Today's date:
Spring 2008

Bound Together: The Future of Globalization

Nayan Chanda, the legendary editor of The Far Eastern Economic Review, is now editor of YaleGlobal. These excerpts are adapted from his recent book, Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization, Yale University Press, 2007.

New Haven -- Opinions may differ on how much globalization has reduced poverty in the more integrated parts of developing countries such as China and India, but the speed of that amelioration would have been impossible without the flow of goods, capital, and technology.

Nearly a third of China's 1.3 billion people has been lifted out of poverty, and in India a smaller but still significant proportion has moved up to the ranks of the middle class. China has become the world's fourth-largest economy and third-largest trading nation. India's growing global connections have enabled it to leverage its comparative advantage in software and English to corner half the world's outsourced service jobs.

In the longer perspective of history, China and India -- which in 1700 accounted for 22.3 percent and 24.4 percent, respectively, of the world's gross domestic product -- have begun climbing back to their preeminent position after two and a half centuries of decline. This is a remarkable turnaround brought about in no small measure by economic reform and global trade, technology and investment transfer.

But the news headlines speak of an angry and anxious world, concerned about the consequences of global interconnectedness. In developing countries, poverty is increasing, while in thedeveloped world, growing economic inequality, unemployment and fears about job security are fueling demand for trade protections and more restrictive immigration policies.

In a great historical irony, the adventurers and migrants who have since the dawn of history been the principal actors of globalization are now seen as major threats to the stability of a globalized world. Immigration laws have been tightening against a rising tide of poor migrants, and the planned erection of a seven-hundred-mile-long fence along the United States-Mexican border could become a symbol of anti-immigrant sentiment across the Western world.

Migration apart, the economic consequences of greater integration with the world have stoked fear of globalization among the middle class in developed countries, which have long built their prosperity through international trade and investment. Electronic transactions and eased banking regulations have given financiers mobility across borders, but not always to the benefit of ordinary citizens. Even those whose jobs have been spared so far live in fear that their skills will become outmoded in a fast-changing world.

As unshackled capital roams in search of cheaper labor or better skills, workers in the US are feeling increasingly vulnerable, as are their European counterparts. In the past three decades, thousands of American jobs have been lost to automation and offshoring.

There are fears that new technologies and globalized labor markets may now threaten some of the remaining mid-level jobs. Western factories shut down because the widgets they once produced can be made by a factory in China or the Czech Republic for a few cents less per unit. Massive Chinese exports to the US, responsible for eliminating American factory jobs, are most often American-designed products manufactured in China.

The offshoring of production has boosted company earnings and provided cheap goods at Wal-Mart, but these gains have been concentrated in the pockets of CEOs and diffused among millions of consumers, doing nothing for the pain of laid-off workers. There is a gnawing concern that, given the nearly unlimited supply of low-cost workers abroad, jobs that are now leaving the West may never return. The theory of creative destruction, in which a continuous rise in productivity leads to the demise of old industries but also gives rise to new ones, may not be working this time around. Jobs are eliminated, but new ones at equal or higher pay do not materialize.

The classic solution to the job-loss problem -- education and retraining -- may not work in the new global economy, not when high skills are available at the end of a high-speed Internet connection for a tenth of the salary demanded in the US or Europe.

Anger is also growing in Western Europe. Although strong social security systems prevent European companies from following the American example of mass layoffs, Continental firms have succeeded in holding down wages by dangling the Damocles Sword of outsourcing over their workers. Ironically, not only low-level employees but highly paid company executives now worry about being overtaken by rivals who could appear from nowhere with a killer product or a new source of equally skilled but lower paid workers. Stagnant job growth and rising social costs have spurred economic nationalism in many Western nations.

The failure of many European governments to deal with the inevitable dislocation caused by technology and trade in their countries has led to protectionist demands from workers. Short-term political maneuvering and populist concerns have prevented governments from taking the hard decisions necessary to sustain openness.

Inequality has grown even more sharply in developing countries that have tried to integrate with the global economy: The gap between rural and urban areas has widened; urban sectors and the middle class, hooked into the world's transportation and communication networks, have benefited from the global connection, whereas the uneducated rural poor have fallen sharply behind. According to one estimate, less than 0.5 percent of Chinese households now own over 60 percent of the nation's personal wealth. Meanwhile, the 150 million odd migrant workers building China's gleaming cities and the millions more in antiquated rural factories live in Dickensian squalor. In India, the prosperity brought about by globalization has also dramatically widened the economic divide between rich and poor.

THE HYPERCONNECTED GLOBE | History is replete with examples of growing foreign connections and new technologies producing some winners and many losers. There have been many backlashes against the effects of global connection. The biggest difference between interconnections then and globalization now lies in information. In today's hyperconnected world, that backlash could rise and proliferate faster than in the past. The speed with which television news and Internet blogging reported the projected sale of companies to foreigners in early 2006, sparking economic nationalism in Europe and the US and forcing governments into taking swift action against their better judgment, was an indicator of the perils of fast-paced globalization.

In the developing world, too, the communications revolution has increased social pressures. Big-city lights no longer wink from afar. Viewers can see their allure on the small screens in their homes, whether in village shacks, urban slums, or the farthest rural outposts. Today the have-nots know only too well how the haves live. The problems are revealed much faster than any wise policy to solve them can be conceived or implemented.

Theinstantaneous transmission of news and images has turned the thoroughly connected and even marginally connected citizens of the world into spectators and consumers of ideas and information. Images of natural disasters and human suffering elicit instinctive human sympathy and support in the wake of a tsunami or an earthquake. Televised Olympics and World Cup soccer championships reach a billion people, bringing diverse populations closer. Yet social, cultural, and political discourse aired freely over satellite television and the Internet also bewilders and alienates people, reinforcing prejudices.

Just as sports channels or television drama serials attract fans worldwide, the airwaves offer the opportunity of a free exchange of hatred. In subjugating time and distance, globalization has wrought a clash of centuries. People still living in the eighteenth-century stages of economic development have been brought face to face with their long-separated cousins living in the twenty-first century. Instead of promoting dialogue and understanding, these jarring encounters have often provoked violent antipathy and xenophobia.

Yet life in every country today is so inextricably intertwined with the rest of the world that failure to appreciate this interdependence and its long-term effects could risk the world's drifting toward a major crisis. The international system is clearly suffering from a shortage of institutional capacity to address the issues we face. The current ineffective state of the United Nations in tackling some of the major humanitarian disasters illustrates the dilemma. Blaming the UN as such makes little sense, however. The root cause is rather the unwillingness -- or inability -- of key actors on the global scene and their constituencies to empower the UN to a level that corresponds with today's and tomorrow's global realities and possibilities.

THE OPTIMISM OF THE WRETCHED | So, is globalization in danger of being derailed? The complacent argument that the world is too tightly intertwined by myriad ties to fall apart inevitably recalls British author Norman Angell's famous prediction on the eve of World War I about the"economic impossibility" of just such a conflict. History is replete with examples of passion trumping faith in economic pragmatism and rationality. The future will always bring surprises, but a reading of history does not suggest that globalization -- the integration that has grown over time -- could ever be terminated. The complex process of interconnectedness that has gathered momentum over the course of millennia cannot be halted, nor can its myriad threads be neatly unwound. Major disruptive events -- from the collapse of the Roman Empire and the Black Death to the collapse of trade and migration in the interwar years of the twentieth century -- have temporarily halted the process and slowed the interconnections. It is possible that we could be headed toward such a breach.

Such disruptions have always caused enormous suffering, but the crucial difference today is that the global economy is so integrated that the stakes are much higher for everyone. In fact, seen from the glittering metropolises of Asia, from the semiconductor labs in Taiwan and South Korea, from the world's busiest container port in Singapore, from Vietnam's Mekong Delta or India's once-sleepy towns now buzzing with shops and Internet cafés, or even the resurgent Irish business district of Dublin, the suggestion that globalization is in trouble would be incomprehensible. For the first time in history, hundreds of millions of people have seen their lives transformed and found hope that their children would live better than their parents did.

The optimism of millions in Asia and in the rising economies of Ireland, former Soviet-bloc Europe, Africa, and Latin America and the desire of ordinary citizens to grab the opportunities afforded by an open economy is as much a fact of the globalized world as are the anxiety of American and European middle classes and the grinding poverty and despair of those left out of the equation. The question is, will anxiety and fear prevail over optimism and lead the world back to another dark period of isolation?

Economic integration, and with it cultural globalization, has far outpaced our global mindset, which is still rooted in nationalist terms. We benefit from all that the world has to offer, but we think only in narrow terms of protecting the land and people within our national borders -- the borders that have been established only in the modern era. The barbed wire, chain-link fences, security forces, and immigration and customs agents that separate us from the rest of the world cannot change the fact that we are bound together through the invisible filament of history.

When our ancestors dipped their toes into the Red Sea to begin a millennial journey, they knew the world only as far as their eyes could see. Now not only can we look at the bigger picture, but we know how we have reached where we are and where we may be headed. We are in a position to know that the sum of human desires, aspirations, and fears that have woven our fates together can neither be disentangled nor reeled back. But neither are we capable of accurately gauging how this elemental mix will shape our planet's future. Still, compared to the past, when thickening global connectedness brought surprises, we are better equipped to look over the horizon at both the dangers and the opportunities. We now possess global institutions and tens of thousands of civil-society organizations to avoid setbacks to the process of global integration and fully realize the potential for a brighter future for those so far outside the globalized world.

There is no alternative to rising above our tribal interests: Over the centuries to come, our destinies will remain inextricably bound together. Calls to shut down globalization are pointless, because nobody is in charge, but together we can attempt to nudge our rapidly integrating world toward a more harmonious course -- because we are all connected.