Friday, October 12, 2007

Globalization: Not as easy as it used to be

Globalization is getting more complicated. Now we have labor in the U.S. fighting it, and big business in India and China pushing it. The two sides are presented clearly in this piece from Wednesday’s Times (via Reuters). India is having a huge public debate (usually in the form of protests) over whether to allow ‘big box’ retailers to set up shop. Not Walmarts, Targets, and Best Buys—foreign companies are barred from establishing “multibrand” establishments.

There are actually a number of significant issues emerging: is rapid economic modernization worth the price of massive social upheaval? Can we expect a people (not just a few people) to sacrifice their livelihoods in the name of progress? How does a society balance competing demands when one portion of its population desires a risk-opportunity-reward environment against the wishes of a group that prefers security and stablity?

There are basic economic questions as well: if a big-box retailer can sell the same number of goods (at a lower price) while employing only two million people, and traditional retailers need 40 million to sell the same quantity, which is better for the economy? Tipping towards a big-box makes sense in a labor-scarce country like the U.S., but does the same make sense for a labor-abundant place like India or China? And it gets even more complicated when market-segments are considered. Wages for “knowledge workers” in both India and the U.S. (and all over the world) are going up, as the demand for their services outpaces the rate at which they are produced. Conversely, earnings for low-skill positions are flat or falling, as international competition combined with mechanization are eliminating positions across the globe. Said another way, can a labor-abundant India afford to give up millions of jobs, only to increase profit?

How should policy makers frame their thinking in this kind of environment? How does a society position itself to best weather the shocks, and capitalize on the opportunities of this type of economy?

A few places are getting it absolutely right: Singapore, Hong Kong, Dubai. These small city-states have the advantage of being small and knowing anything they achieve will be precarious: so they are constantly struggling to achieve. It makes them less ideological and more pragmatic than many other—larger—countries. They invested in education, shipping, and low-tech manufacturing 30 years ago. Now they are transitioning to high-tech, investments, banking, and other spin-offs of their small, highly educated populations. Of course, not everyone in Singapore, Hong Kong, or Dubai is highly educated. But the places are small enough—with enough central government control—that they can be highly selective about immigration, and they can fund education very well to encourage their own citizens to be well-educated.

Large countries—like China, U.S., India, or even Germany or Canada, have a more complicated problem because of a large, diverse population, spread across large areas, and (relatively) loose central control. The solutions that work for San Diego, might create disaster in San Antonio. The economy in Minneapolis looks nothing like the economy in Mobile.

My guess is that getting the U.S. (or India or China) to serve both parts of its population—the risk-taking, and the security-seeking—is going to take a bit of a two-step. Both Washington (or Beijing or New Delhi) ceding control to local levels for education and employment policy, but also a greater central-effort on job-training, unemployment benefits, health care and emergency-retirement.

I’m no expert though, and welcome thoughts, if you're willing to share.

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