Wednesday, August 27th, 2008

The Forces of Globalization

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.

Topics: Globalization

29 Responses to “The Forces of Globalization”

  1. Anonymous says:

    Don’t paint evryone with a bursh that thought Apple was dead. I for one neve thought for a second that the company was anything but superior to Microsoft. They just got out marketed.

  2. Anonymous says:

    I have always thought, and will continue to think, that the problem lies in education. Period. Two major issues:

    1. The US is a rare in that we don’t respect education. (I think Richard Florida talked about this.)It’s not just that smart kids get picked on in high school. To me, it’s the little things, like how most Americans find highly-educated people “overwhelming” or something. If we paid attention to all of the little things we do that slight the pursuit of knowledge, I think we’d be pretty surprised.

    2. We can get ahead of people under 30 as far as education goes. The problem is the people that are in their 40s (displaced manufacturing jobs, for example), where there are many challenges and obstacles (and, perhaps, lack of desire) that prevent them from pursuing an education at a later stage in life.

  3. Anonymous says:

    No, it has nothing to do with eduction. It has to do with the wealthy in is country.
    If they are wealthy they care nothing about the middle class. They have wealth, the want more wealth and going over seas is the way to get it.

  4. Anonymous says:

    Oh and BTW most of the wealthy in the country did not earn it. They were born into it. That is a huge differnce in between the decent people in this country and the, well, not so decent majority of wealth out there.

  5. Gary says:

    I guess urban I am a little confused. If mobility is one of your key components of globilization. Why the have you been so reluctant to support rail tranist in Indy.

    I will take that one step futher, not only do we need to build better tansit (raila and other) in Indy…we need it on a wider scale we have begun to talk about…the “city region”. Have a highily moblized work force in a region in a building block to competing on a lrage scale.

    The cities and regions, especially in the Midwest that jump on this are ahead of the game.

    Do you disagree?

    Do you disagree.

  6. thundermutt says:

    I think “mobility” in the sense of this post really means people will settle in a city or region where the quality of life is what they want. That city or region may be in any civilized area which meets the professional’s criteria.

    By “civilized”, I mean all that’s necessary in some professions today is a fast computer and a fast internet connection. So anywhere with a reliable electric supply and an internet connection qualifies.

  7. Anonymous says:

    Or maybe it someplace where you can pay a Kid a $1.00 a day to make something.

  8. Jessica Jewel Joyce says:

    The limp phase that the IT sector and the software industry is going through in the present times can be gauged from the fact that the pay of the employees in these two fields all over the world no longer remain lucrative. In many countries, software companies are also chucking out employees, especially those employees who have been “sitting on the bench”. This was an unheard of concept a few years back. There are chances that the software companies take more such radical steps to fight the damp phase.

  9. Gary says:

    I guess I am not sure where Urban is going with this. Unless you are a third world country…information mobility is taken for granted.

  10. Anonymous says:

    Globalization is likely a part of the discussion at Idea Festival.

  11. thundermutt says:

    Back in the dark ages when I studied economics, many lectures on economic concepts began with the phrase “assume perfect information”, which meant that buyers and sellers in any market would have access to all relevant information in making their decisions.

    Guess what? We’re there. If an IT person in India or China is willing to work for less than an IT guy in Newport Beach, that fact can be known by the employer AND it will be possible to employ the person in India or China remotely.

    We’re rapidly approaching a worldwide meritocracy in “think work”: money (wages) will flow to the smart people, no matter where they are.

    But that’s not what Urbanophile was talking about. Just as jobs follow smart people, smart people with money are no longer tethered to one place by an office. I think Urbanophile was trying to address questions of how cities like Indianapolis (and any of the other thousands of mid-sized cities worldwide) compete for that worldwide elite. Or should they?

  12. Gary says:

    They already do…what do you think companies like Lilly do?

  13. gary says:

    Also, to be “IT” savy is a prerequisite to any job you have these days. And I don’t mean just “how do I hook up to the internet”. In essence IT knowledge is nothing more than what people use to learn in typing classes in high school.

  14. Anonymous says:

    Of course Indianapolis should compete in the the knowledge base or “think work” as someone refered to it as. Indy was a life science city before there was a term life science….(Lilly).

    Also keep in mind there are knowledge companies that can’t always work remotely(or off shore). Here are some examples: Law, you can’t just practice law anywhere. Yes, it is possible to have specialized people remotely but, you have to have a lic. to practice law in a practicular state, etc. Healthcare, you have to accutely be there. Biotech (life science) while it is possible to 8collaborate remotely, the process is much faster if done in a campus style setting (Lilly).

    The list could go on and on. While yes the IT industry may easily be moved globally as well as financial industries…there many more examples of indurties that you are tethered to a particular area to preform the work of knowledge.

  15. Anonymous says:

    Anon 12:27

    Technology actually is allowing lawyers, healthcare professionals & biotech personnel the ability to ply their crafts with more and more mobility (ie remotely). Lawyers do indeed need a license to practice in a state…many lawyers have multiple licenses…even more have networked with lawyers in other locales that allow them to handle cases anywhere.

    Knowledge workers in all industries will increasingly be able to live wherever they would like.

    The campus-like atmosphere provided by Lilly and hundreds more companies are not going away anytime soon, but the reality is the need for physical, day-to-day contact, among work groups/teams is diminishing…due in part because the the technology/communications infrastructure today allows for effective work groups regardless of location and also due to the fact that the brains that Lilly might need…has no interest to move to Indy.

  16. The Urbanophile says:

    Thanks for the comments while I was away.

    Mobility has been around for a while, but the scope and scale of it is different from ever before.

    anon 8:20 has it right. Globalization is changing the game for services we never imagined. X-rays can be interpreted by radiologists in India at a fraction of the cost of Indy. Dittos for routine legal work like contract review. Pretty much anything that doesn’t absolutely have to be done face to face is intuitively offshoreable.

    Globalization doesn’t just mean moving offshore either. The rise of world cities has concentrated select industries there. For example, many of the banking and financial decisions that used to be made close to home are now made in New York broadrooms. Hotshots like the traders at Enron can bring down the pensions of pole climbers in Portland. I think it is no accident that we’ve seen an increasing divergence in the Midwest between the most globally connected cities like Chicago and Minneapolis and the rest. (Indy, Columbus, and KC are hanging tough though).

    Globalization is affecting or has the potential to affect everything. If civic, political, and business leaders don’t have it front and center on the radar, they will eventually find that it rose up and smacked them where they least expect it. The same goes for every worker out there.

  17. de-bug says:

    I work in IT. Globalization goes both ways.

    Last year half of our team (located in a higher cost state) was laid off (likely not incidentally). Shortly after, our company contracted with a consulting firm from India to backfill some of those positions, a few onshore, more off.

    OTOH, the same flexibility that allows work to be offshored creates opportunities as well. Last month I worked remotely from San Miguel de Allende, Mexico, just because I could and I wanted to.

    Coming out of that experience, I’m seeing two types of cities – Indy and SMA are solid examples of both – and it seems they need different strategies to compete. SMA is like a snowball now that keeps on growing out of its own momentum. People choose to live there because of the city itself; the ability to make money there is secondary for many (of course, many of the expatriate population are retirees!). Indy doesn’t have that draw. People seem to move here for jobs and secondarily because it’s a better place to live than other options.

    A key part of those strategies I think has to be infrastructure. SMA started attracting artists and expatriates over 50 years ago. The infrastructure – institutions, health care, social groups, tourism, arts organizations – all further attracting these groups of people. Interestingly, SMA does not have great educational options or extracurricular activities for high school and college levels, so they don’t seem to attract many matching that demographic…in fact, many locals leave to go to school in other cities.

    What sort of infrastructure does Indy offer that attracts in-migration and retains people living here? There’s an interesting article I saw on IBJ online this morning that addresses this very subject. Not surprisingly, Indy does better than average at attracting young families (low cost of living, less traffic), not so great at attracting young singles. There are other places in the country, though, offering a similar value proposition…which goes back to the question of globalization and what a particular city brings to the table.

  18. Jefferey says:

    “Not surprisingly, Indy does better than average at attracting young families (low cost of living, less traffic), not so great at attracting young singles. There are other places in the country, though, offering a similar value proposition.”

    The midwest as well. Omaha, Des Moines, Columbus. Indy does have pro sports, though.

  19. Anonymous says:

    Tell an insurance company in the US you need surgery based on a tech’s from India’s opinion of your x-ray.
    That would be good for a laugh.

  20. Anonymous says:

    I think a lot of you are in the IT industry and are reading WIRED way too much.

  21. Anonymous says:

    anon 12:27…lawyers and doctors have always networked like that…they can just do it faster now. It’s not like it’s a new frontier.

  22. Anonymous says:

    Anon 7:09 I tend to agree that the problem is with education but, the rich in the country don’t want a retrained or new educated worker. They might have to turn around and pay out some benefits before they had the chances to downsize them or get them out the door some other way.

  23. Anonymous says:

    Globalization is code for the new glodal class war that is about to unfold.

  24. thundermutt says:

    Wow. Class warfare? Get a grip.

  25. The Urbanophile says:

    de-bug, I work in IT too. I’ve been in the field for over 15 years (yikes!) I’ve seen incredible changes. Globalization has changed the world of IT forever. My company used to do all work on site at clients. Today, the country with the most employees in the world is India.

    As you note, this has had its upsides too. If people in India can work remotely, why not me? In fact, I am taking full advantage of that myself. At the end of the day though, if I’m doing a job that is not location specific, the company will offshore it when they can. My only real protections are to deliver value to a level that can’t be delivered offshore and/or to be in a location specific or direct client interacting role. I do like to telecommute when I can though. :)

    I think I said this before, but San Miguel is awesome. I am very jealous.

  26. The Urbanophile says:

    anon 3:40, you are probably receiving services offshore from medical providers without even knowing about it. What’s more, many Americans are choosing directly to travel to places like India, Mexico and Thailand to get elective surgeries performed because the cost is so much less there. It is actually cheaper to fly to these places and get surgery done than to do it close to home. Plus you get a nice vacation thrown in too.

  27. The Urbanophile says:

    anon 4:10, the problem with education is that often you still aren’t competitive with offshore. A highly educated onshore computer programmer is probably not that much more skilled than a highly skilled, educated offshore programmer, for example.

    The real questions are often whether the service in question is tradeable globally or not, and where you are in the value chain.

    One place we might want to be looking at education is the skilled trades. A lot of people have turned away from them, but demand is there and often there are even shortages of good welders, pipe fitters, etc. These require education and experience, but also require on site service delivery.

  28. thundermutt says:

    Urbanophile, I agree with the skilled-trades argument. I know the owner of a large electrical contracting firm; his firm and his well-paid electrical workers are never without work. The amount of wiring in a modern structure like LOS or the Convention Center is just staggering.

  29. Gary says:

    I work in a law firm and from the comments here I can tell you guys really don’t have much of clue about how the judicial system works it’a ability, or non-ability to work remotely.

    The rules to cya in electrronic “discovery” which is a huge part of litigation are so complicated it almost takes a entirely different degree. Not to mention the fact that you have three levels of the judicial system. Local,State and Federal.

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