World 3.0
Page 3
The global financial crisis prompted me to take a closer look at this representation of our policy choices as a tug-of-war between World 1.0 and World 2.0. The food crisis that preceded the financial crisis—and that seems to be repeating itself as I write this—proved particularly illuminating. Between early 2007 and mid-2008, international rice prices tripled due to panic buying, triggering riots in more than a dozen importing countries and even toppling governments (in Haiti, for example). Preaching about free markets and prices does not constitute an adequate response in such situations because it leaves people free to starve; instead, governments do have to intervene to manage domestic prices. At the same time, since only about 5 percent of world rice production is traded internationally, deepening international rice markets would reduce the volatility that they have to deal with, as would the abandonment of export subsidies and tariffs.33
Rice provides, therefore, a clear example of markets prone to failure—and requiring some measure of regulation as a result—that could nonetheless benefit from increased cross-border integration. It helped me realize that the tension between World 1.0 and World 2.0 embodies not one fundamental trade-off but disagreements over two types of choices: choices concerning the regulation of markets and choices concerning cross-border integration. Distinguishing between these two dimensions of choice suggests a fourfold representation of the possibilities in which World 3.0 emerges as a distinct worldview (as does World 0.0): see figure 1-2. World 3.0 weaves together globalization and regulation, unlike the three other possibilities depicted in the figure, which opt for one or the other—or neither.
Figure 1-2: Four worldviews
But why is World 3.0 the right box in the matrix to focus on, apart from the fact that it is the only one that hasn't already been discussed and found wanting?
World 3.0's first attraction is that it is more realistic. It not only recognizes actual levels of cross-border integration; it also accounts for how geographic and other forms of difference/distance typically affect cross-border flows, as described in chapter 3. World 3.0's empirically grounded, explicitly spatial structure, in which both borders and distance are important, is one of the key features that distinguish it from both World 1.0, in which only borders matter, and World 2.0, in which neither do.
World 3.0 is also more realistic about human nature. Transforming the world would be easy if we could—as Raj Patel proposes—motivate humans to curb their desires significantly. But how likely is that? World 3.0 strives for more realism about what drives us, but without sacrificing morality. It recognizes that self-interest is important, but also provides a basis, rooted in distance, for bringing awareness of, sympathy for, and altruism toward others into the picture, in order to consider how we might make some progress along those dimensions. By contrast, Worlds 0.0 and 1.0 embody an “us versus them” approach that ignores foreign welfare entirely. And World 2.0, where there is no us or them, weights foreign welfare the same as domestic welfare, which is frankly otherworldly.34
This emphasis here on realism may seem rather unreformed. After all, it was famously argued—by Milton Friedman, of course—that what matters about a model or, presumably, worldview is not the realism of its assumptions but the predictions that it permits one to make. Maybe, but if we aren't satisfied with existing models, dealing with key disconnects from reality seems like a good place to start reformulating them.
A rather different and, in some sense, more important attraction of World 3.0 is that it highlights the gains from opening up further. World 2.0 presumes that complete openness has been achieved or soon will be, so that while preventing losses due to backsliding is important, generating gains through further opening up is not. And World 1.0 (and to an even greater extent World 0.0) turns its back on gains through openness.
A final attraction of World 3.0 is that it provides a relatively specific, grounded framework for action. In addition to the clear delineation in figure 1-2, World 3.0 proceeds from different premises to prescriptions that differ substantially from the worldviews that preceded it. Some of these differences across Worlds 0.0–3.0 are summarized in table 1-1; they and others will, of course, be expanded on in the course of this book.
Especially given the possibility for terminological confusion, it is useful to contrast the specificity of World 3.0 with the “third way”—a political philosophy that, Tony Blair's memoir Journey reminds us, is now widely espoused if not actually practiced around the world. With its emphasis on integrating across left and right and refocusing on open versus closed, the third way has some obvious affinities with World 3.0 as opposed to the other worldviews depicted in figure 1-2.
Table 1-1: Worldviews: An initial characterization
Worldview
World 0.0: Wild world
World 1.0: Walled world
World 2.0: One world
World 3.0: A workable world
Period of emergence
Prehistoric
Age of Enlightenment
Late 20th century
The third millennium
Level of market integration
Subnational markets: local integration
National markets: national integration
Global markets: complete global integration
Semiglobal markets: partial global integration
Geographic structure
Local borders
National borders
None
Borders plus distance: spatiality
Governmental policies
Minimal
Regulator of market failures
Integrator (limited role)
Integrator plus regulator
Business strategies
Local
Domestic/ multidomestic
Global standardization
AAA strategies to adjust to, overcome, and harness differences
Individual mind-sets
Communitarianism
Nationalism
Cosmopolitanism
Rooted cosmopolitanism (cultural distance)
However, the third way has little if anything to say about the realities of semiglobalization and geography—even though it matters greatly for discussions of openness whether, for instance, we think of countries as billiard balls that may run up against each other but remain separate (World 1.0), as melting into each other (World 2.0), or as embedded in space, at varying distances from each other (World 3.0). And the third way also seems, especially given the recent surge in interest in state capitalism, to underplay the regulatory dimension with its too-quick dismissal of alternatives to market capitalism. In other words, one can raise questions about the third way's grasp of both of the axes in figure 1-2, which is why World 3.0 seems to me to be the better way forward in the third millennium.
The Rest of This Book
The rest of Part I explains in more detail why World 3.0 is a better basis for the pursuit of prosperity than the other worldviews considered. Part II addresses market failures and other fears that opponents of cross-border integration often invoke. Part III draws together the actionable implications of World 3.0 for governments, businesses, and individuals.
More specifically, chapter 2 argues that current and prospective levels of cross-border integration do not fit well with either World 1.0 or 2.0, and that overall, the globalization glass is more empty than full (i.e., the shortfall from levels predicted by World 2.0 is particularly large). Chapter 3 examines the cross-border differences and distances between countries that act as barriers to globalization. And chapter 4 explains why the potential gains from opening up are much larger than even proglobalizers tend to think.
That takes us through the rest of Part I. The first three chapters of Part II address how the rediscovery of conventional market failures—small numbers or concentration, externalities, and uncertainty/risk—should affect how we think about the potential for cross-border integration of markets under World 3.0. Chapter 8 takes on a new, still-controversial kind of failure,
global imbalances, and the last three chapters in this section, chapters 9–11, examine the connections between globalization and deprivation of various sorts—economic, political, and cultural.
My broad conclusion is that while some failures and fears do need to be taken seriously, the truth is far less scary than it is made out to be. Globalization can alleviate the effects of some categories of market failures and fears; plus, even when it aggravates them, the negative effects are often overstated and generally subject to mitigation themselves. I nonetheless devote seven chapters to this broad topic because I really do want to convince the unconvinced, and this requires engaging with what worries them.
Part III of this book synthesizes Parts I and II into a discussion of what is to be done. The first chapter in Part III, chapter 12, presents some general propositions (apparent but not systematically presented in Part II) for thinking about market failures and market integration. I follow that chapter with three others that prescribe in more detail what countries, businesses, and individuals must do if they are to build toward—and maximize benefits from—World 3.0. But the basic prescriptions can, for now, be characterized as follows:
Understand actual levels of integration, which are likely to be lower than intuited.
Look for opportunities to increase integration, of which there are likely to be many.
Regulate only to the extent necessary to manage market failures and fears—while remembering that integration actually helps rather than hurts with some failures and fears.
Try to match the geographic scope of any regulatory responses to the geographic scope of the market failure.
Chapter Two
Semiglobalization Today and Tomorrow
IN MAKING THE CASE for World 3.0, I asserted that it captures the real levels of international integration much better than the negligible levels associated with World 1.0 and the (nearly) complete levels assumed by World 2.0. It is time to back up that assertion by reviewing some surprising facts about how global—or semiglobal—we actually are.
By most measures, the true state of the world today is that of semiglobalization—with “semi” as in partial rather than 50 percent. How partial? Try 10 to 25 percent. This is a far cry from the complete globalization envisaged by World 2.0. It is also significantly lower than the intuitions of the people I have polled. Such exaggerations about levels of cross-border integration reflect biased beliefs about globalization that can be dangerous in a variety of ways and are therefore worth exploding.
You'll notice that I'm focusing here on arguing for World 3.0's superiority over World 2.0. This is because of all the worldviews, World 2.0 is the one that has generated by far the most excitement. Proponents of World 2.0 have cited all sorts of globalization apocalypses that are supposed to pave the way for (nearly) complete integration, including the convergence of tastes, the end of the nation-state and of history, the death of distance, and probably the blockbuster of them all, the flattening of the earth, based on the vision of journalist Thomas Friedman: “The world got flat … [creating] a global, Web-enabled playing field that allows for multiple forms of collaboration on research and work in real time, without regard to geography, distance or, in the near future, even language.”1
At the other end of the tug-of-war between World 1.0 and World 2.0 is the Indian novelist Arundhati Roy, one of globalization's most vocal and ardent critics, who seems no less certain about its apocalyptic impact when she proclaims, as she did in a 2002 speech, that “globalization is ripping through people's lives.”2 Other antiglobalizers critique globalization as “cancer stage capitalism,” “casino capitalism,” or, even worse, simply “McWorld.” They call for resistance to the “international rule” of multinational corporations and their brands, advocating the disruption of G20 summits and other international meetings as a form of self-expression. Like Friedman, they seem sure that World 2.0 is here or well on the way. But they have a rather different, dystopic vision of the globalization apocalypse, associating it with such things as degradation of the environment, exploitation of the poor, the erosion of democratic values, and the death of cultural traditions—unless they can stop it dead in its tracks.
It is hard to overstate the rhetorical punch that such apocalyptics can pack. Friedman's view, while far from unique, has been particularly influential. By my reckoning, his globalization-related books, most notably The World Is Flat, may have sold about as many copies as all the globalization-related books written by his predecessors combined. And his World 2.0 arguments, including the language of flattening, have been taken up and championed by luminaries such as George Soros and Colin Powell. I remember being particularly nonplussed when I heard General Powell say that “if the world isn't flat today, it will be tomorrow.” When I asked him whether he really thought borders would cease to matter, he gently suggested that I go read Tom Friedman.
Such rhetoric has left an imprint on people well beyond those who go to Davos or to “anti-Davos,” the World Social Forum. Starting in 2007, I've polled several dozen audiences about their worldviews, asking them to choose which of three quotes about globalization—one apiece for Worlds 1.0 to 3.0, although without identifying them as such—they most agreed with. These audiences have mainly consisted of business executives and university students, although I have administered this Rorschach test to general audiences as well. The above quote from Friedman that I use as an authoritative stand-in for World 2.0 invariably commands the most support—usually a majority. World 3.0 tends to come in a fairly distant second, followed by World 1.0.3 The basic rank ordering has stayed the same through the global financial crisis, although World 2.0 seems to have ceded a bit of its lead over World 3.0.
In fact, so far has the fascination with World 2.0 proceeded that it has even become the butt of comedy. Thus the U.S. fake-news Web site, The Onion, ran a video about parents shipping their children off to South Asia by FedEx to avoid the high cost of local nannies. “Sometimes I'm able to get [my son] into the box without even waking him up,” one satisfied parent remarked. There was, however, the horror story of the little girl who had to eat her own fingers after getting lost in the mail.4
My point in taking on all these exaggerations is this—that despite significant increases in cross-border integration in recent decades, huge headroom remains. So let's look at some data because, as Daniel P. Moynihan once observed, “Everyone is entitled to his own opinions but not his own facts.”
A Global Reality Check
While many methods exist for measuring globalization, the simplest, most intuitive one that I have found is to consider flows or activities that can take place either within or across national borders, and then to figure out the international component as a percentage of the total. Let's consider, therefore, such measures for cross-border flows of information, of people, of products and direct investment, and of other types of capital as a way of getting a handle on the cross-border integration of these different types of markets.5
An obvious place to start is with the cross-border component of mail and phone calls, since these ways of communicating gave rise to the first truly international organizations nearly 150 years ago—the Universal Postal Union and the International Telecommunications Union. What percentage of letters physically mailed in the world do you think cross national borders? The answer is about 1 percent. But of course, that's snail mail; the big improvements in communications in the last 150 years have been electronic. So what percentage of telephone calling minutes do you think involve international calls? Twenty percent? Thirty? The answer is less than 2 percent.6 In our high-tech, überconnected world, practically all of our calls are still restricted to people inside our own country.
Okay, but that is still plain old telephone service. Surely Internet traffic is mostly integrated across borders. Not exactly. You'll be surprised to learn that an estimated 17 to 18 percent of all Internet traffic was routed across a national border between 2006 and 2008.7 Moreover, while cheap, high-bandwidth connectivit
y has led many firms to offshore IT services to India and elsewhere, the virtual counterpart of our comedic example, the volume still accounts for less than 20 percent of the addressable market—which might itself triple in size by 2020.8
Comprehensive data on the cross-border spread of content are (even) harder to come by. Thanks to Hollywood's dominance, it seems that foreign films account for about half of box office revenues worldwide (albeit a lower fraction of tickets sold), but this also seems to be an anomaly.9 A look at magazines, for instance, reveals a very different situation. Even for an avowedly international newsweekly such as Time, only about 20 percent of its readership is outside its U.S. home base.
Somewhat more systematic data are available for news coverage. According to one study, 21 percent of U.S. news coverage was international, of which 11 percent dealt with U.S. foreign affairs (including topics such as U.S. involvement in international conflicts or diplomacy) and 10 percent with foreign affairs not involving the U.S.10 In Europe, about 38 percent of news was international, but of this, almost half related to coverage of news stories involving other countries within Europe.11 And what about foreign news sources? Calculations across thirty countries suggest that almost every country gets all but 5 percent of its news from domestic sources—prompting the person who undertook the research to propose that goods still travel much farther than ideas.12
Broadly similar patterns seem to apply to technological information. Of patents filed in rich OECD countries—which still account for about 95 percent of patents worldwide—foreign-owned patents represent only 15 percent of the total, and the percentage of patents actually involving international cooperation in research is only half that.