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What Follows Globalization, Part 2

Posted on the 06 February 2013 by Stephendeangelis @EnterraCEO

In yesterday's post, I cited a number of pundits who worry that no clear model has emerged as the obvious candidate for what follows globalization. I noted that fifteen years ago Daniel Yergin predicted that "globality" would be the natural predecessor of globalization. He predicted that globalization would sweep away international barriers to trade and growth and "a new global reality" would emerge. As I noted yesterday, globality certainly doesn't seem to be the direction in which the world is heading; especially considering that regionalization is on the rise. "We talk of being a global community," writes Klaus Schwab, founder and executive chairman of the World Economic Forum, "but our institutions and behaviors tend to run counter to these currents." ["A 5-point plan for a new globalism," Fortune, 30 January 2013] He believes "Our new reality -- complex, interconnected, and faster than ever -- means that the need for global cooperation and global solutions has never been greater." He then asks, "So what criteria should underpin a global system for the 21st century?" First, and foremost, he believes, we need cooperation. He explains:

"Such a system must foster cooperation. We're all in this together. Governments, business, and civil society cannot do it on their own. Global issues are interrelated, and multi-stakeholder responses such as public-private partnerships bring innovative solutions to the table. They engage the passion, purpose, and networks of civil society with the resources and experience of business."

The concern of many analysts is that the world seems to becoming less cooperative and less connected instead of more cooperative and more connected (see my post entitled Globalization: Retreating or Transforming?). Joshua Cooper Ramo, vice chairman at Kissinger Associates, writes, "They forgot to tell us globalization has a reverse gear." ["Globalism goes backward," Fortune, 20 November 2012] Noting some of the trends discussed in yesterday's post as well as the fact that the Great Recession has turned many countries inward, he writes:

"Given that the idea of a more interconnected world has been at the heart of our assumptions about our future, such figures are, as [Pascal Lamy, head of the World Trade Organization] said, worrying. They echo in our politics as loudly as they do in our markets. People remember a world of protectionism, understand the consequences of no international cooperation, and nervously consider the icy historical proposition of 18th-century French economist Frédéric Bastiat: 'When goods don't cross borders, armies will.' Watching the country that in recent years has benefited most from an open world-trading order rebel against it is like hearing that people are looking for ways to opt out of gravity. But here it is: Two-thirds of Americans now believe more trade is bad for the country."

If that doesn't concern you, it should. Every credible analyst I know believes that global economic growth and prosperity depends on a rising middle class in emerging market countries. If America wants to glean a share of that growth and prosperity, it must embrace trade. Americans are too much in debt to continue to fuel a healthy and growing consumer economy on their own. We need to reach out to the millions of consumers being lifted out of poverty as a result of globalization. The second point of Schwab's path to globalism involves systemic action. He explains:

"A global system must also approach challenges in a systemic, integrated way. The issues on the global agenda are all interrelated, but our current system is too compartmentalized: the World Trade Organization for trade, the World Health Organization for health, and the International Monetary Fund for finance. We also have to establish the necessary interlinkages to create coherence. For example, how do we strike the optimal balance between the G-20 and the United Nations? How do we best engage nongovernmental actors? We need flexible networks -- more heterarchies, fewer hierarchies."

The business world is quickly learning that the future belongs to organizations that master horizontal processes and break down traditional corporate silos. Schwab insists that the same lesson needs to be learned on the global stage. Ramo undoubtedly agrees that global actions need to be coordinated and cross-functional cooperation fostered. He also believes that regionalization is more likely to see the kind of cooperation and coordination discussed by Schwab. Ramo writes:

"Networks are the essential metaphor of our age, what assembly lines were 150 years ago. And we've now moved from an era of extensive network development -- that 'Hi, nice to meet you' phase -- to something deeper, and often that means nearer and more local. This shift is being abetted by any number of practical factors: Prices of air and sea freight have inflated alongside fuel costs in recent years, for instance, putting a premium on closeness. ... But there's something else at work too: a sense that we may have gone too far, too fast, that we don't really understand the dynamics of the systems we've built. ... To be honest, we entered the first flush of globalization with the wrong tools. We didn't know how to manage interconnected bank risk, couldn't imagine the danger of asymmetrical threats like terrorism, and really believed that every time we tipped over a government in some other country, an American-style system would grow back in its place. ... The right answer is to pause, and to reengineer."

Schwab certainly agrees with Ramo that some re-engineering is required. His third point involves strategy-driven decision making. He writes:

"The system should be strategic, not crisis-driven. Most of our energy is currently absorbed by reactive rather than proactive measures. Managing crises instead of thinking about the future leads to defensive attitudes. We must adapt to a changing world, not defend outdated models."

Concerning this point, Ramo waggles an accusing finger at American nationalists. He can't understand why they have seemingly abandoned a national strategy that has helped maintain America's prominent role in world affairs. He writes:

"[The] logic of increasing returns tells us a lot about exactly what America needs to do next. Think of it this way: Every time you use a dollar bill, reach for a credit card, dial your cellphone, check your GPS -- nearly anytime you finger something with a network connection, what you are really doing is touching the outlines of a global system of interconnection that has been built with U.S. values. You're connecting to a system where we've been able to lock in the rest of the world. It's the reason that there is one Silicon Valley and one Wall Street -- and also why it is ridiculous that we are letting our dominance of those systems leach away not to external competition, but from the inside out. Whether it be ever more challenging visa regulations for engineers or ever greedier pollution of the use of finance, we're rotting away the basis of what has let us prosper. Maintaining a standard like the U.S. dollar as the global reserve currency is, in a world of locked-in systems, the greatest possible strategic advantage. Losing it would hurt our national security far more than almost any other international threat."

That doesn't mean that America has the right (or can) impose its will on the world. Ramo is arguing that smart Americans have been able to convince the world that the U.S. has a plan that is good for everyone. As the world has become more prone to crises, including within the U.S., the world isn't so sure that American leaders still have the vision or the will necessary to move the world forward in the right direction. Legitimacy is the fourth point discussed by Schwab. He writes:

"A global system must continually demonstrate legitimacy. Today, this goes beyond mandates based on democratic principles; it includes clear objectives and concrete results. We undoubtedly have a delivery problem. And since promised actions are not fulfilled, we also have a trust deficit with governments, international organizations, and business."

Conspiracy theorists always see something sinister in terms like "a global system." The fact of the matter, however, is that mail wouldn't move and planes wouldn't routinely and safely cross borders if there weren't international standards. In the virtual world, the World Wide Web wouldn't function if global standards weren't in place. Ensuring that organizations that set such standards have "legitimacy" is the best guarantee that countries, including the U.S., will have their voices heard and their interests considered when standards are adopted. The fact that so many people distrust (and at worst hate) politicians and government bureaucrats highlights the fact that organizational legitimacy is not going to be easy to achieve. Schwab's final point throws fuel on the fire of conspiracy. He writes:

"Our global governance system must embrace the notion of global citizenship. In an interconnected world, it is in the interest of nation-states to strive for solutions to truly global challenges, such as climate change. Today, we not only need a Charter of Human Rights, but must also expand this notion to include responsibilities."

The terms "global governance" and "global citizenship" are catalysts that heat up nationalistic fervor in many people. Nevertheless, people of every nationality do share the planet and actions on one side of the world can have consequences on the other side. There are numerous challenges that don't recognize borders and are blind to a person's ethnicity, culture, or religious beliefs. These challenges do require a coordinated effort to address. Schwab concludes, "Integrating these five criteria into our global system will be challenging, but if we don't, we will continue applying topical treatments to conditions that fundamentally require global cardiac care." The last thing we need is for the patient to die.


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