The Globalisation Myth - Case Study Example

THE GLOBALISATION MYTH In their book “Globalisation in Question: The International Economy & the Possibilities of Governance,” Paul Hirst and Grahame Thompson claim globalisation is a myth based on economic statistics. Their claim contains 3 segments.1 The first is that the current internationalised economy is nothing new – it existed long ago. Secondly, while multinational companies do exist, purely trans-national companies are very few in number. Lastly, most of the current international trade is not genuinely global in that it involves mainly 3 players – Europe, Japan and the United States.2 Globalisation is indeed a myth on account of several reasons. The first reason is that globalisation is not a new, unprecedented phenomenon. It has been going on for over 2,500 years,3 being greatly instrumental in helping ancient Greek, Roman, Chinese and Middle Eastern civilisations bring together large areas.4 Silks from Asia were sold in the Roman Empire under the rule of Julius Caesar. The Middle Ages period witnessed Europeans buying pepper grown in Asia. Portugal ousted the Ottomans to establish control over the Indian Ocean in the 16th century, with its powerful caravels and carracks guaranteeing spice trade. The same scenario is repeated today, only this time it is the mighty fleet of U.S Navy carriers that is safeguarding the oil trade.5 The Dutch East India Company is credited with transforming globalisation into a remarkable business development in the 17th century. Dubbed as the world’s first Multinational Company {MNC} it pioneered the allotment of shares {a crucial driver for globalisation} 1: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 2) 2: HARDT, M. (N.d). Globalization & Democracy: Duke University. 3: PETERS, R. Myths of Globalization: USA Today. 4: KING, R. & KENDALL, G. The State, Democracy & Globalization (page 24) 5: PETERS, R. Myths of Globalization: USA Today. as a method of dividing risk and facilitating joint ownership. During the 19th century, the liberalisation that took place {dubbed as the ‘First Era of Globalisation’} saw the speedy growth of trade and investment first between the European imperialist nations and their colonies, and later between the former and the United States.6 The second reason is the existence of Regional Blocks. Contrary to the concept of globalisation that involves the manufacture and distribution of goods and services of similar characteristics and quality on a global basis, nearly all trade involving big companies currently occurs within these blocks. Prominent traders find it more logical and profitable to concentrate on national and regional levels.7 Research has established that business enterprises tend to conduct operations in one of 3 Regional Blocks – North America, the EU and Japan.8 Within each Regional Block, trade activities are largely carried out by the Multinational Companies (MNCs) existing in the blocks.9 MNCs do not constitute roving global capital, but are founded firmly in one of these 3 Regional Blocks.10 In 1999, it was estimated that 86.8 per cent of the 500 biggest MNCs in the world had headquarters in one of these Regional Blocks – 179 or 35.8 per cent in the United States, 148 or 29.6 per cent in Europe, and 107 or 21.4 per cent in Japan.11 The United States and the EU have nearly the same GDP, while Japan’s GDP is roughly 50 per cent lesser. However, where GDP per capita is concerned, Japan is far superior to the United States and the EU.12 6: Globalization: Wikipedia.org 7: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 8: GWYNNE, P. The Myth of Globalization: MIT Sloan Management Review. 9: FERKISS, V. Is Globalization a Myth: AllBusiness.com 10: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 17) 11: FERKISS, V. Is Globalization a Myth: AllBusiness.com 12: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 57) For example, MNCs having their head offices in North America sell the bulk of their products or services either within the boundaries of their own nations or to the EU or Japan. Economic statistics support this contention – more than 85 per cent of automobiles being used in North America are manufactured within that continent; more than 90 per cent of automobiles being used in the EU nations are manufactured in EU nations; more than 93 per cent of automobiles being used in Japan are built in Japanese factories;13 and nearly 91.2 per cent of all automobile sales in Canada feature North American made cars.14 The most striking example is the services sector. Even though it has developed faster than the manufacturing sector, service providers are more reluctant to expand overseas as compared to manufacturing companies.15 The services sector provides employment to nearly three-fourths of the working population in Japan, Western Europe and North American; moreover, the services are totally limited to within national or regional boundaries.16 The third reason is the existence of Regional Clusters. A cluster is defined as a significant number of inter-related business entities and institutions in a specified field located in a certain geographic location, which may be a city or city region. Today, although business entities can source merchandise, information, capital and technical knowledge from all parts of the globe, still business is inclined to concentrate in specific cities or city regions. This is due to the great number of competitors, organisations, sellers, learning institutions and start-ups lodged in the Regional Cluster that makes it difficult to emulate in other cities or city regions. An outstanding example is investment 13: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 14: RUGMAN, A. The End of Globalization: Why Global Strategy is a Myth and How to Profit from the Realities of Regional Markets (page 2) 15: Globalization - Myth or Reality: Ncpa.org. 16: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. banking. London, Frankfurt and New York are first choice cities for this activity. Other examples are Hamilton {in Canada, for steel making}, Silicon Valley {in California, U.S.A for high tech}, Milan {in Italy, for textiles} and Montreal {in Canada, for aerospace}.17 Clusters do not develop overnight, but are formed over many years, and once formed, are certain to last for decades.18 Clusters of industries tend to ‘sweeten the pitch’ for future growth.19 The existence of Regional Clusters has provided cities with enhanced stature both nationally and internationally. The Regional Clusters are aware that business competition is developing rapidly and vigorously, and the only way to be comparatively advantageous is to engage in extensive and regular upgrading. The Clusters therefore compete with other cities by methods like using global sourcing to develop productive use of inputs and reduction in input cost drawbacks, establishing new plants and engaging in heavy Research and Development (R&D) activities.20 R&D spending has always been closely linked to global competitiveness.21 Important components of Regional Clusters are also institutions – like colleges, universities, trade organisations and think tanks – that supply valuable and specialised help. Government officials, especially City officers, are valuable contributors as well {for example, the Mayor makes use of the city’s massive reputation by bargaining for favourable terms with other levels of government in the state or country}.22 The fourth reason is that a certain product simply cannot be developed into a mass- 17: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 18: Ibid. 19: SHIPMAN, A. The Globalization Myth (page 76) 20: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 21: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 90) 22: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. selling global wonder. This fact decapitates the popular globalisation myth that MNCs can come up with one global product, and use their formidable worldwide network to popularise that product all over the world. The main reason for this is the difference in cultures. A good example is the automobile. Until now there has been no car that can lay claim to global fame. A certain car model that is popular in one country proves unpopular in another nation. Toyota’s Camry is the Number One selling car in the United States, but generates very low sales in Japan. Volkswagen’s Golf tops the European sales charts but sells poorly in the United States and Canada. Another example is household appliances. Dishwashers manufactured in the United States sell well in North America and Europe but generate very negligible sales in Asia. Perhaps the best example is pharmaceutical medicines, often touted as ‘universal products.’ In reality, pharmaceutical companies have to adapt their products and sales strategies to comply with stringent national regulations in different countries which pose a huge restraint on their plans of worldwide production and distribution.23 The fifth reason is that governments have realised their priorities and given up on whatever plans of globalisation they might have harboured.24 The world has literally ‘imploded’ economically, and as a result, the notion of a global empire has been replaced by nation-states.25 Governments have understood and accepted that the world of today is largely regional, and not global in nature.26 In fact, globalisation is perceived as the enemy because it can erode the government’s capacity to supply merchandise and services effectively to its people, thereby putting its legitimacy and historic legacy into 23: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 24: Ibid. 25: HELD, D. & McGREW, A.G. Globalization & Anti-Globalization (page 4) 26: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. jeopardy.27 For example, workers made unemployed when an important plant shifts to a foreign country cannot earn the same wages from other jobs, also providing they are able to find those jobs,28 resulting in discontent against the government. As a consequence, the role of governments in production and industry has markedly risen.29 Governments now increasingly focus on existing Clusters within their boundaries, doing their best to strengthen those Clusters by enacting favourable laws themselves, as well as getting the best deals out of regional agreements. For example, the U.S. government uses the Free Trade Agreement of the Americas {FTAA} and the North American Free Trade Agreement {NAFTA} to strike best possible deals for its Cluster industries;30 it provides huge subsidies to facilitate R&D activities; it also provides strong protection to U.S companies operating in foreign nations.31 Such powerful governmental protection has helped MNCs tremendously – for example, retail giant Wal-Mart generates 83.7 per cent of its revenue strictly within the United States; even out of the balance 16.3 per cent, the bulk of revenue comes from its sales in other North American countries.32 Protectionism’s attractions increase when a country’s present competitive advantages are not those it would like to consider as economic foundations of its future.33 Governments even ensure that their Direct Foreign Investments (FDI) is strictly restricted to within the Regional Cluster or Regional Block.34 Given that FDI is an export 27: HELD, D. & McGREW, A.G. Globalization & Anti-Globalization (page 92) 28: SHIPMAN, A. The Globalization Myth (page 56) 29: KING, R. & KENDALL, G. The State, Democracy & Globalization (page 80) 30: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 31: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 73) 32: GWYNNE, P. The Myth of Globalization: MIT Sloan Management Review. 33: SHIPMAN, A. The Globalization Myth (page 76) 34: FERKISS, V. Is Globalization a Myth: AllBusiness.com replacement, this trend strongly reveals that economic globalisation is a myth.35 In 1995, North America, Japan and the EU featured prominently in the twin roles of originators and destinations of FDI.36 It clearly shows that these nations are not interested in pledging their economic futures to overseas banking located in dubious world destinations.37 The sixth reason is the changed attitude of MNC managers. They have recognized and accepted that the myth of a global world conducive to global business has been shattered by the existence of Regional Blocks, City Clusters and nationally-limited government support. As a result, MNC managers find it impossible to come up with an international marketing strategy for the MNC’s products or services.38 It has been found that the output of MNCs in areas out of their home nations was equivalent to a mere 7 per cent of global output in 1990. In 1993, output by MNCs based in the United States contributed to just 2 per cent of world output.39 This indicates that not only is globalisation a myth, but a global strategy is also a myth.40 MNC managers have been forced to drastically adapt their global plans to be more realistic, recognising that both distance and geography are crucial factors, and reaching the conclusion that concentrating decision-making on regions is the best way to serve their organisations.41 The seventh reason is the existence of discontents about global cooperation. Some developing countries adopt powerful protectionist policies by imposing unreasonably 35: RUGMAN, A. The End of Globalization: Why Global Strategy is a Myth and How to Profit from the Realities of Regional Markets (page 163) 36: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 71) 37: CAVANAGH, J. & MANDER, J. 2004. Alternatives to Economic Globalization (page 56) 38: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. 39: Globalization - Myth or Reality: Ncpa.org. 40: RUGMAN, A. The End of Globalization: Why Global Strategy is a Myth and How to Profit from the Realities of Regional Markets (page 178) 41: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. high import duties on foreign products in order to safeguard local products in the same category. Another discontent is the political instability in certain countries that do not make them conducive to international operations. Examples are Iran {suspected of nuclear proliferation}, Venezuela {vehemently anti-Western under Hugo Chavez} and India {political opposition parties are currently threatening to bring down the government if it goes ahead with the U.S in a bilateral nuclear energy deal}. A third discontent is the danger to the reputation of MNC products from overseas partners flouting international rules – such as child labour laws frequently ignored in India and Pakistan, or the total ban on labour unions in Gulf countries in direct defiance of International Labour Organisation {ILO} rules. A fourth discontent is the lack of transparency by businesses in many developing countries.42 This makes MNCs in countries like the U.K and U.S, which are bound by the strict Corporate Social Responsibility {CSR} rules in their home countries, vary of foreign expansion into such countries. A fifth discontent is that real danger of jeopardising the sales potential of MNC products due to ‘stealing’ practices carried on in some developing countries. For example, pharmaceutical companies have faced huge problems from drug companies in Brazil and India who ‘steal’ their patented products.43 A sixth discontent is the increasing waves of dislike and antagonism against MNCs in many developing nations. MNCs originating from the U.S are singled out for special treatment in this regard. The declining economic situation in these countries has spawned a hatred directed at the representatives of affluent countries operating within their poor 42: STIGLITZ, J.E. 2003. Globalization and Its Discontents (page 51) 43: Ibid. boundaries.44 For example, recent times have witnessed a spate of attacks on fast-food giants McDonalds and KFC in Pakistan and India. A seventh discontent lies in the opposite direction. Developing nations are discontented with international institutions like the World Bank {WB} and International Monetary Fund {IMF}, charging them with being manipulated by the EU and U.S into forcing poor nations to open their economies to free trade while those western powers safeguard weaker parts of their own economies. For example, the U.S recently strived to form free trade agreements in sugar with Central America, while at the same time safeguarding its own sugar industry by precluding it from such an agreement.45 The last reason is that globalisation will never lead to an era of utopian peace. This is perhaps the largest myth surrounding globalisation. While the concept is appreciable, the notion of a worldly paradise cannot be entertained46 because of the flawed and fallen nature of human beings47 characterised by consistent selfishness, tendency and capacity to perpetrate mischief and the dangerous ‘hostility’ of ‘good’ intentions.48 The traditional explanation for a myth is that it represents a method of hiding and making excuses for human frailties49 – an explanation very appropriate as far as globalisation is concerned. History has no records of periods characterised by lasting peace. The often repeated statement ‘Humankind has learned its lesson’ has been disproved time and time again with depressing regularity. Western philosophers made the statement after the European 44: DUNKLIN, A.L.Globalization – A Portrait of Exploitation, Inequality & Limits: Globalization.icaap.org. 45: Ibid. 46: PETERS, R. Myths of Globalization: USA Today. 47: KING, R. & KENDALL, G. The State, Democracy & Globalization (page 167) 48: PETERS, R. Myths of Globalization: USA Today. 49: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 6) wars – only to be rebuffed by the onset of World War I in 1914.50 The resultant economic, political and social displacements weakened the legality and effectiveness of democratic European governments.51 Western governments then made the same statement after 1918 – only to be shocked when Germany again turned culprit and launched World War II in 1939 under Adolf Hitler. Pro-democracy touts repeated the statement after the Soviet Union collapsed – only to be rebuffed by a wave of bloodbaths in the Balkans.52 Instead of shepherding in global peace, tools of globalisation have been used by unscrupulous elements to create global terror. Global security was spawned as never before by the 9/11 terrorist attacks against the United States,53 so much so that Western businesses located around the world are considered as threats to the mother country’s security as they constitute soft targets for terrorists.54 Terrorists, religious fanatics, drug traffickers and paedophiles flourish today as never before because of an important globalisation tool – the Internet. The Internet enables them to locate one another with the greatest of ease in any part of the world to plot and carry out their dastardly deeds. In this context, the explosion of the globalisation myth has shown mankind that its future does not tolerate dreamers but insists on people going forward with open eyes.55 In conclusion, globalisation is a myth simply because its basis {a single world market characterised by free trade} is neither feasible nor realistic.56 While conceding that the 50: PETERS, R. Myths of Globalization: USA Today. 51: KING, R. & KENDALL, G. The State, Democracy & Globalization (page 102) 52: PETERS, R. Myths of Globalization: USA Today. 53: Ibid. 54: CAVANAGH, J. & MANDER, J. 2004. Alternatives to Economic Globalization (page 2) 55: PETERS, R. Myths of Globalization: USA Today. 56: RUGMAN, A. & MOORE, K. The Myths of Globalization: Indiana University. global economy is at least more open now as compared to pre-World War II days,57 whatever tattered remnants of free trade continue to exist stand to be shattered by the widely expected pull out of the United States from the World Trade Organisation {WTO} membership, its absence of dedication to free trade, and the breakdown of the post-war broad unanimity about the admirable quality of free trade.58 A glimpse into the future notices the distinct strengthening of Regional Blocks and City Clusters, with no other indication of any other action of global nature. 57: HIRST, P.Q & THOMPSON, G. Globalization in Question: The International Economy & the Possibilities of Governance (page 32) 58: FERKISS, V. Is Globalization a Myth: AllBusiness.com References: ANON. 2007. Globalization: Wikipedia.org. [Online]. Available: http://en.wikipedia.org/wiki/Globalization [14 Nov. 2007] ANON. 2001. Globalization - Myth or Reality: Ncpa.org. [Online]. Available: http://www.ncpa.org/pd/trade/traded2.html [14 Nov. 2007] CAVANAGH, J. & MANDER, J. 2004. Alternatives to Economic Globalization. Berrett-Koehler, USA DUNKLIN, A.L. 2005. Globalization – A Portrait of Exploitation, Inequality & Limits: Globalization.icaap.org. [Online]. Available: http://globalization.icaap.org/content/v5.2/dunklin.html [14 Nov. 2007] FERKISS, V. 2001. Is Globalization a Myth: AllBusiness.com. [Online]. Available: http://www.allbusiness.com/professional-scientific/scientific-research/817582-1.html [14 Nov. 2007] GWYNNE, P. 2003. The Myth of Globalization: MIT Sloan Management Review. [Online]. Available: http://sloanreview.mit.edu/smr/issue/2003/winter/1e/ [14 Nov. 2007] HARDT, M. (N.d). Globalization & Democracy: Duke University. [Online]. Available: globalization.mcmaster.ca/wps/hardtfinal.PDF [14 November 2007] HELD, D. & McGREW, A.G. 2002. Globalization & Anti-Globalization. Polity Press, U.K. HIRST, P.Q & THOMPSON, G. 2000. Globalization in Question: The International Economy & the Possibilities of Governance. Polity Press, U.K KING, R. & KENDALL, G. 2003. The State, Democracy & Globalization. Palgrave Macmillan, U.K PETERS, R. 2005. Myths of Globalization: USA Today. [Online]. Available: http://www.usatoday.com/news/opinion/editorials/2005-05-22-oplede_x.htm [29 Nov. 2007] RUGMAN, A. 2001. The End of Globalization: Why Global Strategy is a Myth and How to Profit from the Realities of Regional Markets. American Management Association Publishers, USA RUGMAN, A. & MOORE, K. (N.d). The Myths of Globalization: Indiana University. [Online]. Available: http://www.bus.indiana.edu/rugman/Papers-books/Web%20Papers/The%20Myths%20of%20Globalization.doc [14 Nov. 07] SHIPMAN, A. 2002. The Globalization Myth. Icon Books, U.K STIGLITZ, J.E. 2003. Globalization and Its Discontents. Penguin Books, U.K Read More