Sunday, April 12, 2009

We ARE Losing Something to Globalization

Globalization is not all good. Usually Money and Such is a strong advocate of international trade and of globalization - and that still absolutely remains the case, however, when discussing a subject it is important to understand the pros and cons and make a rational decision, and not simply take a dogmatic, blind position. So let's go ahead and look at a few aspects of globalization and I will clarify my position.

Loss of Diversity - I am writing these lines from London, where I am currently traveling on business. After my meetings were over this afternoon I started wandering around this gorgeous city, and I couldn't help but notice that the stores were all pretty much the same here as they are in the States. If you follow me on Twitter, you may have noticed that I had lunch at a Pizza Hut somewhere on Oxford street. I passed by GAP stores, Banana Republic stores, and an Apple store. McDonald's and Starbucks are all over the place. For the most part TV here is the same as it is in the States and most of the music I heard today was very familiar. I am in London now, but I had very similar experiences in Hong-Kong, Tel-Aviv and Barcelona in the past 12 months, and I am guessing the same could be said for many other cities around the globe. Clearly, cultural diversity is being lost due to globalization.

Specialization Leading Loss of Robustness - in ancient times, if a volcano destroyed Pompeii, there was zero impact on cities on the other side of the world. If something horrible happened to Shenzhen in China today, for example, the ramifications would echo around the world. It is no coincidence that the global economic crisis we are seeing today is truly global. Economies around the world are now so tightly interconnected, that a severe disruption in one place is virtually guaranteed to spread elsewhere.

Loss of National Sovereignty - the current economic crisis is a great example of how national governments are virtually powerless to regulate economic activity that spans the globe. Yes, you can prohibit a bank from doing something in your country, but that bank is simply going to do that same thing elsewhere around the planet. Environmentalists have been arguing for years that multinationals are skirting environmental regulations by relocating to countries with looser restrictions. There is no arguing that fact.

You could probably substantially expand this list, but I think that these three examples will suffice for my purposes. I understand that we are losing something by going global. Some of the things we are losing are probably precious and we should find a way to save them. However, it is important to recognize that with every change there comes some degree of loss. Good change is one in which the gains substantially outweigh the losses and I argue that this is clearly the case in globalization.

Certainly, we are losing some national sovereignty. I will argue that this is actually a good thing. When our imbecile of a former President banned federal funding for stem cell research, the research did not stop, it simply went abroad. Idiotic regulations can no longer stop progress. Yes, economic contagion can spread across borders, but by the same token, just as risk is shared internationally, so are gains. In addition, the interconnectedness of the global economy means that crop failure in one part of the world need not lead to famine and death in that country, since food can be easily imported. It's not just disasters that are shared, good fortune, aid and success also cross borders. Finally, while specialization has its risks, it clearly promots efficient allocation of capital and is making us collectively richer. Yes, globalization has its prices, but those prices are very much worth paying. Just ask the tens of millions of Chinese, Indians and yes, Americans, whose lives have been dramatically improved by global trade.

I am not blind to the costs globalization, however, I claim that they are worth paying. As always, it is a good idea to minimize the associated costs. Local culture and diversity should be promoted and protected (in reasonable, non-intrusive ways - I am not talking about French style quotas for content), regulations should be harmonized as much as possible across borders to minimize jurisdiction shopping by companies, and action should be taken to increase the system's robustness to severe disruption. However, at the end of the day, globalization is a good thing. We should adapt, adjust and welcome it, rather than launch a futile fight against it.

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the weakonomist said...

I think what you'll see once a more complete globalization is realized is a new trend towards regionalization. With more than 6 billion people in the world it simply isn't possible for all of us to trend towards the same thing.

As long as human interaction is the primary component of society, there will always be distinct differences.

Globalization has more goods than bads.

frugal zeitgeist said...

The same thing is visible within countries, too. When I came to New York from the Pacific Northwest in 1993, I was shocked to find that there was no such thing as Starbucks. They started popping up in 1996 or thereabouts, and now there are four within ten blocks of where I live. The same is true of Staples, Barnes & Noble, the late Circuit City, Gap, Banana Republic, and so on.

Local establishments have been greatly displaced by the massive influx of large, corporate entities. The change has done some good (provided anchor retailers for less economically robust areas, helping to improve safety and increase property values), but in terms of regional diversity, I think New York is poorer for it.

Enjoy London; I love that city. What area are you in?

Dana said...

Agree with weakonomist that regionalization is something that many nations are moving towards - although that may just turn out to be a micro version of globalization.

I think self-sufficiency (particularly in the agriculture sector) is one industry that has has been greatly reduced by globalization. The spread of neo-liberalism and IMF imposed restructurings have made many societies dependent on the outside world for food. Jamaica is a case in point.

Shadox said...

Weakonomist - I am not sure that I agree that differences are inevitable. Differences typically emerge primarily due to separation of populations (much like they do for animal populations experiencing evolution). With the intense and increase communications between all parts of the world, differences will tend to decrease over time. I do agree that globalization has more good than bad. I would say MUCH more good than bad.

Frugal - I agree. In fact, last year I wrote a post lamenting that the so-called miracle mile in Chicago was no different from your average mall in California. That is not a trend that I like, but as you point out it has it's benefits, and it may be an unavoidable side-effect of globalization / nationalization and the winner take all phenomenon.

BTW, London was a blast, even though I was only there for 36 hours. I plan a post about the topic later this week. I stayed on Oxford street and did a lot of walking around in the time I had left after my meetings were over. That's one of the biggest perks my job has to offer - wandering around foreign cities. I love that.

Dana - the self sufficiency issue is another that needs to be touched upon, especially as it relates to food production. As I point out in my post, globalization minimizes the impact of crop failure in problematic climates, but by the same token, it encourages specialization and pushes countries who may be perfectly able to produce their own food to rely on imported food items. This may be more economically efficient, but it is certainly less robust to catastrophe.

Thank you all for very thoughtful comments.

plonkee said...

Of course London was brilliant. :)

I think diversity persists despite globalisation.

Shadox said...

British people are just sooooo smug... :-)

Plonkee, next time I am in London, I'll have to ask you for recommendations of places to eat so I don't end up at the Pizza Hut or hotel restaurant.