Reply #19: Unprepared for Globalization (Roach) [View All]

[54anickel]

http://www.morganstanley.com/views/gef/archive/2007/20070202-Fri.html

There was a dramatic moment at this year’s World Economic Forum in Davos that I will long remember. It came during one of the sessions on the global economic outlook, when concerns were being raised about the possibility of a Washington-led political backlash against globalization -- a conclusion that I have long warned of. Montek Singh Ahluwalia, Deputy Chairman of India’s Planning Commission, was quick to respond along the lines of, “Don’t blame us. For years, you in the developed world demanded we in the developing world get our act together, open up, and reform. And now that we have and the payback is at hand, you don’t like it.”

I have had the pleasure of getting to know Mr. Ahluwalia over the years and have found him to be deep thinking and most engaging, with a razor-sharp analytical mind. His point is a very important one -- it challenges one of the great contradictions of the globalization debate. Yet it begs the question of why -- why the developed world is pushing back so hard against the very process of global integration it has so long espoused. Granted, motives are always open to subjective interpretation. But I suspect that “Montek’s complaint” also touches on one of the most important, but overlooked issues in the current global debate -- that the rich countries of the developed world are simply unprepared for the stunning successes of an IT-enabled globalization. Lacking in preparation, the developed world is now on the defensive -- and, unfortunately, ripe for a politically-driven backlash.

A key element in all this is speed. Unlike the slowly evolving pace of the globalization of a century ago, the current strain is unfolding at lightening speed. A major difference is the technology of the distribution system. In Globalization I, it took ships, rail, and eventually motor vehicles to facilitate the cross-border exchange and delivery of manufactured goods. It also required the time-intensive construction of ports, rail systems, and roads. Globalization II built on this earlier infrastructure but then added a new twist of its own -- the revolutionary connectivity of the Internet. Where it took at least 30 years for the cross border network to reach a critical mass in the first globalization, this time around it all came together in less than a decade.

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What can be done to defuse this increasingly dangerous state of affairs? For the developed world, there is an increasingly urgent challenge to equip its highly-skilled workers with the modern-day tools of the Information Age. The imperatives of education reform and accelerated investment in human capital have never seemed more essential as tools of competitive prowess. In addition, the US needs to get its act together on the saving front -- eliminating what risks becoming an organic bias toward chronic and ever-contentious trade deficits. The developing world, for its part, needs to offer assurances that it is respectful of the core competencies of a new globalization -- namely, intellectual property rights. Clamping down aggressively on the widespread piracy of intellectual property could go a long way in defusing global tensions.

Montek Singh Ahluwalia has an important point -- it didn’t have to be this way. Globalization is a two-way street. The poor countries of the developing world are finally making extraordinary progress in lifting their standard of living and offering opportunity for hundreds of millions of people to escape the ravages of poverty. It has taken courage and determination on the part of the developing world to push ahead on reforms and open itself to the rest of the world. And just when the poor countries begin to reap the benefits of this strategy, an unprepared developed world turns the tables and threatens to put up new walls of its own. Such hypocrisy could be the ultimate tragedy of this globalization. Both rich and poor countries, alike, need to own up to the shared responsibilities of defusing these tensions -- before it’s too late.

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