The Myths of Globalization

Pankaj Ghemawat of IESE Business School in Spain has studied benchmarks of globalization for more than a decade and points out in “World 3.0” that many indicators of global integration are surprisingly low, according to The Economist.

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.

Language, currency, trade block and colonial past

Exports are equivalent to only 20% of global GDP. The global trade also forms according to predictable cultural patterns:

Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past.

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.

Larger diversity in "vital industries"

World 3.0 also seeks to debunk the 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.

Not so Much Homogenization?

Finally, the "balanced view" report refutes the idea that globalisation means homogenisation. According to The Economist's review of World 3.0

the increasing uniformity of cities’ skylines worldwide masks growing choice within them, to which even the most global of companies must adjust. McDonald’s serves vegetarian burgers in India and spicy ones in Mexico.  

The last quote from Schumpter is just asinine. I hope that's not how it is presented in the book. As a commenter states on The Economist:

What an absurd argument. So, minute differences in what is practically the same thing, mean that there is more choice? I mean, seriously.

A Variety of Comments to the Report

From the Economist:

The world is far more globalized than that presented by Mr. Ghemawat. The globalization is most and foremost in the spread of ideas – which in the end drives all other forms of globalization. The fact that I am reading The Economist from my home country, Bulgaria, is only a testament of that.

On the more idiotic side (idiocy is a major factor in the global economy):

The truth is that globalization is impossible without some forms of common culture. It is simple, Europeans will never accept large scale emigration from countries that think it is NOT OK for their daughters to go our with outsiders.

Because Europeans, code for "white people", are so accepting and just loves it when their fairy haired blue eyed daughter dates interracially.

From my own Facebook:

It just shows the major differences in worldview between the normal citizen and the intellectual elite. The elite live in an international world, where most people travel often and have international experiences. Most people stay within 100 KM of where they were born for all their lives. Globalisation remains so far off.  

But it also raises the issue of the difference between the globalisation of markets--where products, ideas, capital and culture flows around with few constraints, and a world that's still based on state lines centuries ago. There remain very strong restraints on free movement of persons and workers.  

Globalisation seems to be a bill of additional rights for superconnected, rich entities, with many more choices on where to work, shop, buy, sell, keep money, buy houses or whatever else than the normal person.

I concur.

The Data Reveals Neo-Colonialism

World 3.0 does not, of course, as my own headline may suggest or be misinterpreted, completely refute the integration of national economies and cultures, the increased global trade or the local effects of globalization. 

I haven't read the book yet, so I base my observations merely on the meagre statistic data offered by The Economist review.

The most significant would be the numbers indicative of "propensity for foreign trade", which is what globalization is all about.

Let's look at those numbers:

Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past.

The most conspicuous is that the highest ranking factor is common colonial past. That effectively validates claims that globalization is based on colonalization. That, in itself, does not make globalization odious. It may also represent progress on a tragic and criminal background.

However, it is interesting how this would apply to, for instance, the Commonwealth of Nations encompassing 53 independent member states. A colonial past, it would appear, is still a huge advantage when comes to positioning yourself on the global trade market, greater even than being a part of a trading block.

Let's not argue whether or not this is also an advantage for the developing markets in a dysproportional trade relation here, but simply conclude that when "common colonial past" is involved, it outdoes all other key indicators in the report.

General Error: Overlapping Categories

The language comparison between countries indicates they are done, according to scientific method, between "otherwise identical countries", as much as this is possible, of course. In spite of healthy criticism of the standard, it is fair to assume the tendency described is reality-adequate.

Does, it however, transfer to common colonial past? It is a well-known fact that language similarity was and is imposed on former colonies, so that would detract from this rather sensational number and puts it in question as one actually blind-sided by neo-colonialist attitudes and categories.

The point being: Just because the countries aren't "otherwise identical", such as France and Algeria, there is no reason to assume that language similarity between the countries does not kick in. You cannot just subtract the percentage points. On the other hand, it is difficult to imagine how you can compare these numbers in a way that accurately detracts what may be called "common factors" such as language bonds.

Also the other categories are operating with a vast array of overlapping factors. Many countries a part of various trading blocks, have or have not relative language similarity with other countries inside and outside of this block, and on top of it some shared colonial past. Think Spain, where the author of the book comes from.

Then there are all the notable exceptions not revealed through such statistics. Sweden, for instance, a lucrative trade partner, shares no language similarity and has no colonial past. It does not currently use the Euro. If you extrapolate from these conclusions in World 3.0 Sweden should rank low on global trade.

"Only", "Less Than" - Diminishing Effect

Another error that sets in later in the process, is when conclusions are formed:

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.

20% of venture capital in any economy is rather a lot. Similarly 20% of shares traded on stockmarkets represents an enormous amount of value, and so forth, also for internet traffic (in spite of obvious language barriers) and for the fact that 

exports are equivalent to only 20% of global GDP

We can agree more easily to facts than to interpretation of facts. The global GDP lies around 60 trillion, so it is primary school math to calculate what 1/5 of that represents.

When The Balanced View is the Most Extreme

Denying the enormous impact of globalization is denying the obvious. The fact that business leaders overestimate the rate of globalization, the openness of various national markets to trade - and, most of all, their own ability to navigate different cultural traditions reflected in business institutions as well as market - does not mean more than just that.

The fact that they oversell globalization means nothing more than excitement about prospects.

As for the critics, the problems with globalization they point out through their "exaggerated claims" or "globaloney" are very actual, and critical, paradoxically for the process of globalization as well as for the national interests globalization is arched upon.

Reversely, it is a paradox that the integration of commercial interest, in spite of detractors, is the best method of lowering global cultural conflict. This paradox is best illustrated with the case of the European Union, which has actually kept the notoriously unstable continent at peace for 61 years - in spite of the fact that the peace-making effect of economic integration is just propaganda for the market forces.

So yes, there may be simplification and exaggeration at work in the fringes, but the "balanced view" represents the most simplified and the most exaggerated: 

Quite remarkably, the view of a balanced world, in which national and local interests are as evenly represented as globalist interests, is more of a myth at the 20% benchmark than both the extremes.

If you are interested in globalization and how it applies to conflict reduction, please read Cultural Codependency as a Grand Narrative