Someone Finally Calls "Globaloney"

I have been teaching courses on International Strategy for more than a decade now, and I often find myself in the unenviable position of trying to dispel common myths about globalization. I’ve found the task especially difficult in an era in which many students come to class having only been exposed to Thomas Friedman’s well written, but often misinformed, best seller on the subject – The World is Flat.

I was therefore pleasantly surprised when I opened my digital issue of The Economist last week to find the work of Pankaj Ghemewat highlighted (see The Case Against Globaloney). Ghemewat, one of the leading scholars in the area of International Strategy, has done some interesting fact-based work on the realities of globalization. As I have long tried to convince skeptical students, the realities are far more modest than Friedman, and many in the mainstream media, would like for us to believe.

According to the article:

…[E]verybody seems to agree that globalisation is a fait accompli: that the world is flat, if you are a (Tom) Friedmanite, or that the world is run by a handful of global corporations, if you are a (Naomi) Kleinian.

Pankaj Ghemawat of IESE Business School in Spain is one of the few who has kept his head on the subject. For more than a decade he has subjected the simplifiers and exaggerators to a barrage of statistics. He has now set out his case—that we live in an era of semi-globalisation at most—in a single volume, “World 3.0”, that should be read by anyone who wants to understand the most important economic development of our time.

Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP…

What about the “new economy” of free-flowing capital and borderless information? Here Mr Ghemawat’s figures are even more striking. Foreign direct investment (FDI) accounts for only 9% of all fixed investment. Less than 20% of venture capital is deployed outside the fund’s home country. Only 20% of shares traded on stockmarkets are owned by foreign investors. Less than 20% of internet traffic crosses national borders.

And what about the direction rather than the extent of globalisation? Surely Mr Friedman (author of “The World is Flat”) and company are right about where we are headed even if they exaggerate how far we have got? In fact, today’s levels of emigration pale beside those of a century ago, when 14% of Irish-born people and 10% of native Norwegians had emigrated…

Mr Ghemawat also explodes the myth that the world is being taken over by a handful of giant companies. The level of concentration in many vital industries has fallen dramatically since 1950 and remained roughly constant since 1980: 60 years ago two car companies accounted for half of the world’s car production, compared with six companies today…

This sober view of globalisation deserves a wide audience. But whether it will get it is another matter. This is partly because “World 3.0” is a much less exciting title than “The World is Flat” or “Jihad vs. McWorld”. And it is partly because people seem to have a natural tendency to overestimate the distance-destroying quality of technology. Go back to the era of dictators and world wars and you can find exactly the same addiction to globaloney.

I’ve long been a fan of Pankaj’s work. I think it’s among some of the most provocative, carefully conducted work in the field (full disclosure: he is a frequent visitor to the Stern School). That notwithstanding, if you haven’t already, check out of the full Economist article (The Case Against Globaloney); and for those of you interested in the full monty, you can find his book here (see World 3.0) to judge for yourself.

Maybe, just maybe, this will finally make my job a little easier…

This entry was posted in International Business, International Strategy. Bookmark the permalink.
Posted in International Business, International Strategy | Leave a comment