|Ken Novak's Weblog
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Some thoughts on globalization.
I've long thought that the primary benefits of globalization are in bringing peace among industrialized countries, rather than in its economic impacts. The original idea of the European Common Market was to so marry the economies and assets -- and the interests of the elites -- of Germany and France that war would become unthinkable between them. Substituting economic competition for war is a big improvement. The problems, and even the violence, resulting from globalization are nothing in comparison to the violence that industrialized nations can bring in war with each other.
Moderating the pace and direction of globalization carries little risk today. In our "future shock" condition of accelerating change, moderate slowdown of the pace of globalization will not disturb its payoffs in terms of peace. Including environmental and labor conditions in the standards applied by the WTO would not harm or stop the fundamental dynamic of globalization. The only reason to resist such expansion of the standards of free trade is that it may disadvantage some incumbent economic interests, not that it imperils the benefits of globalization itself.
Fortunately, globalization does have economic benefits, especially to well-run developing countries. The east Asian tiger economies show how the global economic system can be used to uplift poor countries. Again, the "Washington consensus" of the IMF and other institutions is not necessary for globalization. Policies favoring unfettered movement of capital with restricted movement of labor, laissez-faire markets and industrial policies, and protection of intellectual property even in the poorest societies, have more to do with incumbent interests than with globalization itself.
The current controversy over offshore outsourcing (or "offshoring") is the latest in a series of worries about how the most advanced countries can adapt to the advancement of the less advanced. Manufacturing moved to Japan, and then elsewhere in Asia and Latin America; high technology developed in Japan and Europe. The loss of jobs in what were once secure, whether due to union or educational status, causes economic dislocation. The presence of a foreign cause attracts the blame for other causes of dislocation as well, such as automation and business efficiency improvements, which are responsible for much greater numbers of jobs lost. The end result is the the substitution of a few highly skilled people with offshore labor or with automated equipment for what were once large numbers of less skilled jobs. (And, programming was never all that skilled a job, at least for the average programmer, much less animation, call center operation, or tax return preparation -- the types of jobs that are moving to India today.)
Moving up the value chain is the key response. Public investments in education remain key. In the past this was considered part of a movement from agriculture to manufacturing to services to "knowledge work." Most of this work is now quite offshorable, including knowledge work. What comes after knowledge work? Creative work -- invention (or at least innovation), research, art (or at least entertainment). For this, public investment in basic or directed research are increasingly important. We should expect to see faster growth in research activities that in the economy as a whole. It would be appropriate to see federal funding grow at, say, twice the rate of economic growth, for some years into the future.
There is another category of work that is not easily offshored or automated, that is not so highly valued today, but which may become relatively more so as we offshore ever-more knowledge work. For lack of a better term, I'd call it "caring work," such as teaching, hands-on medical care (e.g., nursing), and other work in which a person is that which is transformed by the work. [ref Drucker, Beyond the Information Revolution and The Age of Social Transformation]
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Here are cuttings from Tom Friedman in India. Too long to just blog, they're worth preserving:
America is the greatest engine of innovation that has ever existed, and it can't be duplicated anytime soon, because it is the product of a multitude of factors: extreme freedom of thought, an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a noncorrupt bureaucracy, and financial markets and a venture capital system that are unrivaled at taking new ideas and turning them into global products.
"You have this whole ecosystem [that constitutes] a unique crucible for innovation," said Nandan Nilekani, the C.E.O. of Infosys, India's I.B.M. "I was in Europe the other day and they were commiserating about the 400,000 [European] knowledge workers who have gone to live in the U.S. because of the innovative environment there. The whole process where people get an idea and put together a team, raise the capital, create a product and mainstream it — that can only be done in the U.S. It can't be done sitting in India. The Indian part of the equation [is to help] these innovative [U.S.] companies bring their products to the market quicker, cheaper and better, which increases the innovative cycle there. It is a complimentarity we need to enhance."
That is so right. As Robert Hof, a tech writer for Business Week, noted, U.S. tech workers "must keep creating leading edge technologies that make their companies more productive — especially innovations that spark entirely new markets." The same tech innovations that produced outsourcing, he noted, also produced eBay, Amazon.com, Google and thousands of new jobs along with them.
This is America's real edge. Sure Bangalore has a lot of engineering schools, but the local government is rife with corruption; half the city has no sidewalks; there are constant electricity blackouts; the rivers are choked with pollution; the public school system is dysfunctional; beggars dart in and out of the traffic, which is in constant gridlock; and the whole infrastructure is falling apart. The big high-tech firms here reside on beautiful, walled campuses, because they maintain their own water, electricity and communications systems. They thrive by defying their political-economic environment, not by emerging from it.
What would Indian techies give for just one day of America's rule of law; its dependable, regulated financial markets; its efficient, noncorrupt bureaucracy; and its best public schools and universities? They'd give a lot.
These institutions, which nurture innovation, are our real crown jewels that must be protected — not the 1 percent of jobs that might be outsourced. But it is precisely these crown jewels that can be squandered if we become lazy, or engage in mindless protectionism, or persist in radical tax cutting that can only erode the strength and quality of our government and educational institutions.
Our competitors know the secret of our sauce. But do we?
[New] work-flow platforms can chop up any service job — accounting, radiology, consulting, software engineering — into different functions and then, thanks to scanning and digitization, outsource each function to teams of skilled knowledge workers around the globe, based on which team can do each function with the highest skill at the lowest price. Then the project is reassembled back at headquarters into a finished product.
Thanks to this new work-flow network, knowledge workers anywhere in the world can contribute their talents more than ever before, spurring innovation and productivity. But these same knowledge workers will be under more pressure than ever to constantly upgrade their skills in this Darwinian environment. ..
So now I wonder: when they write the history of the world 20 years from now, and they come to this chapter — Sept. 11, 2001, to March 2004 — what will they say was most important? The attack on the World Trade Center and the Iraq war? Or, as Mr. Rao suggests, the convergence of PC's, telecom and work-flow software into a tipping point that allowed India to become part of the global supply chain for services the way China had become for manufacturing — creating an explosion of wealth in the middle classes of the world's two biggest nations, India and China, and giving both nations a huge new stake in the success of globalization. I wonder?
[The ceasefire between Pakistan and India owes much to this economic activity, according to Friedman. The owners of these Indian businesses were told that instability would result in the loss of this business, due to the higher risk; the employees in these companies don't care about the old conflict, because they have a stake in a new order; and the Pakistanis want in on this game and can't do it while threatening war.] The ceasefire wasn't brought to you by general Powell; it was brought to you by General Electric.