p. 35 Almost every form of innovation in transport seems to help globalization, often in fairly subtle ways. Faster planes (not to mention fewer rules about who can fly them and when) mean that no factory is more than a day and a half away, thus restricting even the most independent local manager from defying the head office. Meanwhile, people are more willing to be posted abroad if they know that they can get back home quickly. How many reluctant spouses have been persuaded that a place is not as far away as it seems? Twenty years ago, the idea of flying from New York to London for the weekend to attend a friend’s wedding would have been considered the height of decadence. Now secretaries and plumbers do it.
The Holy Trinity
The computer, the telephone, and the television are not the whole technological story, but they are the three things that stand out the most. That is partly because they are attracting the most investment. Back in 1980, only about a tenth of the equipment budgets of American firms was spent on information technology; now it is close to half. But these three items are also the cornerstones of the information age (if we can take the liberty of mixing a preindustrial metaphor with a postindustrial cliché). The effect of television on globalization is the subject of chapter 10. That leaves the computer and the telephone. To what extent are they driving globalization?
Neither device is exactly a spring chicken. The telephone is more than a century old. The computer is older still, if you take Charles Babbage’s counting machine as the first computer; and even if you think the computer age did not begin until the Altair 8800, the first mainstream personal computer, the PC is rapidly approaching middle age. Arguably, both instruments went global only in the 1990s. By 2002, there were more than three hundred million PCs with web browsers on the planet—roughly one for every twenty-four people—and although about 40 percent of them are in America, that proportion is falling. As long ago as 1998, some local surveys reckoned that as many as one in ten families in Shanghai and Beijing had a PC.[5] (The machines cost around half a year’s pay, but the Chinese tend to be big savers and their children—the bossy little emperors—are notoriously demanding.)
This ubiquity would mean very little without two things: digitalization in general and the Internet in particular. Nowadays, virtually everything—voices on telephones, pictures on screens, even management decisions—can be converted into ones and zeroes and then stored or transmitted. Indeed, if there is such a thing as a universal language, it is not English but p. 36 binary: A Chinese computer speaks exactly the same language as a Spanish one, as well as the same one as a Spanish digital phone.
In 1990, only a few academics had even so much as heard of the Internet; by 1999, 200 million people were using it. The World Wide Web not only allows people to access a vast storehouse of information from almost anywhere in the world but also allows all sorts of businesses to become borderless. In 1998, John Chambers, boss of Cisco Systems, summarized the potential power of the Internet to Congress:
The Internet will change how people live, work, play and learn. The Industrial Revolution brought together people with machines in factories, and the Internet revolution will bring together people with knowledge and information in virtual companies. . . . It will promote globalization at an incredible pace. But instead of happening over 100 years like the Industrial Revolution, it will happen over seven years.[6]
It is at this point that skepticism starts to intrude. Only seven years before Chambers spoke to Congress, other technoenthusiasts were talking excitedly about the way that every home would soon have video on demand. Today, people continue to fork out small fortunes for overdue rented videotapes. The fact that more than half the users of the Internet live in one country—the United States—means that its role as a global medium is limited. Even in the United States, the Internet is not changing business as radically as the likes of Chambers imagine. If consumers want to buy books, computers, or even some shares, they may well use the Internet, but many businesses still think of the Internet as something of a toy.
One immediate reason for caution is that there is still a shortage of the bandwidth necessary to deliver many services. Other hangups have as much to do with regulation and corporate psychology as with technology. In 1996, for example, the American government deregulated its local communications market. But instead of building fiber-optic networks or launching cable-television systems, the so-called Baby Bells spent most of the next few years buying each other up. It was only once AT&T bullied its way into the market by buying most of America’s cable-television systems that there were some signs of movement. Even now the final mile to the home remains largely unbuilt.
These glitches seem particularly glaring when considering how far ahead America is of most of the rest of the world. Europe has its strong points: Finland has the highest Internet penetration in the world. But in genp. 37eral, the Continent (like Japan) spends less on technology than America does. In 1996, there were only fifty-two PCs for every one hundred European white-collar workers, barely half of the proportion in America.[7] In many parts of the developing world, there is a chronic shortage of telephones, let alone computers. Only about one in ten Brazilians and one in three hundred Africans has a fixed-line phone. There are fewer telephones in sub-Saharan Africa than in Manhattan and precious little infrastructure. A call from Lagos to Abidjan has to go via Europe.[8] For most people in the world, the World Wide Web is just another unobtainable American toy.
The Inevitability of Gradualness
Things are not going to change as quickly as the technologists hope. But change they will. Arthur C. Clarke argued that in general people exaggerate the short-run impact of technological change and underestimate the long-run impact.[9] This is what happened with the spread of electricity, and it could well happen again with the Internet.
Thomas Edison built his first power station in 1882. Yet by the turn of the century, only 3 percent of America’s factories used electric motors to drive their machinery, and by 1919 that figure had risen only to a third. The standards war between alternating and direct current was partly to blame, but the bigger problem was that manufacturers, such as Maytag, a pioneering washing-machine maker, did not use the technology properly: Electricity typically turned just a single steel shaft on the production line with various belts running off of it. It was only once they worked out how to use the new source of energy to power individual machines—something that Maytag undertook only in the mid-1920s—that productivity took off. In their book Prosperity, Bob Davis and David Wessel point out that a Maytag worker in 1926 made 48 percent more machines than his counterpart in 1923, and profits also soared.[10]
In the long term, the Internet will triumph through a mixture of technology and momentum. As communications keep improving—already a pair of fibers no thicker than a human hair can carry all the voice traffic passing across the Atlantic at any one moment—the pressure on incumbents to do something will mount. Increasingly, rather than going from switch to switch, packets of digital or voice data float through connectionless networks based on Internet protocols, with the only charges being ever-smaller access fees. For the telecommunications companies, that model not only means making huge new investments but also embracing a completely new p. 38 profit structure. Yet it is beginning to happen. In America, the Baby Bells talk about the need in the long term to turn themselves into “universal players”—big, integrated communications companies—or face extinction. In France and Germany, consumer choice is at last appearing.[11] Meanwhile, most developing countries have relieved their postal companies of responsibility for phone lines, and many of them are leapfrogging the rich world into the wireless future.
The other thing that is happening—again, slowly—is that the Maytags of today are beginning to embrace the Internet. General Electric, for instance, can certainly be accused of spotting the potential of the Internet late. But in 1999, Jack Welch hurled his whole company at what he calls the “biggest change I have ever seen.” Under the heading “destroyyourbus
iness.com,” a flurry of memos, speeches, and e-mails has carried one characteristically blunt message: Change your business model, or somebody else will.
GE started buying some of its supplies via on-line auction. A host of other items—aircraft-engine instruction manuals, color charts for plastics—all followed on-line quickly. But the real challenge is to use the Internet to reinvent rather than merely to streamline businesses. Many of GE’s first ideas involve reaching out to consumers much more directly. GE Power Systems, for instance, wants to become a “home aggregator.” That means it offers consumers a domestic, Internet-based version of the same sort of electricity-management service that it offers utilities: It will buy electricity for your home at the cheapest rate and also at the cheapest time of the day, remotely monitor your appliances (alerting you when your refrigerator needs checking), and allow you to turn things on and off via the Internet.
All this can only hasten globalization. One obvious feature of the Internet, as with many previous technological innovations, is its capacity to reduce the importance of geography. An early instance of this came when Netscape managed to “export” its software around the world without ever leaving California; another came when Amazon.com became a national bookseller without setting foot outside Washington State. Most of the clients of Infosys, one of India’s largest software firms, are in the United States. At the end of its working day, the office in the United States simply e-mails Infosys’s office in Bangalore with customer problems, and the company’s technicians solve them while the Americans slumber. What might happen when Hollywood studios use the Internet to distribute their films to cinemas for almost nothing? Or when schools begin to teach across borders? Britain’s Open University, which specializes in educating adults who have missed out on regular universities, runs Europe’s largest business school, thanks partly p. 39 to the Internet. Craig Barrett of Intel argues that the Internet will create “a seventh continent”—a world of one billion connected computers.[12]
One of the most important effects of the Internet will be on prices. There are already a few substances, such as gold and oil, for which there are established global values. The chances are that far more things will follow as the Internet spreads. At the very least, the Internet allows people to compare prices across borders, as they go window-shopping for Amazon’s books or the Gap’s khakis; at best, it allows them to buy from the best source anywhere in the world, gradually squeezing overpricing and inefficiency out of the market. The Internet does not even have to become ubiquitous for the law of “one price” to begin to assert its power. In the United States, only a small fraction of people buy their cars or shares from virtual dealers, but they use the prices offered on the Internet to demand lower rates from the dealers’ real-life equivalents.
The Conquest of Location
The Internet has so hogged the headlines that it has tended to obscure another spin-off from the telephone-television-computer triumvirate that might end up having a greater effect on globalization: the mobile phone. (This could simply be because the United States leads the world in computers but lags horribly in mobile phones.) If the drop in telephone prices and the development of the Internet is all about the death of distance, then the spread of mobile phones might be said to herald “the conquest of location.”
Until recently, one of the worst things about the tyranny of place was that, in an age of information, you lost power every time you left your house or office. You became like the idiot in Woody Allen’s Play It Again, Sam who, on entering a restaurant, immediately called his office to tell them where he was. Now companies such as Nokia talk about people being able to live in “a personal bubble” of data that they can take from place to place. Even more excitingly, people in the emerging world are using mobile phones to escape from isolation and perhaps even from poverty. Mobile phones started out as yuppie toys, but they are arguably doing more than any other device to provide poor people with chances to plug into the global marketplace.
None of these lofty concepts seems to be on the minds of the people milling outside Yodobashi Camera, in Tokyo’s frenetic Shinjuku district. Some of the people are ogling the store’s flat-screened televisions and sliver-thin laptops. But most of them are staring at phones, which come in a rainbow of colors, from pearl (the schoolgirls’ favorite) to silver (preferred by p. 40 salarymen) to camouflage green. There are cheap and cheerful “power carrots” for people who want to do nothing more than chat. There are “pocket boards” for people who want to swap short messages. And there are “smart phones,” such as the I-mode, that allow you to organize your life (address books and schedules are the least of it), consult the Internet, and check your e-mail.
Most of the people who crowd around the displays already have mobile phones: The salarymen carry them in holsters hanging from their belts, while many of the schoolgirls wear them around their necks. (“My phone is an extension of myself,” says one, giggling.) But some of them are interested in upgrading to the newest model—or at least dreaming about it—while others simply want to personalize the phones they have. The shop also boasts a melody machine that allows you to change your dial tone to, for instance, the latest popular song: “Girls Be Ambitious” by True Kiss Destination was a particular favorite in 1999.
The Japanese are ardent fans of their mobile phones, but they are not unique. The Germans talk about their “handies”; the Singaporeans call them “prawns,” because a popular model looked like one when opened; the Finns call them kännykkä or känny, meaning an extension of the hand. In eight countries, more than one third of the population owns mobile phones, with the figure reaching almost 100 percent among Scandinavian men in their twenties. In Hong Kong, the industry is already pushing the idea that any well-presented person has to have different mobile phones for different occasions. A decade ago, there were only around ten million mobile phones. By 2002, there were more than one billion of them, and their number would soon overtake that of wired phones.
Increasingly, the mobile-phone industry is going not just digital but highspeed digital with Internet access. The next few years will see the matings of three devices—mobile telephones, computers, and personal organizers—in order to create a single handheld device. As the number of wireless devices with Internet access increases, such devices might have a dramatic effect on the expansion of the Web in places such as Japan. Despite the slow transmission speeds, tiny screens, and inconvenient keyboards of many current devices, a surprising amount of mobile traffic is already data rather than speech. Finnish teenagers communicate as much by short messages (which are extremely cheap) as by talk. In Japan, the airwaves clog up at 10 P.M. with teenagers sending good-night messages to one another.
Smart phones are already allowing users to change how they use locations. Because such phones know where you are, they can provide you with p. 41 information about that place. Go into a shopping center in Hong Kong, and your phone can inform you where to get the best deals on everything from meals to Gucci loafers. Go into a bar and it will tell you—provided you have signed up for the dating service—whether there is anybody there matching your requirements. Soon, such products will be offered globally.
On balance, there is more reason to be gung ho about mobile phones than about the PC-based Internet. Yet technodeterminists should also note that the field is equally prey to government interference. Of course, the gadgets have over time become smaller, cheaper, and more useful, but Japan’s love affair with them, for example, dates from the 1994 removal of an absurd law that forbade Japanese from owning cellular handsets, forcing those who wanted them to rent them for a prohibitive thousand dollars a year instead. The spread of mobile phones is also usually linked to the amount of competition. In Asia, six of the nine biggest markets have at least five cellular firms. In much of Latin America, by contrast, cellular prices are as much as ten times those of local landline calls because governments have been reluctant to take on the established monopolies.
If you want an ind
ication of how much regulation can hold globalization back, look no further than the United States. America is the world’s largest single market for mobile phones, with eighty million subscribers at the end of 1999, but as a proportion of the population (30 percent), this is low. Americans have to put up with abysmal service (particularly in big cities at peak times) and exorbitant “roaming” charges, and (this really causes a laugh in Helsinki) they even have to pay for incoming as well as outgoing calls. The world’s technological powerhouse is anywhere from two to four years behind the sluggards in Europe—something underlined in 2000 by the record-setting merger of Britain’s Vodafone and Germany’s Mannesmann.
The blame for this lies in a series of bizarre decisions. Congress took years to auction off digital spectrums in the first half of the nineties. Rather than uniting around one digital standard, such as Europe’s GSM, America has several competing ones. Most other countries issue national cellular licenses, but the Federal Communications Commission (FCC) carved out 734 cellular markets the first time it auctioned off spectrum and 544 more the second time.
All this implies that Arthur C. Clarke has been proved right again: The conquest of location is some way off, but it will still happen. Iridium, a global satellite-based phone service, may have been one of the great business disasters of the 1990s, but the vision that inspired the company—allowing people to remain in contact wherever they go in the world—is not that far p. 42 from realization. Already the industry is pushing for a common “third-generation” standard for digital phones that can be used everywhere. In fact, it is probably only a matter of time before the term mobile phone becomes redundant, because there won’t be any other sort around. Many young people already see no point in paying for a fixed line when their lives are so peripatetic; as the price differential between fixed and cellular services disappears, this inclination will spread to the rest of the population, too. The time is not very far off when people will find it hard to understand why you ever had to call a place to talk to a person.
A Future Perfect: The Challenge and Promise of Globalization Page 8