World 3.0

by Pankaj Ghemawat

  16. Markus Leibrecht, Michael Klien, and Ozlem Onaran, “Globalization, welfare regimes and social protection expenditures in Western and Eastern European countries,” Middlesex University Department of Economics and Statistics, discussion paper no. 140, April 2010.

  17. Geoffrey Garrett, “Global Markets and National Politics: Collision Course or Virtuous Circle,” International Organization 52, no. 4 (Autumn 1998): 787–824.

  18. Niels Bohr personal communication to Arthur Kantrowitz, cited in Arthur Kantrowitz, “The Weapon of Openness,” in B. C. Crandall and James Lewis, eds., Nanotechnology: Research and Perspectives (Cambridge, MA: MIT Press), 303.

  19. Freedom House, http://www.freedomhouse.org/template.cfm?page=439.

  20. Barry Eichengreen and David Leblang, “Democracy and Globalization,” NBER working paper 12450, August 2006.

  21. Adam Przeworski, “Democracy as an Equilibrium,” Public Choice 123, no. 3-4, (2005): 253–273.

  22. Peter T. Leeson and Andrea M. Dean, “The Democratic Domino Theory: An Empirical Investigation, “American Journal Political Science 53, no. 3 (2009): 533-551, and Daniel Brinks and Michael Coppedge, “Diffusion Is No Illusion: Neighbor Emulation in the Third Wave of Democracy,” Comparative Political Studies 39, no. 4 (2006): 463.

  23. Center for Systemic Peace, “Global Conflict Trends,” September 11, 2010, http://www.systemicpeace.org/conflict.htm.

  24. “Quick & Dirty Guide to Wars in the World,” StrategyPage, August 14, 2005, http://www.strategypage.com/qnd/wars/articles/20050814.aspx.

  25. Barret Sheridan, “Somalia Illustrates the High Cost of Failed States,” Newsweek, August 20, 2009, and Lisa Chauvet, Paul Collier, and Anke Hoeffler, “The Cost of Failing States and the Limits to Sovereignty,” United Nations University, World Institute for Development Economics Research, research paper no. 2007/30 ( 2007).

  26. Markus Brückner and Hans Peter Grüner, “The OECD's Growth Prospects and Political Extremism,” Vox, May 16, 2010, http://www.voxeu.org/index.php?q=node/5047.

  27. Rein Taagepera, “Expansion and Contraction Patterns of Large Polities,” International Studies Quarterly 41, no. 3 (September 1997): 475–504.

  28. It is worth noting that such reversals over a century or even longer have been experienced in the past, mostly as a consequence of the collapse of major empires.

  29. Alberto Alesina et al., “Economic Integration and Political Disintegration,” American Economic Review 90 (December 5, 2000): 1276–1296.

  30. “El fallo del TC catapulta el respaldo a la independencia, que roza el 50%,” La Vanguardia, June 7, 2010, http://www.lavanguardia.es/politica/noticias/20100718/53967434806/el-fallo- del-tc-catapulta-el-respaldo-a-la-independencia-que-roza-el-50.html.

  31. “Hotbeds of Separatism in Modern Europe,” Globalia Magazine, August 21, 2009, http://www.globaliamagazine.com/?id=802.

  32. See Alberto Alesina, Arnaud Devleeschauwer, William Easterly, Sergio Kurlat, and Romain Wacziarg, “Fractionalization,” Graduate School of Business, Stanford University, research paper no. 1744, June 2002, and Alberto Alesina, William Easterly, and Janina Matuszeski, “Artificial States,” Center for Global Development working paper no. 100, September 2006, 13.

  33. Sudan would also qualify as being the locus of a civil war by many definitions if not the CSP's. And there are, of course, countries that are gravely troubled even though they don't make the list here, such as Somalia, Yemen, and Afghanistan.

  34. The other five most fragile countries in the top thirty cluster in West/South Asia.

  35. Benjamin M. Friedman, The Moral Consequences of Economic Growth (New York: Knopf, 2005), 3–18.

  Chapter Eleven

  1. BBC News, “Swiss Voters Back Ban on Minarets,” November 29, 2009, http://news.bbc.co.uk/2/hi/8385069.stm.

  2. Anne Nugent, “The Irish Top the Charts on Alcoholic Drinks Expenditure,” Euromonitor International, October 29, 2003, http://www.euromonitor.com/The_Irish_top_the_charts_on_alcoholic_drinks_expenditure.

  3. Google Insights for Search, covering the period from 2004 to December 2010, accessed November 12, 2010.

  4. On Argentine mental health, see “Its GDP Is Depressed, but Argentina Leads World in Shrinks Per Capita,” Wall Street Journal, October 19, 2009, http://online.wsj.com/article/SB125563769653488249.html. On Brazilian beauty products, see Geoffrey Jones, Beauty Imagined. A History of the Global Beauty Industry (Oxford and New York: Oxford University Press, 2010).

  5. Ronald Inglehart and Wayne E. Baker, “Modernization, Cultural Change, and the Persistence of Traditional Values,” American Sociological Review 65 (February 2000): 19–51.

  6. “McDonald's Delivers Another Year of Strong Results in 2009,” McDonald's press release, January 22, 2010, http://phx.corporate-ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1377920&highlight.

  7. “Yum! Brands Inc. Raises Full Year 2010 EPS Growth Forecast to 14% from 12%,” Yum! press release, October 5, 2010, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjUwNDd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1.

  8. Shelley Emling, “Europe Embraces Coke Culture,” Miami Herald, October 16, 2007. Also see my previous book, Redefining Global Strategy (Boston: Harvard Business School Press, 2007), 25.

  9. Marc Gunther, “MTV's Passage to India,” Fortune, August 9, 2004.

  10. Fernando Ferreira and Joel Waldfogel, “Pop Internationalism: Has a Half Century of World Music Trade Displaced Local Culture?” NBER working paper 15964, May 2010.

  11. Tyler Cowen, Creative Destruction: How Globalization Is Changing the World's Cultures, (Princeton: Princeton University Press, 2002), 1–18.

  12. Amartya Sen, “How to Judge Globalism,” American Prospect, January 1, 2002, http://www.prospect.org/cs/articles?article=how_to_judge_globalism. This paragraph draws on material in his article.

  13. Joseph Kahn and Daniel J. Wakin, “Western Classical Music, Made and Loved in China,” New York Times, Monday, April 2, 2007.

  14. Andrew Druckenbrod, “China Captures Music World's Ear,” Pittsburgh Post-Gazette, June 28, 2009.

  15. Karl Marx, “The British Rule in India,” New-York Daily Tribune, June 25, 1853 (accessed at http://www.marxists.org/archive/marx/works/1853/06/25.htm).

  16. Anthony Appiah, “The Case for Contamination,” New York Times Magazine, January 1, 2006.

  17. Herodotus, The Histories, translated by Aubery de Selincourt, revised by John M. Marincola (New York: Penguin Books, 2003), 187.

  18. Deborah Ball and Anita Greil, “Swiss Referendum Stirs Debate About Islam,” The Wall Street Journal Europe, November 6, 2009.

  19. Imogen Foulkes, “Minaret Ban Marks Start of Tough Swiss Debate on Islam,” BBC News, November 30, 2009, http://news.bbc.co.uk/2/hi/8386456.stm.

  20. The Pew Global Attitudes Project, World Publics Welcome Trade—But Not Immigration (Washington, DC: Pew Research Center, October 4, 2007).

  21. Specifically, I'm referring to the degree of trust as self-reported in response to the World Values Survey question: “Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?”

  22. The most notable apparent exception is that religiosity seems to be negatively associated with social trust. Niclas Berggren and Christian Bjørnskov, “Does Religiosity Promote or Discourage Social Trust? Evidence from Cross-Country and Cross-State Comparisons,” Ratio working papers 142, Ratio Institute, 2009.

  23. Questions on trust have been incorporated in the Eurobarometer surveys since 1974.

  24. Survey respondents were actually asked to rate the citizens of other countries as well as their own on a spectrum ranging from “no trust at all” to “a lot of trust.” An academic article based on this survey summarizes data about the percentage of citizens of each West European country surveyed who report trusting others “a lot.” See Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Cultural Biases in Economic Exchange?” Quarterly Journal of Economics 124, no. 3 (August 2009): 1095–11
31. The data presented in figure 11-3—median values when it comes to trust in citizens of other countries—is actually based on a previous version of the paper downloadable at http://economics.uchicago.edu/download/cultural_biases.pdf.

  25. Note that with twenty-nine countries in the full sample, the generalized trust levels are dominated by opinions of foreigners rather than domestic ones, e.g., what foreigners think of Swedes versus what Swedes think of Swedes, even though the latter is included in the computation.

  26. On the first three flows, see Guiso, Sapienza, and Zingales, “Cultural Biases in Economic Exchange?” On venture capital investment, see Laura Bottazzi, Marco Da Rin, and Thomas Hellmann, “The Importance of Trust for Investment: Evidence from Venture Capital,” discussion paper 2010-49, Tilburg University, Center for Economic Research, 2010.

  27. On the decline of European nationalisms, see Mattei Dogan, “The Decline of Nationalisms Within Western Europe,” International Social Science Journal 136 (May 1993): 177–198.

  28. Carlos David Navarrete and Daniel M. T. Fessler, “Disease Avoidance and Ethnocentrism: The Effects of Disease Vulnerability and Disgust Sensitivity on Intergroup Attitudes,” Evolution and Human Behavior 27 (2006): 270. Note that further support for this view is reflected in the finding that in-group favoritism is heightened among women in the first trimester of pregnancy, when immune responses are suppressed, as described in Carlos David Navarrete, Daniel M. T. Fessler, and Serena J. Eng, “Elevated Ethnocentrism in the First Trimester of Pregnancy,” Evolution and Human Behavior 28 (2007): 60–65.

  29. Navarrete and Fessler, “Disease Avoidance and Ethnocentrism,” 271.

  30. See Chad Joseph McEvoy, “A Consideration of the Sociobiological Dimensions of Human Xenophobia and Ethnocentrism, 1995, http://www.sociosite.net/topics/xenophobia.php (accessed November 23, 2010).

  31. Robert Axelrod and Ross A. Hammond, “The Evolution of Ethnocentric Behavior,” revised version of paper prepared for delivery at Midwest Political Science Convention, April 16, 2003.

  32. University of California–Los Angeles, “Ewwwww! UCLA Anthropologist Studies Evolution's Disgusting Side,” ScienceDaily, March 29, 2007, http://www.sciencedaily.com/releases/2007/03/070328101621.htm.

  33. W. F. Ogburn, “Cultural Lag as Theory,” Sociology and Social Research, January–February 1957, 167–174, as cited in Benoit Godin, “Innovation Without the Word: William F. Ogburn's Contribution to Technological Innovation Studies,” Project on the Intellectual History of Innovation, working paper no. 5, 2010.

  34. Another source of some revealed favoritism data is from the Eurovision contest.

  35. Guiso, Sapienza, and Zingales, “Cultural Biases In Economic Exchange?”

  36. Less direct evidence is provided by a study showing that countries characterized by high aversion to uncertainty export disproportionately less to distant countries, with which they are presumably less familiar. See Rocco R. Huang, “Distance and Trade: Disentangling Unfamiliarity Effects and Transport Cost Effects,” European Economic Review 51, no. 1 (January 2007): 161–181.

  37. Mikael Hjerm, “Education, Xenophobia and Nationalism: A Comparative Analysis,” Journal of Ethnic and Migration Studies 27, no. 1 (January 2001): 37–60.

  38. Nancy R. Buchan, Gianluca Grimalda, Rick Wilson, Marilynn Brewer, Enrique Fatas, and Margaret Foddy, “Globalization and Human Cooperation,” Proceedings of the National Academy of Sciences 106, no. 11 (March 17, 2009): 4138–4142; and Nancy R. Buchan, Marilynn Brewer, Gianluca Grimalda, Rick Wilson, Enrique Fatas, and Margaret Foddy, “The Role of Social Identity in Global Cooperation,” in press, http://mooreschool.sc.edu/UserFiles/ Faculty/155/Buchan%20vita%201-10%20(2).pdf.

  39. W. W. Maddux and A. D. Galinsky, “Cultural Borders and Mental Barriers: The Relationship Between Living Abroad and Creativity,” Journal of Personality and Social Psychology 96, no. 5 (2009): 1047–1061.

  40. Niclas Berggren and Henrik Jordahl, “Free to Trust? Economic Freedom and Social Capital,” Kyklos 59, no. 2 (2006): 141–169, and Richard M. Locke, “Building Trust,” unpublished manuscript, Massachusetts Institute of Technology, 2002.

  41. “China and Overseas Migration,” Asia Sentinel, July 16, 2010.

  42. Martin S. Edwards, “Public Opinion Regarding Economic and Cultural Globalization: Evidence from a Cross-national Survey,” Review of International Political Economy 13, no. 4 (October 2006): 587–608.

  Chapter Twelve

  1. John Maynard Keynes, “National Self-Sufficiency,” The Yale Review 22, no. 4 (June 1933): 755–769.

  2. In John M. Keynes, “Some Economic Consequences of a Declining Population,” Eugenics Review 29 (1937): 13–17, the author writes: “A change-over from an increasing to a declining population may be very disastrous.”

  3. Warren J. Samuels, The Chicago School of Political Economy (New Brunswick, NJ: Transaction Publishers, 1993), 8.

  4. These arguments are associated, respectively, with Harold Demsetz and Nobel Prize winners Ronald Coase and Friedrich Hayek (the latter an economist of the Austrian school who taught at the University of Chicago but never joined its Economics Department).

  5. Chicago Nobel Prize winner George Stigler is particularly famous for his work on the topic of regulatory capture.

  6. Richard E. Caves, “International Trade and Industrial Organization: Introduction,” Journal of Industrial Economics 29, no. 2 (December 1980): 113–114.

  7. James Brander quoted in Richard E. Baldwin, “Are Economists' Traditional Trade Policy Views Still Valid?” Journal of Economic Literature 30 (June 1992): 804.

  8. See, for instance, James A. Brander and Barbara J. Spencer, “International R&D Rivalry and Industrial Strategy,” Review of Economic Studies 50 (1983): 707–722. Brander and Spencer actually worked—as is traditional in trade theory—with just two countries.

  9. For an informal recent account, see Paul R. Krugman, “New Trade Theory and New Economic Geography,” October 16, 2008, http://economistsview.typepad.com/ economistsview/2008/10/new-trade-theor.html; and for an academic assessment of new trade theory from the late 1980s, see Paul Krugman, “Industrial Organization and International Trade,” chapter 20 in Handook of Industrial Organization, volume 2, eds. R. Schmalensee and R. D. Willig (Amsterdam: Elsevier Science Publishers B.V., 1989), 1179–1223.

  10. Thus, by the mid-1980s, 50%-60% of the articles on industrial organization published in the top economics journals used game-theoretic methodologies, compared to 20% or less in the mid-1970s. See Pankaj Ghemawat, Games Businesses Play (Cambridge, MA: MIT Press, 1997): 1–28.

  11. My article “The Snowball Effect,” which revisited the Harvard-Chicago debate from a game-theoretic perspective, finally appeared—as the lead article—in the International Journal of Industrial Organization in 1990.

  12. Alfred E. Kahn, The Economics of Regulation: Principles and Institutions, volume 1 (Cambridge, MA: MIT Press, 1988), xxxvii.

  13. Hayek himself was more ardent in his excoriation of central planning than in his enthusiasm for free markets: as he wrote, “Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez-faire capitalism.” See Friedrich A. Hayek, Constitution of Liberty (Chicago, IL: University of Chicago Press, 1960), 502–503. But Friedman continued to insist on that “rule of thumb.”

  14. Lawrence H. Summers, “The Great Liberator,” New York Times, November 19, 2006, http://www.nytimes.com/2006/11/19/opinion/19summers.html?_r=1.

  15. See Hayek's 1944 book, The Road to Serfdom (Chicago, IL: University of Chicago Press, 1944) and Friedman's 1980 TV series, Free to Choose, which popularized the ideas of both.

  16. Paul A. Samuelson, “Heed the Hopeful Science,” New York Times, October 23, 2009, http://www.nytimes.com/2009/10/24/opinion/24iht-edsamuelson.html.

  17. Amartya Sen, “Capitalism Beyond the Crisis,” New York Review of Books, March 26, 2009, http://www.nybooks.com/articles/archives/2009/
mar/26/capitalism-beyond-the-crisis/.

  18. There is also, as discussed in chapter 1, a fourth possibility, World 0.0, which characterized our feudal past and is visible today in failed states and ones controlled by robber barons—categories with significant overlap.

  19. Expedients for accomplishing this objective include external scanning, focusing on changes, analogizing, altering mental models, and gestalt switching. For further discussion, see chapter 4 of Pankaj Ghemawat, Strategy and the Business Landscape (Englewood Cliffs, NJ: Pearson Prentice Hall, 2009).

  20. See Jagdish Bhagwati and V. K. Ramaswami, “Domestic Distortions, Tariffs, and the Theory of Optimal Subsidy,” Journal of Political Economy 71 (1963): 44–50.

  21. In addition, the Bhagwati-Ramaswami analysis is predicated on a model that ignores some of the sources of market failures and fears focused on in this book, which takes an inductive rather than theoretical look at the nexus between those failures/fears and cross-border integration of markets.

  Chapter Thirteen

  1. For evidence on flows of air passengers, Internet traffic, and other service sector connections, see respectively, R. Guimera, S. Mossa, A. Turtschi, and L. A. N. Amaral, “The Worldwide Air Transportation Network: Anomalous Centrality, Community Structure, and Cities' Global Roles,” Proceedings of the National Academy of Sciences 102, no. 22 (May 31, 2005): 7794–7799; Anthony M. Townsend, “Network Cities and the Global Structure of the Internet,” American Behavioral Scientist, special issue, “Mapping the Global Web,” February 2001; and Peter J. Taylor and Robert E. Lang, “U.S. Cities in the ‘World City Network,’” Metropolitan Policy Program, Brookings Institution Survey Series, February 2005, 1–17.

  2. Chamber of Commerce, Industry, and Services of Andorra, “Economic Report, 2008,” 35.

  3. Associacio de Bancs Andorrans, “Andorra and Its Financial System 2009,” 58.

  4. Figures in this paragraph, unless otherwise stated, are drawn from the CIA World Factbook and U.S. State Department Web site. See http://www.cia.gov/library/publications/the-world-factbook/geos/an.html and http://www.state.gov/r/pa/ei/bgn/3164.htm (both accessed November 19, 2010)