Review of Ghemawat, World 3.0: Global Prosperity and How to Achieve It

19 06 2011

Ghemawat, Pankaj. World 3.0: Global Prosperity and How to Achieve It. Boston, Mass: Harvard Business Review Press, 2011.

Although it has a few flaws, this book is excellent and should be read by anybody interested in globalization.I teach on the history of globalization, so I approached this book from a historical angle. Although some historians will be left dissatisfied with the amount of historical material Ghemawat has included, the author has does a fairly good job of situating present-day globalization in its historical context. Ghemawat’s stylized rendition of the history of globalization is a tolerably accurate generalization. Moreover, he has incorporated into his theory the key research finding of globalization historians, namely that globalization is not an irreversible process and the world economy  experienced a long period of de-globalization between 1914 and 1945.

Pankaj Ghemawat is a wunderkind. He was accepted to Harvard at the age of 16. At 19, he was accepted to Harvard Business School’s Ph.D. program at 19, graduating when he was 24.After a stint at McKinsey & Company, he taught for 25 years at Harvard Business School. Since 2006, Ghemawat has been the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona.

Pankaj

Ghemawat effectively demolishes the theories of Tom Friedman, the New York Times columnist whose The World Is Flat became a bestseller and influenced countless public thinkers, from Colin Powell to Tony Blair to many business leaders. Friedman argued that we are now living in a fully globalized world in which neither distance nor national boundaries impinge on commercial activity. Friedman, who is a big fan of globalization, regards this development as welcome. Anti-globalization activists have accepted Friedman’s premise the world has indeed become flat, although for them, the emergence of McWorld is something to be condemned.

Ghemawat shows that both sides of this debate are ill-informed. In fact, he calls the Friedman viewpoint “globaloney”.  He argues that while the importance of national boundaries has decreased a little bit in recent decades, borders still matter a great deal. He also shows that physical and cultural distance remain major barriers to international trade. Ghemawat describes the world as “semi-globalized”. He does not dispute that trade barriers have fallen dramatically in some countries and some industries, but he argues that in many sectors of the economy, the orientation of firms is still pretty much national rather than global. Relatively few industries are internationalized.

To show that borders still matter, Ghemawat uses the example of the Ganong candy company in New Brunswick, which is located about a mile from the Canada-US border. Ghemawat reports that one can actually see the United States from the office of Ganong’s CEO.  Anyway, if Tom Friedman’s theory were correct, then we would expect that the border would have zero impact on the distribution of Ganong’s sales of jelly beans. After all, Canada and the United States have been linked by a comprehensive trade agreement for over 20 years. The reality, however, is that the border continues to impede sales in the US by Ganong and other Canadian firms: slight differences in regulations regarding food additives and the like force Ganong  to have separate production runs for  the Canadian and US markets. After 9/11, it became more difficult for trucks to cross the border. Currency fluctuations complicate Canada-US trade. Shipments of Ganong jelly beans have been held up for weeks at the border.  The result is that Ganong’s sales are still predominantly in the Canadian market.

Ghemawat uses this Canadian example to make a broader point about the nature of world trade: if borders have a major impact on Canada-US trade, notwithstanding similarities in culture and the NAFTA agreement, then borders will matter even more to trade between other pairs of countries. In other words, reports of the death of distance and the death of the nation state have been greatly exaggerated.

Ghemawat’s book is full of interesting statistics that help to prove his point. And he skewers Tom Friedman for not providing data to back up his claims. “The obvious reason for globaloney is that much of the debate about globalization takes place in a data-free zone… something other than data must account for the success of The World is Flat, since its 450-plus pages contain not a single table, chart, or footnote to back up its pronouncements. I still find that comfort of Friedman’s many fans with this data-free approach the most flabbergasting aspect of this flattening.” (pp.34-5).

Ghemawat is a business school professor and is generally sympathetic to capitalism. However, his book contains some powerful criticisms of the free-market ideology that was peddled for many years by Milton Friedman’s acolytes at the University of Chicago. Ghemawat distinguishes the intellectual tradition at the Harvard Business School from that of Chicago. The Harvard tradition, Ghemawat explains, is based on a inductive approach and the case study method, which involves looking a peculiar circumstances of specific firms and industries. The Chicago tradition, is characterized by a far greater faith in the benefits of applying free market principles to all industries in all countries and at all times. Ghemawat suggests that this approach is fundamental ideological rather than empirical. In some circumstances, writes Ghemawat,  deregulation and competition may be great means of achieving other ends, but in others it may be counterproductive. He reminds us that the late Alfred Kahn, who was the architect of the deregulation of the US airline industry in the late 1970s, did not believe that deregulation was appropriate for all industries– he just thought it would be a great thing for airline passengers. Everything needs to be examined on a case by case basis.

Similarly, Ghemawat is unwilling to make blanket statements about globalization being either good or bad.

In 1933, John Maynard Keynes wrote: “Ideas, knowledge, art, hospitality, travel – these are things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and above all, let finance be primarily national.”

Ghemawat says that he agrees with two-thirds of this statement. He agrees with Keynes that the international mobility of people and ideas is a good thing. (As an Indian-born academic who was trained at Harvard and now teaches in Spain, he could hardly disagree with this proposition). Ghemawat disagrees with Keynes that protectionism is a good idea: he thinks it would be terrible if we reverted to the days when Americans were forced by tariffs to buy only American-built cars. Ghemawat does, however, agree with Keynes that the deregulation of finance and globalization since 1980 has created instability and more problems than benefits.

Ghemawat also has some important things to say about the relationship between globalization and inequality. The neat thing about this book is that the author is concerned about both equality within countries and equality between countries.  He believes that too much inequality within a country is a bad thing and that government’s ought to engage in some redistribution of wealth, if for no other reason than because egalitarian countries tend to grow faster than nations in which there are large disparities in inherited wealth.

I have two minor criticisms of this book.

First, at the end of the book, the author engages in a long and excessively personal essay on rooted cosmpolitanism. In fact, he includes a statement by his teenage daughter in which she discusses her reactions to moving from Boston from Catalonia.  The justification for this little digression is that it illustrates Ghemawat’s point about cosmopolitan global citizenship. While Ghemawat is doubtless very proud of his daughters capacity to master a variety of languages, I’m not certain that his editor at HBS Press should have indulged him by including this material.

Ghemawat depicts Canada as some sort of ideal cosmopolitan society– ethnically diverse and open to the world economy. Canadian readers will note that Ghemawat uses a fair number of Canadian examples and seems to regard Toronto and Vancouver as prototypes of what a truly globalized world would be like. He also points out that Canada is the only industrialized country that doesn’t have protectionist tariffs on sugar. Alas, no country is perfect and Canada is quite protectionist in other ways. Dairy products are shockingly expensive in Canada thanks to a system put in place to feather the nests of dairy farmers: although it is too cold to grow sugar cane in Canada, milk cows do quite well. Moreover, anti-immigration politicians have done quite well in Canada recently– a man who denounced the takeover of the county by “Orientals” was recently elected Mayor of Toronto.

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