrial capitalism. In this, of course, they were guided by the experience of their own times. The crash of the Great Depression and the effects of world war were on their minds and so appeared before their eyes in the form of history. The lesson of history was that capitalism is unstable—it booms and crashes, but especially it crashes. Something should be done to change things before it is too late.
Those who studied the industrial revolution from the mid-1950s to the 1970s, the period of the great postwar economic expansion, saw growth, not poverty and not cycles. They saw the rise of a static economy to self-sustaining economic growth. The famous stages of growth theory that guided economic policies around the world in the 1960s was the product of W. W. Rostow’s examination of the economic history of the industrial revolution. Improved data (better facts) make us think today that Rostow’s theory of the need of a “leading sector” was as wrong in its interpretation of the industrial revolution as it seems to have been wrong in the form of advice to less developed countries. But the lesson of history was that economic growth could be attained by promoting a leading sector. A great leap forward is needed.
Finally, Cannadine noted that those who have studied the industrial revolution during the current “Age of Diminished Expectations” have also perceived it as a distant mirror of the contemporary condition. 7 It was an industrial evolution, not revolution, with many evolutionary false starts and dead ends:
Instead of being presented as the paradigmatic case, the first and most famous instance of economic growth, the British Industrial Revolution, is now depicted in a more negative light, as a limited, restricted, piecemeal phenomenon, in which various things did not happen or where, if they did, they had far less effect than was previously supposed. 8
The lesson of history here is that dramatic economic growth is an illusion, or at least not something to be expected. The past is pretty much like the present—mired in the doldrums. You’d better get used to it.
It should now be obvious to you that the industrial revolution was a pretty complicated process—at least as complicated as globalization, not in the least because it including a dramatic global expansion of trade. The industrial revolution was clearly all of the things that these four generations of historians and citizens perceived: unequal, unstable, dynamical, and evolutionary. It was more, too. But the point is that we select the facts to suit our uses, to mirror the times. Cannadine’s analysis forces us to consider whether our verdict on the industrial revolution says more about Britain in the period 1780–1840 or about our own view of contemporary social and economic conditions.
The main points I want to make here are these. First, what we call globalization is not a new process, even though we think of it as new. Second, globalization seems to be complex, with many causes and effects, some quite unexpected. Finally, because globalization is so complex, it can be viewed in many ways, and there is always the chance that we are missing the most important action through a poor selection of “facts.” With these points in mind, let us turn from past tense to present.
Crumbling Walls, Complex Interactions
What we call globalization is the complex process that results from breaking down the walls that separate and distinguish many of the important institutions that we use to define the world we live in. In our attempt to understand a complex world, we necessarily try to conceptualize it in simple ways. We put various elements of society into pigeonholes or mental compartments. During periods of economic and social stability, this simplified framework is useful. During periods of rapid change, however, the old mental framework prevents us from understanding the nature of the change itself. The walls of the pigeonholes must be broken down and rebuilt to reflect the new reality.
The fact that the borders that define the geographical boundaries of nation-states are now less important than they were 30 years ago is only the most obvious aspect of this general process of crumbling walls. Unfortunately, it has given the entire process its name—globalization. Globalization is about the need to rethink states and markets in terms other than those defined by geographic borders, but it is about much more than this. Globalization is about a general breaking down of borders and the processes that result from this. To illustrate and motivate this point, let me draw on analytical frameworks developed by Kenneth N. Waltz, James N. Rosenau, and Susan Strange.
Kenneth N. Waltz is the author of one of the most useful intellectual frameworks for understanding international relations. In his influential 1959 book Man, the State, and War, he proposed a three-level analytical framework. 9 Human individuals exist within the nation-state, which exists within an international system. Each element—individual, state, system—has its own nature and motivations and is conditioned by the next higher level of analysis. In writing about the problem of war, for example, Waltz said that war and peace are complex matters that depend on all three levels and their interactions. To understand war and peace, you must understand human individuals and their motivations; the state, its motivation, and how it conditions the actions of individuals; and the international system, its structure, and how it conditions the actions of states. 10
Writing in the 1950s, it was probably relatively easy to conceive of a framework in which individuals could be considered separately from states and from systems in structural and motivational terms. In fact, I think this three-level approach is still useful in considering many problems. But the clean distinction among the three levels of analysis has broken down. Individuals, states, and systems now interact in a variety of complex ways that in part define the world around us. The brief case studies I presented in Chapter 3 do not prove this point, but they provide a few examples that I hope will illustrate and motivate it. Boeing, for example, would be considered within the individual level of Waltz’s analysis, since it is a firm made up of and controlled by individuals and lacking the authority that traditionally defines states. But, as we have seen, Boeing acts like a state in its negotiations with nation-states and is even treated like a nation-state for some purposes. In the negotiations that we studied, the nation-states were most often concerned with profits and jobs while the enterprises were most often concerned with security and autonomy—a role reversal. Both were caught in a competitive environment that brought their interests together in new combinations. The difference between the first two levels of analysis is thus no longer distinct, and their interactions are complex.
The Microsoft case study illustrated another breakdown in this framework. Who determines the system? For Microsoft, the system—at least the parts of it that affect intellectual property rights—is terribly important, and so Microsoft invests heavily in technology and legal resources to try to define the system within which states and individuals operate. To be successful, Microsoft must help create and sustain a global system that protects it from the self-interested competitive actions of the individuals and states within that system. In a certain sense, Microsoft must be the system, or at least be of the system, since it has the strongest interest in defining and enforcing it. (I mean this in the larger sense, but of course, “being the system” is also Microsoft’s strategy concerning their Windows-based operating system and products.) It is increasingly hard to separate the system from the individuals who comprise it and their actions and motivations.
It is interesting to consider how much globalization is associated with technology, despite the fact that international trade and finance are not much more technology intensive than other aspects of contemporary life. One reason for this association is that the microelectronic revolution of recent years has been an important element in the breakdown of barriers among individuals, states, and systems, which we mistakenly call globalization. More rapid and efficient communications have clearly helped insert individual interests and motivations into state-level and system-level issues. On the Internet, in fact, states and systems are almost but not quite irrelevant. The resulting framework is not global and systemic, however, but local and individual, which is the main message I found in Bill Gates’s book, The Road Ahead.
Susan Strange has recently developed a similar theme in her book The Retreat of the State, in which she frames the issue in terms of the breakdown of traditional structures of authority and the creation of new combinations that embody authority in new ways.
Strange perceives that the dynamic that we call globalization is conditioned by the diffusion of authority within society, not just between nation-states, which creates different patterns of influence and behavior. Using the terms of international relations, we might say that there are more actors in the international political economy today and more levels of analysis are necessary. Strange makes the point by arguing that traditional international political economy is based on the “Gilpin equation”:
S + M = P/E
States + Markets = Political Economy 11
This equation suggests a state-level analysis focusing on a small set of actors. It is consistent with an international relations–based approach to international political economy. This way of thinking must now be replaced, she suggests, with the sort suggested by the “Strange equation”: 12
The interaction of many sources of authority with many markets plus the interaction of many markets with many sources of authority, equal the distribution of values within a complex, multilayered society.
This equation stresses the complexity of the interactions: more levels, more actors, and more different social valuations to influence. It is not so much that states are less powerful and markets are more powerful, it is that the whole process of determining whose values count and where they count is now far more complex and at the same time far more dynamic. What is most important here is not the left-hand side of this equation but the right-hand side. The diffusion of power is significant only because it allows a change in the distribution of values within society. People who fear value change within their social systems find in globalization a convenient external villain.
James N. Rosenau has taken this idea of crumbling walls and complex behaviors and used it to develop models of Turbulence in World Politics that mirror, at least metaphorically, the formal mathematical models of hydrodynamic turbulence that were the original chaos theory. 13 Like Waltz, Rosenau develops a three-level framework of analysis. He proposes that there are three dimensions of global politics. The first dimension operates at the microlevel of individuals and “consists of the orientations and skills by which citizens of states and members of nonstate organizations link themselves to the macro world of global politics.” 14 The second dimension operates at the level of “collectives,” which include both state and nonstate actors and where structural parameters are particularly relevant. The third dimension is relational and is a mixture of the first two. Rosenau’s analytical framework is not as easy to state briefly or to understand quickly as are Waltz’s three levels, but a deep understanding of this theory is not necessary here. It is what Rosenau says about his framework and what he does with it that I find interesting.
Rosenau argues that all three dimensions of his analysis are undergoing rapid change and are interacting in increasingly complex ways. That is, the orientations and skills of individuals are changing rapidly within a system of collectives that is experiencing fundamental structural change, and during a period when the nature of relationships between and among individuals and collectives is also in flux. The result, he argues, is conceptually similar to the fluid dynamical flows that produce turbulence and chaos in nature.
Rosenau’s work, apart from his relatively formal attempt to apply chaos theory to politics, leads to an interesting observation that brings us back to the globalization issue. When the three dimensions of political change are mixed, the result is a bifurcation, which is a common occurrence in naturally chaotic systems. That is, the world does not settle into a simple and unique equilibrium but develops a pair of “strange attractors.” In Rosenau’s analysis, the bifurcation is toward political issues that are too big for the nation-state (“global” issues such as ozone depletion and ocean environmental pollution, and regional issues such as trading blocs) and those that are too small for the nation-state (many security issues, many economic issues). In Rosenau’s model of political turbulence, the nation-state is the missing middle in the bifurcation of politics.
This political bifurcation hypothesis is interesting because it argues that the “death of the nation-state” that has been so loudly proclaimed is not caused by the rise of the all-powerful global markets (which I think is impossible). Rather, it is due to the rise of new combinations of opportunities and constraints within the world of politics itself. 15 Rosenau finds the cause of political change in politics itself, which is refreshing.
We should press beyond even Rosenau’s analysis, to consider the economic and social as well as the political implications of crumbling walls, mixed levels, diffused authority, scrambled dimensions, and new combinations of the institutional elements that we use to define our world. This is my notion of the complex global dynamic that is reshaping society today. It affects a wide variety of structural relationships and is driven by a number of forces, and its dynamic interaction make it difficult to describe and to understand. It is globalization and a whole lot more. When we choose to consider it without accounting for its complexity, we make a simple error at the very least but also risk making enormous and important errors. Understanding this complex situation is difficult, but misunderstanding it is easy.
Before you sharpen your pen and begin to list the problems with the preceding analysis, you should know that there is a better analysis than mine. Joseph Schumpeter wrote it in 1911, when he gave this complex process a simple name, economic development.
New Combinations
The best theoretical analysis of global complexity, as I perceive it, is found in Joseph Schumpeter’s first book, The Theory of Economic Development, which he wrote (in German) in 1911. A second German edition was published in 1926 and appeared in English translation in 1934. What makes Schumpeter’s theory so appealing in the present context is its focus on forces that seem especially relevant today: the tension between the static and the dynamic and an emphasis on the importance of intellectual creativity. In 1911, as he looked back at the Victorian globalization period from the perspective of Vienna, Schumpeter saw these as critical elements of social change. The power of this idea in the present context surprises and fascinates me.
Schumpeter’s analysis begins with a biological metaphor for society and social change: Society is like a plant or an animal, with the dual nature to both sustain (equilibrium) and grow and change (development). Although Schumpeter did not say so, this metaphor may be a fractal property of biology, existing on every scale from the cell to the individual to the species to the ecological system. Social systems of humans fit in there somewhere.
Schumpeter’s economic analysis is divided into a study of equilibrium, the “circular flow,” and a study of change, or “economic development.” He conceived of
a “circular flow” running on in channels essentially the same year after year—similar to the circulation of the blood in an animal organism. Now this circular flow and its channels do alter in time... continuously, that is by steps which one can choose smaller than any assignable quantity, however small, and always within the same framework. Economic life experiences such changes too, but it also experiences others which do not appear continuously and which change the framework, the traditional course itself. They cannot be understood by means of any analysis of the circular flow, although they are purely economic and although their explanation is obviously among the tasks of pure theory. 16
Schumpeter’s analysis of economic activity—that it comprised a static equilibrium circular flow and a dynamical process of economic development—parallels Paul Samuelson’s later division of economic analysis into comparative statics and comparative dynamics. This similarity is unsurprising, since Samuelson was Schumpeter’s student. Because the relevant mathematical tools were already available, Samuelson focused his attention on comparative statics, and the profession largely followed his lead. In The Theory of Economic Development, however, Schumpeter makes clear that it is economic development—comparative dynamics—that deserve the most attention.
Development in our sense is a distinct phenomenon, entirely foreign to what may be observed in the circular flow or in the tendency towards equilibrium. It is spontaneous and discontinuous change in the channels of the flow, disturbance of equilibrium, which forever alters and displaces the equilibrium state previously existing. 17
The pattern of economic development derives from intellectual creativity, which Schumpter describes simply as the ability to undertake “new combinations.” Globalization, in this reduced form model, and global complexity, is all about new combinations within firms, within nations, and among nations. But the sort of development that Schumpeter is interested in is endogenous, not exogenous. That is, it is not the result of an outside force but rather is generated by internal events. This way of thinking is consistent with the biological metaphor and also consistent with my understanding of globalization. Schumpeter writes that these new combinations come in five types: new goods, new methods, new markets, new sources, and new forms of organization. 18 Schumpeter’s ideas are as current as today’s Wall Street Journal. You could find these ideas in a story about Nike or a “borderless world” column by Kenichi Ohmae.
What is important about Schumpeter’s analysis, however, is that these new combinations act to stimulate intellectual creativity, because it is ideas that count, along with the values that those ideas embody. The clear hero of The Theory of Economic Development is the entrepreneur, the person who reacts to changing circumstances by taking risks, trying out new combinations, creating change. Change flows from the individual, through markets, to society. This change diffuses authority and produces new distributions of values. It is dynamic and creative, in Schumpeter’s vision.
The obvious weakness in this analysis is that Schumpeter works on two levels without providing a way to connect them. On the one hand, he claims that “the social process is really one indivisible whole,” 19 but then his theory ends up looking at new combinations from within a relatively narrow market-based framework. How can I find this way of thinking more useful or revealing than globalization? I do not know what Schumpeter would think of this, but I believe that the new economic combinations that he describes here are only part of the dynamic process. That is, the new markets that stimulate entrepreneurs to create new changes are an example of the process of social change. New combinations need not be economic or solely economic. 20 These new combinations take many forms, as Susan Strange has suggested, and they produce not just new profits, but new values. And values are what count. These changes can result in new political orders, including Rosenau’s turbulent political bifurcation.
The strength of this way of thinking is that it challenges us to consider globalization as something old, not something new, as something human and intellectual, not inhuman and geographical, and that it encourages us to perceive it as the cause or the effect of the opening of new opportunities. These opportunities are made real only when acted on by creative intellect. Schumpeter characterized this process by the famous term creative destruction. And it is both creative and destructive because it is change.
Endnotes
Note 1: Joseph A. Schumpeter, The Theory of Economic Development, trans. Redvers Opie (New Brunswick, NJ: Transactions Publishers, 1983), p. 3. Back.
Note 2: Thanks to Dave Balaam, who encouraged me to give this chapter a clearer and bolder focus. Back.
Note 3: M. Mitchell Waldrop, Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon and Schuster, 1992), p. 9. Back.
Note 4: David Cannadine, “The Present and the Past in the English Industrial Revolution 1880–1980.” Past and Present 103 (May 1984), pp. 131-172. Thanks to my colleague David Smith for pointing me to this article. Back.
Note 5: The “facts” have changed too, however, especially in recent years, as improved data about wages, production, and trade have been produced. Back.
Note 6: Perhaps one of the factors that influenced Churchill in his disastrous 1927 decision to return Britain to the gold standard at the prewar parity was a perception of the success of Britain’s gold policy during the industrial revolution. Back.
Note 7: In my book Mountains of Debt, for example, I compared the industrial revolution to a mountain glacier, which is powerful, because although it moves slowly and unevenly, the landscape that surrounds it does not move at all. Back.
Note 8: Cannadine, “Present and Past in the Industrial Revolution,” p. 162. Back.
Note 9: Kenneth N. Waltz, Man, the State, and War: A Theoretical Analysis (New York: Columbia University Press, 1959). Waltz writes about three “images” in this book, which is the basis of the “levels-of-analysis” approach to international relations. Back.
Note 10: States act differently in a bipolar world system, for example, than in a hegemonic system or a balance of power system. Back.
Note 11: Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge, UK: Cambridge University Press, 1997), p. 37. Robert Gilpin is the author of the standard text on international political economy, The Political Economy of International Relations (Princeton, NJ: Princeton University Press, 1987). Back.
Note 12: Strange, The Retreat of the State, p. 38. Back.
Note 13: James N. Rosenau, Turbulence in World Politics (Princeton, NJ: Princeton University Press, 1990). Back.
Note 15: Obviously, however, many of the new orientations, skills, structures, and relations that Rosenau discusses involve technological and economic factors. Back.
Note 16: Schumpeter, Economic Development, p. 61. Back.
Note 20: Indeed, the very idea that we should examine these issues as questions of international political economy is an example of the importance of new intellectual combinations. Back.
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