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DIGITISING GLOBALISATION
Both advocates and critics ignore the growing
significance of the Internet in accelerating the dynamics of the globalisation
process. By Marvin Zonis
Zonis is professor of business administration at the University of Chicago’s
Graduate School of Business. He consults widely on issues concerning the
international political economy The International Monetary Fund
defines globalisation as "the growing economic interdependence of countries
worldwide through the increasing volume and variety of cross-border transactions
in goods and services and of international capital flows, and also through
the more rapid and widespread diffusion of technology". The IMF omits some
important factors and focuses on the wrong central element. And like any
definition of more than a few years’ vintage, it ignores the enormous impact
of the Internet on globalisation.
In addition to the IMF’s points, globalisation entails greater movement
of people across national borders and the rise of similar standards around
the globe. The latter is driven by the diffusion of technology and American
popular culture and by the dictates of industrial and commercial economic
organisations. But the central element of globalisation is that it is driven
by companies in their relentless search for market share and profits. Companies
are at the heart of globalisation.
Illustrations by Paul Garland
paul.garland@futureplanit.com
Not surprisingly, given that globalisation entails Americanisation, Americans
are among its principal advocates. None more so than Alan Greenspan, chairman
of the Federal Reserve Board. Greenspan understands that globalisation has
costs, not least insecurities, dislocations, a sense of injustice, and powerful
and unwelcome competition. Nonetheless, articulating what has become a mainstream
American position, Greenspan argues against attempting to restrain that competition,
though he appreciates the pain. Doing so, he argued in a January speech,
would diminish economic growth.
"When confronted with the choice between rapid growth with its inevitable
insecurities and a stable, but stagnant economy, given time, Americans have
chosen growth. But as we seek to manage what is now this increasingly palpable
historic change in the way businesses and workers create value, our nation
needs to address the associated dislocations that emerge, especially among
workers who see the security of their jobs and their lives threatened. Societies
cannot thrive when significant segments perceive its functioning as unjust.
It is the degree of unbridled fierce competition within and among our economies
today – not free trade or globalisation as such – that is the source of the
unease that has manifested itself, and was on display in Seattle… Trade and
globalisation are merely the vehicles that foster competition, whose application
and benefits currently are nowhere more evident than here, today, in the
United States.
"There are many ways to address the all too real human problems that are
the inevitable consequences of accelerating change. Restraining competition,
domestic or international, to suppress competitive turmoil is not one of
them."
Not surprisingly, this approach to globalisation is not shared in France.
And no one has articulated the reservations there more than its premier,
Lionel Jospin. He argued last November that an unregulated global economy
will not serve to benefit society, and that Europe can take the lead in creating
the appropriate regulatory structures.
The technological revolution which
is producing this connectivity will change globalisation in dramatic and
still unanticipated ways
"Capitalism is a force
that moves, but it does not know where it is going. The simultaneous domination
of the economy by global finance and the coming of the information revolution
make this feature of capitalism even more pronounced. Indeed, there is now
a disjunction between the movements of finance and the development of production
and society. The former seem to move at the speed of light. The latter moves
at the speed of sound… if not slower. In finance there is absolute fluidity
and everything is instantaneous. In material society there is viscosity,
an inevitable slowness, because people are the main movers. This difference
in speed gives rise to an increased risk of ruptures and breakdown. Financial
movements are too rapid for the pace of the real economy. That is why financial
movements must be regulated, so that meaning is restored to these transactions.
The production of wealth must be geared to human aims.
"The financial crises of 1997 and 1998 in Asia and Russia had at least one
positive effect. They shattered the claims of neo-liberalism… We fully recognise
globalisation. But we do not see its form as inevitable. We seek to create
a regulatory system for the world capitalist economy. We believe that through
common European action in a Europe fired by social democratic ideals we can
succeed in the regulation of key areas, whether finance, trade or information…
We need to set up new regulatory systems for new networks such as the Internet,
so that we can influence the process of globalisation and control its pace
for the benefit of society."
NOT SO FAST Let’s face it: Karl
Marx and Friedrich Engels got a lot of things right. One was their unbridled
enthusiasm for the achievements of the bourgeoisie. Check out The Communist Manifesto.
They were in awe of the material achievements of the bourgeoisie and the
ways in which the bourgeoisie revolutionised production to produce greater
material abundance and physical achievements than the world had ever known.
They credited the bourgeoisie with creating a global market and with drawing
peoples and countries into the nexus of civilisation through the world market
which the bourgeoisie needed in order to sell the fruits of their enterprises.
The result was that national differences and antagonisms among peoples were
perceived to be vanishing as commerce became ever more free and the world
market ever more global.
Superficially, it seemed that the world of global capitalism was unfolding
as Marx and Engels had predicted, at least until Seattle. But the third ministerial
meeting of the World Trade Organisation quickly disintegrated into rioting
outside the hall and national chauvinism within. This was all the more puzzling
since it appears that the WTO and its predecessor, the Gatt (General Agreement
on Tariffs and Trade), had been successful in accomplishing what their defenders
had envisioned they would accomplish. Since 1960 world trade has increased
by a factor of 15, global production has quadrupled, and world per capita
income has doubled. While the benefits have not been equally shared, they
have at least been widely distributed.
In their stunning new book, Globalization And History: The Evolution Of A Nineteenth-Century Atlantic Economy,
Kevin O’Rourke and Jeffrey Williamson show how the last great boom in globalisation
– from 1840 to 1914 – came to an end. Simply put, the movement of goods,
capital and people across national boundaries provoked a backlash that led
nations to pursue increasingly and mutually reinforcing autarkic policies.
The boom in globalisation was brought to an end by xenophobic and protectionist
pressures. That first round of globalisation was a true economic
boom, in many ways even more dramatic than our current one. Yet what brought
about the end of that first globalisation boom was a move to government protectionism.
Europe closed its agricultural market to American and Ukrainian grain to
protect its farmers. The US raised tariffs to protect its infant industries
from established European manufacturers. Pressures to protect local workers
in the US, Canada and Argentina led to restrictions on immigration. World
War I finished off the boom.
The post World War II boom is now generating its own powerful backlash. In the January-February 2000 issue of Foreign Affairs,
Jay Mazur, president of the Union of Needle Trades, Industrial, and Textile
Employees and chair of the AFL-CIO International Affairs Committee, minced
no words about the position of organised labour in the US. "Joining
with environmentalists, consumer advocates, and human rights activists, the
labour movement’s message from Seattle could not have been clearer: the era
of trade negotiations conducted by sheltered elites balancing competing commercial
interests behind closed doors is over. Globalisation has reached a turning
point. The future is a contested terrain of very public choices that will
shape the world economy of the 21st century. The forces behind global economic
change – which exalt deregulation, cater to corporations, undermine social
structures, and ignore popular concerns – cannot be sustained. Globalisation
is leaving perilous instability and rising inequality in its wake. It is
hurting too many and helping too few… The demand for enforceable labour rights
in global trading accords, built into conditions of the international financial
institutions and enacted into US trade agreements and laws, is not an effort
to build walls against the global economy. It is an effort to build rules
into it, and a floor under it, to lift wages and conditions up rather than
drive them down."
What does Mazur have in mind for organised labour when it gets its seat
at the table? The US labour movement seeks to force changes in the policies
of governments in the developing world by forcing changes in government policies
in the developed world – and the US in particular – by linking environmental
and labour regulations to trade. The indirect consequence would, not surprisingly,
be in the interests of the workers whom Mazur directly represents. American
workers would see their competitive positions enhanced by raising the costs
to employers of hiring workers in developing countries. There is nothing
wrong with being self-serving. But organised labour’s message would be more
palatable if it were not wrapped in such high globalmindedness.
The appropriate response to the coming
spurt in global inequality is not to impede the digitalisation of the world.
It is to bridge the digital divide
Mazur and
his associates also ignore the wishes of many of the governments in developing
societies and their workers. For example, the alternative to boring, dirty,
and dangerous work for vast numbers of children in many developing countries
could be rewarding days in school. But schools may not exist. The alternative,
therefore, is often hunger and diminished well-being for the entire family
whose income shrinks with the loss of their children’s wages. The alternative
to the low paying jobs in sweatshops in Indonesia is not better paying jobs
in proper working conditions in Indonesia, but fewer available jobs.
Nonetheless, it seems clear that organised labour will have a greater voice
in American policy for the foreseeable future. Election campaigns in the
US are not an occasion for rational policy making. Both parties will pander
to important blocks of voters who fear "the great sucking sound", as Ross
Perot once described the loss of US jobs to Mexico that would follow the
adoption of Nafta. US policy making will be especially unsound for the remainder
of 2000.
THE GLOBAL KILLER APPLICATION US
pesident Bill Clinton supports the WTO even as he seeks to mollify its critics
in this politically charged election year. The consequence could be greater
protectionist legislation and an end to the global economic boom, just as
the increasingly autarkic policies of the major trading states ended the
last global boom. But critics – and supporters – of globalisation are missing
the essential component of this boom. The pervasiveness and rapidity of technological
change have forever altered the landscape of the global economy.
The Internet is changing everything. According to a study by Inktomi – a
US-based developer of Internet infrastucture software – and the NEC Research
Institute, the Web has grown to more than one billion unique pages. Nua Internet Surveys,
an online resource for Net statistics, has examined published surveys of
connectivity over the last two years and estimates that as of January, nearly
250 million people worldwide are online. More amazingly, Internet usage continues
to double every 100 days. (It’s worth working that out. After three years,
something that doubles every 100 days will be 1,000 times larger than at
the beginning of the period.) The technological revolution which
is producing this connectivity will change globalisation in dramatic and
still unanticipated ways. But at least six major consequences of the digital
transformation for globalisation are clear.
First, the Internet offers the prospect of ruthlessly driving down transaction
costs and making business ever more efficient and profitable. Ronald Coase
won the Nobel Prize in economics for his work in identifying and understanding
the role of transaction costs. He referred to the cost of searching for another
firm with which to transact, negotiating with that firm, coordinating the
processes of the two firms, monitoring the on-going activities, and other
such difficulties, as transaction costs. Coase argued that when transaction
costs are high, firms would prefer to conduct those functions internally.
Conversely, when transaction costs are reduced, firms shed the functions
they have been performing internally to focus on their core competencies
where they are more adept at being profitable. The result in an era of lowered
transaction costs will be a rapid reshaping of firms and massive new horizontal
mergers calculated to take advantage of the benefits of global scale based
on common core competencies.
Second, the Internet is the greatest distance killer that the world has
known. The immediacy of connectivity brings together the peoples of the world
and their firms in entirely new ways. The Internet also allows certain businesses
to be located anywhere. The new Disney Europe web site is actually housed
in Hawaii to take advantage of facilities made available with the closing
of a US military installation. More than 70% of Singapore’s Internet traffic
goes through the United States before moving on to the rest of the world.
(Less than 10% of that traffic is directed to addresses in the US itself.)
Third, the Internet facilitates the entry of new businesses in a way not
previously possible. Small firms on the Internet can compete effectively
with large, more established players. A cartoon in The New Yorker captures
the thought. A dog is sitting at a computer. Another dog asks him what he
is doing. The first dog replies, "Surfing the Web." The second dog asks why
he is surfing the Web. The reply: "Because no one knows I am a dog." On the
Web, all firms can at least seem equal.
Fourth, the Internet is the perfect instrument for expanding free markets.
To be free, markets require perfect information. The Internet is the most
effective device found for providing near perfect information to buyers and
sellers. Free markets, in turn, are efficient markets that relentlessly drive
down costs and shift power from sellers to buyers. (Since every firm is a
buyer and a seller, the effects on any given firm need to be determined by
examining the balance.)
Fifth, the Internet is also the perfect mechanism to foster and sustain
democracy. Authoritarian governments last in part because the state and its
officials have more information than anyone else. Not by chance did the Soviet
Union spend vast resources jamming radio broadcasts of countries hostile
to communism. China now seeks to control Internet access with the rest of
the world. But the Internet will not be controlled. There are too many technological
solutions to avoiding state control. Any country that wants the immense benefits
of global connectivity – which Chinese leaders, for example, have made clear
they believe is essential for continued Chinese economic growth – will see
a shift in power. As their people connect, they will gain information and
with that information will come power.
Sixth, the Internet is not only about money. Nor is it only about power.
The Internet is also about massive value shifts. The Internet is predominantly
the province of the young, who are the masters of the digital economy. In
the Middle East, 70% of those connected are between the ages of 21 and 35.
As a result, social hierarchies are being disrupted as the conventional bases
of respect and social status are being displaced. This shift in the established
order has been seen in many societies.
MORE EQUAL THAN OTHERS Vast differences
in Internet usage exist among countries. The differences suggest that firms
within particular nations will be able to make use of the Internet to become
more efficient, more global, and more profitable. In turn, those countries
will benefit differentially from the Internet. But that is not the only source
of the growing inequality that will characterise the globe in the digital
age.
Another source of inequality exists within and among countries. It is the
digital divide. Those who do not go digital – because they lack the technical
skills to do so or because they cannot afford to do so – risk being left
behind. That is bound to increase internal inequality and, eventually, instability.
The appropriate response to the coming spurt in global inequality is not
to impede the digitalisation of the world. It is to bridge the digital divide
by increasing educational, technical and material opportunities for those
who have not mastered the digital economy. British prime minister Tony Blair
put it this way at the World Economic Forum’s annual meeting in Davos: "The
bane of all modern developed nations is social exclusion, a group of people
set aside from society’s mainstream, alienated, unmotivated, often existing
in a murky sub-culture of crime and drugs." The digital divide will come
to be a far more powerful source of exclusion in the digital economies of
the future than previous mechanisms of exclusion.
WHAT’S A STATE TO DO? The state
is trapped. It is caught by powerful and growing forces that reduce the ability
of politicians and bureaucrats to control developments. Those forces include:
multilateral or supra-national institutions such as the WTO, Nato, the UN,
Nafta, the EU and NGOs; extra-national institutions such as global crime
syndicates, and international corporations; sub-national groupings such as
regional, religious, or ethnic groups, regional and urban governments; and
the spread of the market which places decisions in the hands of large numbers
of economic actors without any direct role for the state.
The Internet will only accelerate the development of these forces. But the
state will not see its role diminish without a struggle. Politicians and
bureaucrats, in the least cynical of worlds, do what they do because they
believe in the positive role of the state.
There is no doubt that the state will have a positive and different role
to play in the digital age. Creating the frameworks whereby the market economy
can flourish and the Internet can permeate society will be the new task.
Ensuring that opportunities are widely available is another. Providing an
acceptable minimal standard of well-being for its people will be another.
Providing for national defence and domestic tranquillity is yet another.
States will exist indefinitely. But those states that continue to perform
the same functions in the digital age will see themselves marginalised and
their peoples disadvantaged. The winners will undoubtedly be those states
that understand and develop in tune with our changing times. 
Last update: Wednesday, July 5, 2000 at 4:16:28 PM.
Email: wlinfo@worldlink.co.uk
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