Pankaj Ghemawat
5.0 out of 5 stars Six Star Nuanced, Brilliant, the Stuff of Nobel Laureates,September 15, 2011
This is a nuanced book. It is not possible to “review” it without having actually read it, read it carefully, and then read it again. It was easily a five as I got into it, and then became a six as I appreciated just how magnificently the author has reframed all future discussion of this topic, and set the gold standard for data-driven discussion–not something they do in Bonn, London, Paris, or Washington.
This is not a book for data geeks. The author excells from the first page in emphasizing the importance of perception and understanding (however wrong they might be_, and the tangible relevance of convictions, history, and philosophy….these MATTER to business, and in this book I believe the author takes the intellectual and ethical level of any business discussion about globalization and about regulation up a notch.
In a nutshell, the author demonstrates conclusively that globalization is not happening to the extent it could and should, and that globalization should not occur without regulation–the free market fallacy, like the Enlightenment fallacy of open societies that George Soros has recently articulated, is rejected. The author is an advocate of dramatically increasing globalization in terms he defines, while also assuring that regulation keeps pace, not in the micro-sense, but in the macro-sense. His view is that social gains are achievable, if rooted in a solid appreciation of business perceptions.
Two books I would recommend to bracket this one, one focusing on the threats to be eradicated, ideally while making a profit, the other on the source of the wealth and entrepreneurship now untapped by predatory capitalism:
High Noon 20 Global Problems, 20 Years to Solve Them
The Fortune at the Bottom of the Pyramid, Revised and Updated 5th Anniversary Edition: Eradicating Poverty Through Profits
A selection of my many notes:
+ Differences and differences do have tangible economic meaning, those that deny this are without factual foundation
+ New cosmopolitanism is NEITHER all national nor all global, but a nuanced integration of both–in other words, PANARCHY.
+ Question of trust is paramount to the evolution of commerce and society. I recollect a Nobel Prize was awarded to a person who gamed trust and demonstrated that trust lowers the cost of doing business (it also lowers the cost of good governance). Here I cannot help but recollect one of my heroes, Robert Garigue (RIP), whose early insights into security as a foundation for trust, NOT for control, are still priceless today (see his collection of graphics and works at Phi Beta Iota the Public Intelligence Blog).
+ World 0.0 was local and brutish
+ World 1.0 scaled up from local to national
+ World 2.0 in theory is globalization with deregulation, “imperialistic consolidation” BUT he emphasizes, with a great deal of factual evidence, that we are nowhere near World 2.0, and in fact could leap-frog past it to World 3.0.
+ World 3.0 is complex, nuanced, pervasive but transparent, diverse in its options but consistent in its regulation, and generally achieves a prosperous world at peace, generating profits for those who deliver the many contributing products and services that are consistent with what we can know about true cost, cultural needs, and so on.
+ Nationalism has been costly.
+ Population has grown five times but gross domestic product has grown fifty-five time. This is the delta that for me validates the “wealth of networks” literature and my own emphasis on empowering the five billion poor with connectivity and access to the Internet so that they can create infinite wealth.
The Wealth of Networks: How Social Production Transforms Markets and Freedom
Collective Intelligence: Creating a Prosperous World at Peace
His facts on how we are NOT globalized–nowhere near 50% and closer to 10-25%–are stunningly focused and support his view that belief systems and policy prescriptions are totally out of touch with reality. He considers Tom Friedman an especially negative influence and I note with amusement that the words “motley” and “rabid” appear in the context of his commentary on Friedman (I can't stand either Friedman or Zakaria, both are pimps for the “establishment” that just finished destroying the global economy and the US middle and blue collar classes for their own selfish gains).
+ 1% of all physical correspondence crosses national borders.
+ 17-18% of all Internet traffic crosses borders (2006-2008).
+ 15% of patents are “foreign-owned”
+ 5% of news is from foreign sources
+ 3% of the world's population are first-generation immigrants
+ 25-30% of GDP (China an exception at 50%) from exports
+ 15-20% of venture capital goes outside its home country
+ 5-10% of private charitable giving goes outside the home country
QUOTE (34): “Why are intelligent, informed, interested people so prone to globalony? It is important to answer this question because globalony is more than just a harmless way of calling more attention to the international domain. Globalony, even if it stops short of the exaggerations of World 2.0, can be hazardous to global welfare by creating complacency among globalizers and provoking paranoia among antiglobalizers (cf Lamy's point, cited earlier, about the effects of double-counting in trade statistics). The obvious reason for globalony is that much of the debate about globalization takes place in a data-free zone.
+ Technology does NOT abolish distance, eradicate frontiers, or neutralize culture.
+ Internet is now balkanizing, and key countries like India are demanding that the physical foundation for the “cloud” be physically located within their frontiers.
+ There are four barrier sets to constructive globalization: cultural, administrative, geographic, and economic. The “home bias” can be a distorting factor in the 15-150 times range.
+ Government regulations (e.g. differences between Canada's “5 mg” and USA's 5mg create enormous cost and logistics barriers to companies trying to distribute the same product to different micro-management perspectives.
+ The models now used to represent globalization are inadequate to the point of severe lack of professionalism. The standard estimates of potential gains from globalization focus on just the tip of the iceberg, and overlook six major related beneficial domains.
— Add volume
— Decrease costs
— Differentiation
— Intensifying competition
— Normalizing risk
— Generating and difusing knowledge
QUOTE (79): “The possible connections between openness and democracy rely particularly heavily on informational flows and include the freer exchange of ideas and increased political competition that results from openness, and the discouragement of autocracy by the transparency required to keep capital markets happy. …the weight of evidence does suggest a positive relationship between trade and democracy.”
He observes that globalization should NOT be equated with concentration.
QUOTE (109): “This emphasis on openness distinguishes World 3.0 from World 1.0, and the emphasis on regulation distinguishes it from World 2.0.”
The author pays special attention to demolishing the claims of externalities beyond the borders of any given nation, pointing out that 74% of the environmental externalities in any given nation come directly from its domestic ground transportation.
He also takes care to contest the “race to the bottom” thesis, pointing out that Germany has become one of the greenest nations, and yet derives one third of its GDP from exports. [Other books, such as The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business emphasize that waste is lost profit.]
QUOTE (135): “World 2.0 overlooks diversification opportunities because it misses cross-country differences, and World 1.0 doesn't even look to other countries as a source of safety, seeing integration only as a source of danger. In that sense, World 3.0 does explicitly identify risk-related (potential) gains from globalization that prior world views do not.”
QUOTE (139): “Information asymmetries are just one information problem among many. Another factor contributing to volatility is the difficulty investors have figuring out what to do with all the information they do have. Few can conduct even rudimentary financial analyses, leading economists to peg them as possessing only ‘bounded rationality.”
I am reminded of Ben Gilad's observation in Business Blindspots: Replacing Your Company's Entrenched and Outdated Myths, Beliefs and Assumptions With the Realities of Today's Markets, that “Top managers' information is invariably either biased, subjecive, filtered or late. . . . Using intelligence correctly requires a fundamental change in the way top executives make decisions.” My second graduate thesis concluded that the US Government makes decisions on the basis of ideology, completely oblivious to the fact that the secret world and the open world of governments return less than 2% of the relevant information to Washington.
+ Capital flows are divided into good (foreign direct investment, creating local stock markets) and bad (international debt portfolio, bank loans).
Food prices and the relationship among food prices, water shortages, and land leasing or purchasing by foreign countries are discussed in a most useful manner–land leased or purchased is in effect also a water lease or purchase (a below market prices for the water, I might add).
QUOTE (151): “Setting effective alarms often begins with bolstering information flows: to manage risks, you have to know your exposure.” I am getting closer to getting an Open Source Agency considers by the sane side of the US Government, and a major part of that legislative outline is the role to be played by the Department of State Office of Information-Sharing Treaties and Agreements.
The book discusses poverty as a major cancer, equality of opportunity as a cure, and I completely agree with the author's focus on lifting the poor vice lowering the rich.
QUOTE (189): “The top tenth of the world's population got 57 percent of the world's income while the bottom 70 percent got only 5 percent.” I confess to being confused since Prahalad tells us that the top one billion have an annual income of $1 trillion while the bottom five billion have an annual income of $4 trillion, so this must refer to capital assets and general wealth, not just income wealth.
+ On page 197 the author discusses the International Monetary Fund's claim that technology is the most important factor in reducing labor's share of the income, and I want to puke. See Phi Beta Iota for a couple of great postings about financial terrorism, how Wall Street is murdering one million people a year in the US, and how labor's share of the wealth in the US has declined terribly despite increases in productivity. The IMF is a cancer on the global economy, along with the Federal Reserve, in my view.
The author provides an excellent discussion of the economic cost of artificial states, and I must mention the best book I know of on this topic, by Cambridge professor Philip Allott, The Health of Nations: Society and Law beyond the State.
QUOTE (258), citing Amartya Sen: “Adam Smith viewed markets and capital as doing good work within their own sphere, but first, they required support from other institutions–including public services such as schools–and values other than pure profit seeking, and second, they needed restraint and correction by still other institutions–e.g. well-devised financial regulations.”
The author does not discuss corruption or integrity, these two topics seem to be anathema to those that wish to be sage but politically correct. In my view, corruption among all sectors of society–academia, civil society, commerce, government, law enforcement, media, military, and non-governments/non-profit–is THE cancer that leads to 50% of every investment being fraud, waste, or abuse.
SIX PROPOSITIONS (pages 260-264):
01 Market failures and fears need to be incorporated in analyses of integration
02 The cross-border integration of markets often helps correct market failures instead of compounding them
03 In many other cases, integration has a negligible effect on market failures and therefore shouldn't be restricted
04 When integration does threaten to aggravate market failures, mix-and-match policies to try to preserve some of the benefits of opening up while curbing adverse effects
05 Distance sensitivity is inversely related to the optimal scope of integrative and regulatory initiatives
06 Large integration opportunities often exist within as well as across borders
There are a number of really superb tables across the book, and a great section on seven ways to think differently about this challenge of globalization (as a solution) and regulation (as a moderating influence).
QUOTE (319): “More systematically, a study of more than five thousand natural disasters suggests that from the standpoint of U.S. media coverage, each dead European was ‘worth' three South Americans, forty-three Asians, forty-five Africans, or ninety-one Pacific Islanders. The same study also confirmed the influence of factors that in an ideal world wouldn't matter at all. For each person killed by a volcano, more than forty thousand people would have had to die in a drought to receive the same expected news coverage.. And even more disturbing, when the news media was occupied with non-disaster news, such as the Olympics, the number of dead had to be three times more than during a slow news period to have the same chance of receiving government relief.”
I am reminded of Peter Fuchs, then Secretary General of the International Red Cross, speaking to OSS '94, explaining why the media was worthless as a foundation for open source intelligence: “The media has an attention span of one war at a time, while the Red Cross is active in 34-38 wars at any one time.”
QUOTE (336): “How far we are going to get in unlocking the full potential of World 3.0, then, depends on our mind-sets.”
With my last three allowed links:
Global Public Policy: Governing Without Government?
Critical Choices. The United Nations, Networks, and the Future of Global Governance
INTELLIGENCE for EARTH: Clarity, Diversity, Integrity, & Sustainaabilty
As I finished reading this book, stories have been breaking about the growing public awareness of the tangible impact of Wall Street's LEGAL crimes against humanity, and the possibility that 57 countries have agreed to set up a new global financial system that shuts down the Rothchilds, Rockefellers, and Goldman Sachs, among others. I have no way of knowing if this is actually happen, but it should. Reality bats last. It's time we start paying attention and exhibiting INTEGRITY in our policy processes.
