Wednesday, August 27th, 2008
This is another in my series on globalization, one of the most important changes facing the world in the early 21st century. If your city and region aren’t meeting the globalization challenge, then you’ll end up like all too much of the Midwest, in a state of stagnation or decay. There are winners and losers in globalization, and not often a lot in the middle. We can complain about this, but it is like complaining about the weather. Whether globalization is a force for good or ill is an interesting debate, but ultimately meaningless. Globalization simply is. We can get ready for it, we can ignore it, or we can fight it. But we do have to deal with it.
Thinking about globalization, what are some of the key forces and changes that are resulting from it? I will sketch out a few of my thoughts, then hopefully you can contribute your own.
To me the key theme of globalization is Mobility. Everything is more mobile, and on a larger scale, than ever before. Goods and services move globally. Capital moves globally. Labor moves globally. Ideas move globally.
Things that we previously thought had to be done in one spot can now be done around the world. This includes not just traditional things we have long thought of as offshoreable such as manufacturing. It also includes things like software development, invoice processing, answering the phones, interpreting X-rays, and doing architectural renderings. The key divide today appears to be not between products and services or between industries, but between mobile, tradeable things and things that have not yet become tradeable. This latter category might include hair styling, plumbing repair, landscaping and other services requiring face to face interaction or on site service provision.
It’s also money. “Hot money” flows around the world more freely than ever. Private equity firms invest in companies where ever they see the opportunity for profit. Government money, so-called “sovereign wealth funds”, also invest on a global scale, as seen recently by investments from Asian and Persian Gulf government funds into ailing US financial institutions. By the way, the US also has large sovereign wealth funds of a sort. They are called state pension systems, and are often huge investors in the market. These sorts of funds often invest for other than profit motives, which makes many people wary of the influence they wield. Hedge funds and other investors exploit exchange rates and yields across countries in the so-called “carry trade”. All of this money is intensely subject to changes in sentiment. It can flow in and out of countries in an instant, leaving turmoil in its wake.
And of course there is the movement of people. Chicago has long been in immigrant magnet. Other cities like Detroit and Cleveland were shaped by immigration from previous eras. But the Midwest was long principally white with a significant black minority population. Today it is a different story. Hispanic immigration is changing the entire Midwest, from the big cities to small towns. And it is more than that. Minneapolis has a rapidly growing community of African refugees. Greenwood in suburban Indianapolis has a growing Sikh community. The Midwest is far more diverse than ever, though still lacking compared to other regions. This is creating both opportunities and strains in these communities.
Of course the Midwest is also very aware that people can move domestically as well. Long one of the top award winners in the dubious largest out-migration category, the Midwest has lost people to the Sunbelt and coasts for years. Especially the most talented, the people who are powering the new global economy, have more choices than ever about where to live. They are increasingly clustering in “world cities” and others that are the “haves” of globalization. A growing international elite skips around the world in search of the best opportunities, self-consciously citizens of the world, having more in common with their jet set brethren from a larger global community than they do with their own native countrymen. Various countries do whatever they can to lure these talented immigrants, while trying to shut out the unskilled. In this continuous flow of people, the Midwest is losing out in the battle for brainpower.
And it is increasingly brain power that is important. As the raw tasks of making things becomes every more mechanized and commoditized, it is increasingly specialized skills that matter and are in demand. The other thing that is more mobile than ever is knowledge. These emerging global idea networks, the great global conversation if you will, takes place on the macro and micro scale. It is business analysts emailing and conference calling with software developers half way around the world to collaborate on an IT project. It’s also the multidisciplinary design team sitting around the table at the local coffee shop in London talking about the latest project. The Midwest is often shut out of this global conversation. It lacks the right talent, industry profile, and inclination to get involved. So often the only conversation going on is the one where a company CEO tells local leaders the plant is closing.
So today with all this mobility, the competition is more fierce than ever. Businesses, cities, states, universities, people in the Midwest aren’t just in competition with each other or the rest of the country. They are in competition with the rest of the world. It is often the side effects of this competition that drive the challenges. Sometimes it’s not that the factory moved to China so much as it is that Chinese competition forced Midwest manufacturers to get much more efficient. It is these productivity gains that are often responsible for job losses.
This mobility, this increasing pace of communication, this new, ever more fierce competition is driving change in the structure of the world economy and geopolitics. We’ve seen the rise of emerging economies, particularly the so-called BRIC countries: Brazil (agriculture and commodities), Russia (natural resources and technology), India (information technology and BPO) and China (manufacturing and R&D). These are all huge countries, and if they get their act together, they will be, and to a great extent already are, forces to be reckoned with. India is buying more companies in other countries than vice versa. Indian steel magnate Lakshmi Mittal is the world’s third richest man after Gates and Buffett. China accumulates huge foreign exchange reserves, demands that its own proprietary tech standards be followed in the local market, is determined to climb up the value chain, and is gobbling up all the natural resources it can as its huge manufacturing industry destroys in the environment at as quickly as it churns out toys and cars. The G20 group of emerging market countries throws it weight around at the WTO negotiations. Soaring commodity prices lead to vast petrodollar accumulation, often by unsavory regimes. It has financed the re-emergence of a nationalistic Russia more determined than ever to assert its ambitions. Many countries with oil and other reserves, notably Russia and Venezuela, have effectively expropriated foreign holdings in order to nationalize these sectors.
And of course the pace of technology change continues unabated. MIT has a mouse controlled by computers hooked up to its brain. Stem cells may or may not deliver miracle cures. Biotechnology has become an industry so many cities are now pinning their hopes on. The two leading tech companies of our age are one that was written off for dead (Apple) and other that didn’t exist a decade or so ago (Google). Cloud computing and hosted applications could re-write the software and hardware industry map. Or maybe not. Open source is driving down prices all over the place. Traditional media finds itself imploding as advertisers follow consumers to new online channels like blogs. Chicago Sun-Times sports columnist Jay Marriotti just resigned, saying that the newspaper is dead.
Frankly, even the most educated and informed of us can have trouble keeping up with this or figuring out what it means to us personally. I’ve seen my own industry turned upside down by globalization. I couldn’t have predicted it ten years ago. I seriously doubt I can predict the next ten years either. And this is for something I know intimately. How much more so cities that were built to be competitive in another era who now find their future in doubt, with an increasingly angry base of displaced workers who demand quick solutions now. There are no easy answers.
But the questions have to be asked. Every Midwest city, every government, business, and community leader in it needs to be thinking about globalization and how their city is going to get positioned to succeed in a 21st century world that is going to be very different from the 20th. Some claim America is in decline. I don’t think it has to be that way. But it will be if people don’t rise to the challenge and have the courage to seek out solutions and make the case for change.
So think about globalization. Think about it for yourself, your business, your city. Think about these forces. Look at what’s going on out there. What do you see? Anything to add to the list? Any thoughts to share? I don’t profess to have it all figured out. But I know that the challenge has to be met for the Midwest city to survive and succeed.