World 3.0
Page 2
While nations did have some military interactions back then, they were otherwise largely self-contained; culture, society, and economics had a strongly national (as well as local) cast. Thus, international trade is estimated to have accounted for only one-tenth of one percent of world GDP in the sixteenth century—and even that was tightly controlled by national governments. The key shift embedded in the progression from World 0.0 to World 1.0 was, therefore, the scaling up of cooperative efforts from the local level to the national level.
In World 1.0, impersonal exchange and other forms of interdependence with strangers became more common. And in human terms, World 1.0 displaced some of the tribal loyalties of World 0.0, substituting broader loyalties to nation-states past, present, or prospective. Citizenship in a particular country became and to a large extent still is fundamental to most people's identity. Our hearts swell with pride when we hear “our” national anthem played in Olympic medal ceremonies. Even if we disagree with our government's foreign policies, we almost uniformly support our home country's troops in wars. And we must admit that we find it easier to be passive about misery in distant lands than within our own country's borders. For many purposes, “us” now refers to conationals and “them” to everybody else. Such nationalism is the handiwork of World 1.0.
Nationalism has had some terrible effects on our world—think of the last century's wars—and it continues to do so. That said, the national structure of World 1.0 did provide a framework for tremendous growth. As figure 1-1 indicates, the last five hundred years account for virtually all of the growth in population and in world product that our species has ever experienced! Also note the inflection point about two hundred years ago, around the first industrial revolution, after which growth really accelerated. World population swelled fivefold between 1820 and 2000 and gross world product fifty-five-fold—a much greater divergence between the two than ever before, reflecting unprecedented growth in average income.
Figure 1-1: Growth over the millennia
Sources: World population for AD 1–2000 based on Scott Manning, “Year-by-Year Population Estimates: 10,000 BC to 2007 AD,” Appendix: World Population Estimate Sets, Digital Survivors, January 12, 2008, http://www.digitalsurvivors.com/archives/worldpopulation.php. World GDP is the result of the multiplication of World GDP per capita estimates and Manning population. For AD 1–2000, I use J. Bradford DeLong, “Estimating the World GDP: One Million BC–Present,” http://econ161.berkeley.edu/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html. World exports for 1500–1973 based on Maddison's Monitoring the World Economy: 1820–1992 (Paris: OECD Development Center, 1995) and “Contours of the World Economy and the Art of Macromeasurement 1500–2001” (2004), http://www.ggdc.net/maddison/; 1973–2000 based on World Bank World Development Indicators (WDI).
World 2.0
Figure 1-1 also provides a glimpse of the widening cracks in the national walls of World 1.0 with its data on international exports. Small cracks had been evident from the outset; the Age of Discovery, in which Europeans sailed off to explore the world, preceded the Treaty of Westphalia, as did the formation of the Dutch and British East India companies, the forerunners of today's multinationals. But trade really took off more recently and even more sharply than GDP. By the middle of the nineteenth century, Karl Marx and Friedrich Engels were already able to assert that “the need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, establish connections everywhere.”16 The export-to-GDP ratio of the world economy increased from around 1 percent in 1820 to more than 20 percent today.
Imperialistic consolidation continued to power significant increases in cross-border integration through the nineteenth century. But between the two world wars, this process was partially reversed. It wasn't until after World War II that globalization and the kinds of challenges it posed to the Westphalian model of nation-states became part of the broader discussion.
Globalization was first mentioned in a U.S. dictionary in 1951, although early writings from the postwar period actually emphasized the decline in internationalization levels that had taken place since the beginning of the twentieth century.17 The buzz about the phenomenon really began in the 1980s and accelerated sharply in the 1990s and the 2000s. During the early 1990s, the U.S. Library of Congress catalog listed fewer than fifty publications per year on globalization; since 2000, the number has averaged more than a thousand per year.18 Even more significantly, many social scientists—historians such as Paul Kennedy, sociologists such as Anthony Giddens, and political scientists such as Joseph Nye—now agree that we are living in a new age of globalization, one to which the national framework of World 1.0 may be ill-suited.19 The pope and the Dalai Lama are in accord as well.20
Such discourse has been heavily channeled by its real-world backdrop, particularly the trend toward deregulation that has accompanied increasing integration in recent decades. As the conservatism of Ronald Reagan and Margaret Thatcher took hold in the 1980s, the role of government began to narrow, reinforcing the conviction that galloping globalization would flatten national, not to mention tribal, structures. Such a state of affairs that supposes competition over everything from everywhere. is what I refer to as World 2.0.
World 2.0 worries antiglobalizers a lot but warms the hearts of most proglobalizers, regardless of their other political leanings. Thomas Friedman is generally a left-of-center journalist, at least relative to the U.S. center, but his books asserting the primacy of market forces over governments, The World Is Flat and The Lexus and the Olive Tree, place him in the company of the distinctly right-of-center Milton Friedman, the late Nobel Prize winner in Economics from the University of Chicago. The two Friedmans were driven by different reasoning: the former by his belief in the irresistible forces of globalization and the latter because he couldn't imagine government doing anything useful beyond regulating the money supply and protecting private property. But both converged on deregulated, integrated markets as the successors to World 1.0.
Even more oddly, agreement that World 2.0 is here bridges the great divide between those who think it good (e.g., the two Friedmans) and those who do not (e.g., social activist Naomi Klein). Supporters and opponents of globalization alike tend to agree that humanity has already created a largely if not totally integrated world. As we shall see in chapter 2, this is simply wrong. But for now, consider how proposed responses to the recent crisis relate to this precrisis worldview—and to the others that I have mentioned.
Retro Responses to Our Present Predicament
The global financial crisis has already inspired over a thousand books, not to mention myriad articles, blogs, and other commentary. Some are simply expressions of anger—primal screams in print. Others document the hole we find ourselves in or perform forensics on how we (nearly) buried ourselves alive. Fewer focus on what is to be done, and many of these either carry on with precrisis discussions of particular trends, are tactical, or are preoccupied by the short run. Discussions of the broader issues around the rediscovery of market failures and the implications for the cross-border integration of markets are rarer and, for the most part, can be related to the three worldviews I've already described.
Clinging to World 2.0
Some World 2.0 enthusiasts have refused to abandon their vision of deregulated, integrated markets in spite of the crisis. Media magnate Rupert Murdoch blamed government for the debacle, stating: “It's very easy to blame the free market but how did we get the housing bubble? We got it because of Congress pushing Fannie Mae and Freddie Mac into lending money to people who couldn't afford it and blowing up the price of housing; a Fed which was too loose with the money. It just led to this very naturally.”21 After a brief period of panic, Milton Friedman's acolytes at the University of Chicago mostly reached a similar conclusion. In their view, the trouble was that markets hadn't been free enough from governmental meddling. Less doctrinaire variants admit market failures but argue th
at governmental failures are generally worse and that we should therefore continue to plow the free market furrow.22
This degree of intellectual lock-in is perhaps predictable; as Karl Polanyi observed about the last big crisis of market capitalism in the 1930s, “Its apologists are repeating in endless variations … that not the competitive system and the self-regulating market, but interference with that system and interventions with that market are responsible for our ills.”23
Predictability is not, however, the same as persuasiveness. The notion that market failures do not merit our attention seems unlikely to convince anybody who wasn't already in thrall to the magic of markets. That would seem to be a small minority postcrisis, even among elites. Consider how a well-known journalist described the tone at the 2010 World Economic Forum in Davos, a forum long associated with globalization and deregulation: “The political and business leaders gathered here … take it as a given that the free market failed in the crash of 2008 and that the new system will be more regulated, more interventionist.”24
World 1.0 Redux
Many people attracted to World 1.0 as a response to the crisis were drawn to it all along as protectionists and antiglobalizers. In addition to that core of support, World 1.0 also benefits from what sociologists call cultural lag. Many aspects of our nonmaterial culture have lagged behind the rapid economic changes that have led some to proclaim the arrival of World 2.0. At the level of institutions and identities, we are mostly still tuned nationally to World 1.0.
To see this, look at the responses to the economic crisis. While the unfolding debacle sparked many meetings involving many institutions, stimulus packages, bailouts, and other plans were mostly decided by national governments. In the process, they also greatly expanded their roles in their respective economies and fueled widespread discussions of state capitalism.25 Meanwhile, individuals narrowed the circle of trust and cooperation back to the national or even local level—as often happens in times of crisis. Thus, in a poll by Pew Research in late 2009, more U.S. citizens (49 percent) agreed that the United States “should mind its own business internationally and let other countries get along the best they can on their own” than disagreed (44 percent)—for the first time in the four decades that such data have been gathered!26 Similar patterns are apparent in Europe with mounting concerns about immigration, and in Japan.
What might the policies associated with World 1.0 look like? Some variants on this worldview are frankly isolationist. And some focus on besting other countries. Thus, in the realm of international (political) relations, Henry Kissinger and others have championed Realpolitik, a World 1.0 doctrine that still wields enormous influence in foreign policy circles. Realpolitik treats nation-states as the primary actors, and supranational bodies like the UN and World Trade Organization (WTO), businesses, nongovernmental organizations (NGOs), and so on as of little consequence. The top priority of states is taken to be preservation of their sovereignty in the face of threats from other states. Long-term cooperation is deemphasized because each state is assumed always to pursue its own interests. Military and economic power are what count, and trying to apply morality to the international sphere supposedly makes the world a more dangerous place.
Such Realpolitik might seem somewhat plausible in conflict-ridden regions of the world (e.g., the Middle East today or the Europe of Metternich two centuries ago), but does it provide useful insights into contemporary relations among, say, members of the European Union? More importantly, does it sound like a recipe for a world that works? In the economic sphere, World 1.0 offers little that is new: it has been tried before, over several centuries. Even worse, if a reversion to World 1.0 were accompanied by general protectionism, a meltdown of the order of the Great Depression might result! Of course, such protectionism is exactly what the transplantation of Realpolitik's zero-sum logic of interstate relations from the political to the economic sphere would seem likely to induce.
World 0.0 Redux
Although a reversion to World 1.0 would pose a number of major problems, its advocates generally have little to offer in the way of new solutions. Instead, the newer ideas that have emerged as responses to the crisis actually seem, with their common stress on communitarianism, to advocate a shift toward World 0.0! From the right, former theologian Phillip Blond, who has helped shape British prime minister David Cameron's advocacy of the “big society” as opposed to the “big state,” inveighs against the state and markets, calling for relocalization of the economy and the “restoration and creation of human association.”27 Joining him on the left is sociologist-activist Raj Patel (briefly declared the Messiah by a U.S. sect), who preaches grassroots movements, communal stewardship of common resources, and localization of food chains as substitutes for markets.28
The parts of this localizing agenda that involve rebuilding local social capital sound somewhat plausible—although it is worth imagining what it might be like to go to a meeting of the neighborhood council every Friday evening with the nosy neighbor in charge (not unlike arrangements in Cuba under Castro). When it comes to economics, though, much of the localizing agenda seems, on the basis of experiments in local procurement, to be simply preposterous. For example, Kelly Cobb, a textile designer in Philadelphia, set out to make a man's suit out of materials produced within 100 miles of her home. Two dozen artisans took more than 500 hours to make a very basic suit, unlikely to be confused with a cheap store-bought version—and even then, 8 percent of the materials had to be sourced from farther away.29
Cobb's own conclusion from this exercise is “that a small community could clothe itself … with reasonable expectations and a little ingenuity.”30 I'd be less sanguine based on a hundredfold escalation in (labor) costs, higher materials costs, and quality issues. And remember that suit manufacture is not subject to strong scale economies. Would there be any way to produce more scale-sensitive products like computers and airplanes locally? Maybe localizers have no need for the latter, but I'm sure they wouldn't like to give up the former.
Despite these obvious problems, localization is not just idle chatter. In Barcelona, where I live, the crisis prompted an ecological network focused on the Montseny National Park to launch the ecoseny, a “social currency” meant to promote local exchange and greening. Even if the concept were viable, the targeted region doesn't correspond to what economists call an “optimal currency area.” Fewer than a million people live in the three districts targeted, and a large national park separates the three district headquarters. Meanwhile, another social currency encroaching from the south is exerting additional pressure. But suppose that the localizers did manage to overcome all these obstacles and implement their vision. We'd see a fragmentation of currency units—that is, ecosenys and other such currencies being promoted around Europe instead of the euro—as well as bias built into them to encourage localization. What's next, barter? Actually, the Montseny ecological network is already working on it.31
Even more than national protectionism, folding economic interactions back to the local level might precipitate an unprecedented economic collapse. (Please reread the earlier section on World 0.0 if necessary.) Even if you don't agree that this is the likely outcome, localizers certainly need to rule it out if they are to buttress their case. But they generally do not even acknowledge the potential for problems, let alone address them; they simply assume that localization will work. In other words, localizers are more than a tad reckless when they advocate large-scale social reengineering based on ideas that reverse the expanding circles of cooperation of the last few millennia, that remain to be fully worked out, and that seem prohibitively costly in economic terms. Reason enough for localizers to abandon the lofty claims they so often make to the moral high ground.
The Way Forward: World 3.0
I didn't set out to propose a new worldview or write a book with an audacious title like World 3.0. I have studied, taught, and written about business and economics for over thirty years, and focused on globalization-relat
ed issues for the last fifteen. By inclination, I tend to look for data to quantify important phenomena, so I started tracking how much particular activities or entities cross national borders.
As the flood of books proclaiming a new, globalized world (what I now call World 2.0) hit the shelves, I watched popular perceptions about the extent of globalization race well ahead of what I was seeing in my data on cross-border integration. It was obvious we were no longer in World 1.0, but it was also plain to me that World 2.0 was basically a chimera, dangerously exaggerating actual flows across borders. I introduced the term semiglobalization to characterize the true state of cross-border integration: borders still matter a great deal, but so do flows across them. This state of the world, elaborated on in chapter 2, spans the broad range of possibilities between the isolated countries of World 1.0 and the completely integrated globe of World 2.0.
Rejecting World 1.0 and 2.0 as inconsistent with actual levels of globalization was one thing; coming up with a full-fledged alternative was quite another. That had to wait until the global financial crisis reemphasized the importance of market failures. Like many people, I had associated globalization with deregulation, placing them at the same end of a continuum whose other end features regulation and strong national borders.32 Intuitively, if markets have a tendency to fail, it seems to make sense to raise questions about connecting them across borders, since failures on a larger scale might be even more destructive.