A Future Perfect: The Challenge and Promise of Globalization

by John Micklethwait

  Let Them Eat Wireless

  In the meantime, wireless technology is allowing the world’s poorest people to plug themselves into the global economy, with huge benefits to their standard of living. Four-fifths of the world’s mobile-phone subscribers still live in the rich world, but by far the fastest growth in mobile-phone ownership is in the developing world. By 2002, the mobile boom had finally helped push the least developed countries above the threshold of one phone subscriber per one hundred inhabitants.

  In the rich world, people tend to use mobile phones because they are convenient. In much of the developing world, they use them because they are the only types of phones available: There are forty million people currently waiting for fixed-line telephones. In places such as Russia and Moldavia, the average wait is ten years; in isolated areas, the wait is an eternity, because it makes no economic sense for any company to lay fixed lines to serve only a handful of people. Not that long ago, hardly anybody in China had access to a phone. Now China is the world’s second-biggest market for mobile phones. The average Chinese subscriber spends four hundred minutes on the phone each month, three times as much as the average American. In April 2002, a GSM wireless system was launched in Afghanistan.

  Unlike landline firms, cellular operators do not have to dig holes in the ground and lay expensive copper wire to get to poor or isolated customers. “You simply put up the masts and you are in business,” says Nape Maepa, South Africa’s head telecommunications regulator. In Argentina, it took Lucent Technologies just five months to install eight hundred base stations in some of the remotest bits of the country—enough to bring telephone service to half a million previously isolated people. Foreign telecommunications firms have also been prepared to invest in other countries that are not rated by investment services, such as Cambodia, the Democratic Republic of the Congo, and Rwanda.

  p. 43 Mobile phones are also easier to tailor to poor lifestyles. Rather than employ the standard fixed-line process of issuing monthly bills, wireless companies often work with prepaid cards. The price of a mobile handset is still steep, of course, but its cost and the service-connection fee is lower than the installation charge for a new fixed line in many developing countries (assuming you can get one). And mobile costs—like those of all things digital—are coming down all the time.

  Bangladesh is a telephone desert: There is only one fixed-line phone for every 275 people (compared with one for every fifty in neighboring India), and about 90 percent of the country’s sixty-eight thousand villages have no access to a phone whatsoever. This is changing thanks to a new breed of entrepreneur: “phone ladies” who rent out time on mobile phones. The ladies buy state-of-the-art cell phones for as much as $375 using loans made available by the Grameen Bank, a private firm that specializes in microlending. Since it started in 1997, the program has supplied three hundred villages with phones. In five years’ time, everybody in the country should be within two kilometers of a mobile phone.

  For Bangladeshi farmers, the phones provide liberation from middlemen. Rather than having to accept a broker’s price, Bangladeshi farmers go to the phone ladies to find out the fair value of their rice and vegetables. The cocoa and coffee farmers of the Ivory Coast used to sell their products to middlemen in Abidjan and Yamoussoukro at a fraction of their market value, because isolation and illiteracy meant that they knew no better. Now they club together to buy mobile phones so that they can check the current prices of cocoa and coffee on the London commodity markets and get a better deal.

  Wireless Is Tireless

  It might be a stretch to claim that all the technological elements that are bringing the world together are present in Jackson Thubela’s phone shop in Soweto, but most of them are there in some form or other. To begin with, the phone shop itself is that quintessential symbol of globalization, an old shipping container. Though Thubela, a gold-toothed twenty-year-old who often wears an Adidas tracksuit, cannot muster an air-conditioning unit, there is at least an electric fan; and the pictures of rappers such as Tupac Shakur and Wu-Tang Clan might make some Americans feel that they were in a teenager’s bedroom. For some reason, many of the customers who throng Thubela’s shop are neatly dressed flight attendants—reminders of the importance of transportation. And, of course, tethered with a chain to each of the makeshift cubicles is the shop’s main product: a mobile phone.

  p. 44 Soweto contains a remarkable number of phone shops, which rent out time on the phone. Thubela used to have landline phones, but they kept breaking down—largely because thieves made off with the copper wire—and the old landline monopoly, Telkom, did not bother to send people to fix them. The mobile phones, he insists, are much better. After school hours, the lines can be ten people long. The phone business provides Thubela with a reasonable living (which he supplements by selling loose cigarettes) and also attracts a number of other businesses. A cobbler has set up shop just outside the container. Next to him, a man in Muslim dress sells individual sweets.

  When the previous South African government licensed two firms, Vodacom and Mobile Telephone Networks Holdings (MTN), to provide digital service in 1993, it insisted that they install thirty thousand pay phones in underserved areas over the following five years. Vodacom estimates that in the process it has created as many as five thousand jobs in local communities. The companies have even installed phones in areas that are so remote that the devices have to be powered by car batteries and solar energy.

  Soweto has not only a vast network of phone shops (one of the best kept is just opposite Nelson Mandela’s first house) but also a growing number of black South Africans who have bought their own mobile phones. Pratty Mphuthi is not a rich woman. She has raised four daughters on her own and now runs a sports bar and catering business. But she has a mobile phone of her own (a tiny Motorola), as do three of her four daughters, including her nine-year-old. “A mobile phone is a necessity if you are a busy person,” she explains. The phone not only allows her customers to contact her when she is on the move but also means that her nine-year-old can tell her if she has to stay late at school for extra lessons.

  Plenty of people who are much poorer than Mphuthi is also have phones. In many areas of Johannesburg, the streets are lined with homemade signs offering basic services such as housepainting or gardening that include cellphone numbers. Often, several poor people club together to buy a phone and a phone card. Even after the card runs out, they can continue to receive incoming calls for nothing.

  It is a very long way from Soweto to Marcus de Ferranti’s house. In Soweto, horses and cows still wander nonchalantly down the side streets, and most of the expensive cars are being carted off to chop shops to be torn apart for spare parts. Yet Ferranti and Thubela are part of the same revolution. Indeed, Ferranti’s customers include not just phone firms from the third world but also the Western world’s closest equivalent to phone shops: small companies, based in immigrant-rich cities such as Bradford, that offer special phone services and calling cards for people to phone home.

  p. 45 More fundamental, both Ferranti and Thubela have found that they can acquire a remarkable number of customers by going with the grain of modern technology and against the telecommunications establishment. Both see themselves primarily as entrepreneurs, working from home or a trailer in the street, rather than loyal company men. And both men are using technology, in their different ways, to make the world a much smaller place.

  3 – The Dirty Dollar

  p. 46 VISITING SOUTH KOREA at the end of 1998 was rather like visiting a once-proud friend who has suddenly been engulfed by a profound identity crisis. Eighteen months previously, South Korea had boasted one of the world’s most admired economies, and its big industrial conglomerates, the chaebol, were being hailed as new models of corporate development. By the end of 1997, in the wake of the collapse of the Thai baht, the value of South Korea’s currency (the won) had been halved, the chaebol were pleading with bankers for credit, and the government had been forced to beg fifty-eight
billion dollars from the IMF. Throughout 1998, the misery continued: The economy contracted by nearly 8 percent, some of the country’s best-known companies went bankrupt, and industrial production suffered its biggest drop since the Bank of Korea started keeping statistics in 1953.

  The most dramatic place to see the effects of the resulting identity crisis was on the border with North Korea. The South has long reserved its bravest face for the border. The road from Seoul to the demilitarized zone is one of the finest in the country—a many-laned highway that is meant to symbolize both the South’s economic might and the belief that the country will eventually be unified again. The air at the border is filled with the sounds of jaunty pop songs doing battle with the North’s martial hymns. One giant billboard proclaims the South a “land of opportunity.” Another reads simply, “ten million cars.”

  Even in December 1998, few of the South Koreans who visited the DMZ seemed tempted to heed the invitations from Kim Jong Il, broadcast every few minutes over loudspeakers, to “come join us in paradise.” Yet the face p. 47 that South Korea turned northward was not as brave as it once had been. A guide to the border zone admitted rather shamefacedly that his country had just taken down a billboard that had boasted of a national per-capita average income of more than ten thousand dollars. The young soldiers admitted that they were worried about their futures. After military service and university, many could have expected a safe billet in one of the chaebol. Now they thought their best chances lay in getting jobs with foreign companies. Several had friends who were suffering from a fate that had been unknown in their country a year previously: life on the dole.

  This identity crisis was evident throughout the country. One moment you were shown the sparkling new financial district; the next, Seoul Station, a granite edifice that is home to a growing number of homeless people. The air was thick with disturbing stories: The staff of one hospital in Seoul, for example, turned up to work only to find that the place had gone bankrupt and everything—including the beds—had been removed by creditors. Ordinary people alternated between vainglory and humility, between foreigner bashing and foreigner worship, with disconcerting rapidity. Koreans sometimes blamed their misfortunes on foreigners, particularly foreign currency speculators and bankers. But on the other hand, they thought that foreigners held the keys to solving their country’s problems. The number of children enrolled in language classes had shot up since the economic crisis began.

  One foreign institution attracted the most angst. An easy way to meet an untimely death in Seoul would have been to wander into a bar late at night and casually mention that you work for the International Monetary Fund. When the IMF first put its rescue package in place, huge crowds of strikers—some of them wearing bandannas emblazoned with the slogan IMF = I’M FIRED—packed the streets of the big cities. One television program was about “IMF orphans”—children who were being brought up in state orphanages because their parents had either committed suicide or abandoned them in the wake of the crisis. (The number has reportedly trebled.) Journalists dub the recent period of national humiliation “the IMF era.” Pop psychologists diagnosed a condition called “IMF phobia.”

  On the other hand, even in 1998, the Koreans had plainly begun to take to heart the institution that has brought them so much misery. It seemed as if every other restaurant and shop in Seoul was festooned with a banner on which the only roman letters were IMF. “IMF menus” were the cheapest menus. “IMF shopping” meant discount shopping. An “IMF meeting” was a cheap date, on which the partners “go Dutch.” One of the restaurants opposite Seoul Station had simply changed its name to IMF.

  p. 48 Even an outsider had to admit that the country’s schizophrenia was actually fairly logical. South Korea had every reason to think that it had been kicked in the teeth by its friends in Western finance. In 1960, the country had a per-capita GDP equivalent to that of Algeria and its third-largest export was wigs. In the following decades, it had become the world’s eleventh-largest economy, with an income per head equal to Portugal’s. South Korea had been admitted to the Organisation for Economic Co-operation and Development (OECD), the rich person’s club. Throughout the mid-1990s, the IMF repeatedly sang the country’s praises, and the World Bank went into ecstasies about its educational system. The international money markets gave it a higher credit rating than they gave to IBM.

  From this perspective, the only thing that changed in 1997 was that another Asian country, Thailand, got into trouble, and the foreign bankers who had once fallen over each other to lend to the chaebol panicked. The underlying economy did not change; nor did the chaebol. The previously heralded economic tiger became a symbol of “crony capitalism” for no better reason than that the markets suddenly changed. The chaebol’s long involvement in political corruption, previously barely mentioned in the glowing IMF reports, suddenly obliterated in importance all the figures lauding per-capita income and record microchip production. Suddenly, South Korean companies that had been able to cover their debts easily were asked to pay back twice as much (because the won had been halved). How, asked South Koreans, could any firm survive in such conditions?

  The markets’ attitude was not just fickle but downright hypocritical. Look, argued the South Koreans, at Long-Term Capital Management, an American hedge fund that was bailed out by its friends on Wall Street, while decent Korean firms were allowed to go [to] the wall. The IMF’s policies only exacerbated the crisis and also paved the way for Western firms to swoop in and buy cheap Korean ones. Meanwhile, as 1999 dawned, both the stock market and the currency began to recover—proof, if any was needed, that the international capital markets had briefly lost their heads.

  Many parts of this story are, indeed, hard to contest. The markets plainly exaggerated first Korea’s might, then its weakness. The IMF also deployed its tactics badly. But it was also clear, even to South Koreans in late 1998, that foreign capital markets were not solely to blame. The financial crisis had also revealed that much was rotten in Korea. Many South Koreans had long been uneasy about the country’s social contract, under which most citizens traded a certain amount of political and economic liberty in exchange for security, guaranteed by a slightly corrupt oligarchy. In December 1998, the rep. 49alization grew that this oligarchy was not just hopelessly corrupt but also not terribly clever.

  South Korea’s leaders had tried to buck the system—to get half pregnant, as several observers put it. The country had opened up its markets to foreign capital yet refused to regulate them according to foreign standards or to let foreign banks take over domestic ones. In 1996, South Korean banks showed bad-loan ratios accounting for just 1 percent of the country’s lending, forcing outsiders to guess how much higher the true figure was. The chaebol had used their political connections to bully banks into lending them far too much cheap money. They had diversified into far too many unrelated activities—what exactly is the connection between building offices and making underwear, for example?—and their enthusiasm for endless cross-subsidies meant that even the healthiest companies could be dragged down by their sick subsidiaries. Entrepreneurial young firms had never had room to grow.

  A fair if brutal self-examination was led by Kim Dae Jung, a longtime dissident who two decades before had been sentenced to death but who had been elected president at the same time that the reverberation from Thailand struck South Korea. Kim possessed a Thatcherite commitment to root-and-branch reform. He denounced the “collusive link between politicians and businessmen”; lamented “government influence over finance”; and promised to end the system of “government-controlled economic growth.” He led a wide-ranging campaign for economic liberalization. A welcome mat was put out for foreign companies. State-owned industries were privatized. The chaebol were ordered to concentrate on their core businesses through a sort of giant swap meet. Small businesses were encouraged. For Kim, openness to foreign capital was a matter not just of money but of democracy.

  Some Like It Hot

  The S
outh Koreans were not alone in their plight. Some of the most memorable images of the past decade have been provided by people grappling desperately with the harsh logic of “the markets.” In Britain on September 16, 1992, an ashen-faced Norman Lamont, Chancellor of the Exchequer, emerged from the Treasury looking rather like a hunted badger and explained that the global capital markets had driven the stately pound out of the European Monetary System. On January 12, 1999, the president of Brazil took refuge in a public lavatory at the São Paulo airport, took out his p. 50 mobile phone, and told the governor of the central bank to run up the white flag: The country’s currency was to be devalued the next morning. In 2002, Argentines rioted in angry frustration at the collapse of the peso.

  The best piece of street theater was provided by Vladimir Zhirinovsky during Bill Clinton’s visit to Moscow in September 1998. As the Clintons prepared to go to bed, the reactionary Russian appeared outside their hotel to denounce them. After a few earthy remarks about Monica Lewinsky, Zhirinovsky shouted to the jet-lagged president, “Your dollar is dirt, and this dirt is all over the world.” He then produced a dollar and demanded that his entourage burn it. They duly did.

  Everything about global capital markets seems to be breaking records these days. The amount of capital in circulation is greater than ever before. The speed of movement is faster, the ratio of capital to traded goods bigger, and the consequences of a mistake more devastating. But, as the experience of South Korea shows, figures probably underestimate the impact of the capital markets on the world. The markets are not just wiring economies together and altering the structures of companies but changing entire political systems. How new is this phenomenon? How complete is it? And is it something that we should fear or praise?