Thursday, July 21, 2011

Globalization (A Primer for Collier's Intermission)

Globalization is a hot topic and will, no doubt, remain a hot topic for a long time. But, the phenomenon is not new. Let me borrow from Nobel Prize Economist Amartya Sen,

[Globalization is], in fact, neither new nor necessarily Western. And it is not a curse. Over thousands of years, globalization has contributed to the progress of the world through travel, trade, migration, spread of cultural influences and dissemination of knowledge and understanding (including that of science and technology) . . . The high technology in the world of 1000 A.D. included paper, the printing press, the crossbow, gunpowder, the iron-chain suspension bridge, the kite, the magnetic compass, the wheelbarrow and the rotary fan. A millennium ago, these items were used extensively in China — and were practically unknown elsewhere. Globalization spread them across the world, including Europe.-Amartya Sen, "Does Globalization Equal Westernization?", The Globalist 2002  

There are a couple important points here. First, globalization is multi-faceted. The acronym I like to use with my class to explain the essence of globalization is PIPI (which I pronounce pee-pee in hopes that it will stick in their memories): Products, Investments, People, and Ideas. Yes, we all know about Products made in other countries from the "Made in China" or "Made in Korea" stickers to the tags of the very shirts on our backs.

Some of us have also heard about Investment. We know that many other countries are buying United States debt. We also know that U.S. companies are Investing in a variety of locales throughout the world (contrary to what you might be thinking most of the investments do not go to the really poor countries ---that is the topic for the next post). The next two portions of globalization are not well known: People and Ideas. But, these are quite powerful components of globalization. When people and ideas are free to flow across borders there are many cultural exchanges -new outlooks, new perspectives, etc. but these People and the Ideas they share can also have economic consequences.

Here is a story to the affect of the Ideas facet of globalization. These ideas happened to be transmitted not by people directly but by products.

The Indian automobile industry was protectionist with plenty of price controls and sales and distribution regulations. At the same time, this was untrue of the industry for small scooters. In terms of innovation the scooter industry thrived while the automobile industry took a dive (in terms of innovation). The question is why? Consider that when we purchase a product we do not just purchase the function of the product but we purchase the ability to learn from the product. The smart and industrious people of India did not merely buy scooters ---they bought the engineering of scooters. Ideas are replicable. Before long India became the arguably the "scooter capital of the world".

In the next blog post on globalization we will broach Amartya Sen's statement that, "[Globalization] is not a curse." We will look at this through the lens of Collier's intermission in the Bottom Billion to discuss globalization.

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