To Wharton legal studies professor Philip Nichols, the word “globalization” is one of the most abused words in the English – or any other – language.
It has been used at different times to connote a change in technology, a change in psychology, a change in the way people form relationships, or a design by world leaders to accomplish more integration – or oppression, depending on your point of view.
As moderator of a panel discussion on the promise and perils of globalization at Wharton’s 4th Latin American Regional Alumni Meeting in Miami earlier this month, Nichols suggested his own definition of the word: how countries change their institutions to fit into the world.
Whatever the definition, one theme emerged clearly from the discussion: globalization represents change, or, at the very least, the need for change.
For Julio Ramirez, president of Latin America and the Caribbean Region for Burger King, the changes involved in globalization have been incremental. Burger King hamburgers throughout Latin America are flame broiled, just as they are in the United States. After all, open-flame cooking is Burger King’s “core equity,” the feature that distinguishes its hamburgers from those of competing chains. But, said Ramirez, don’t look for the standard Burger King breakfast fare – sausage and biscuits or pancakes – in Latin American restaurants. Instead, in a bow to local tastes and to fend off increasingly competitive local fast-food chains, Burger King restaurants there offer indigenous breakfast foods.
Then there’s hamburger delivery, Ramirez added. It seems the American pizza chain Domino’s charged into Mexico well ahead of its arch-rival Pizza Hut. Domino’s business model calls for pizzas to be delivered to the customer’s house rather than eaten in a restaurant. As a result, Mexican consumers early on decided that home delivery was part of the American fast-food dining experience. Now Burger King delivers hamburgers to front doors in six Latin American countries. Success, Ramirez concludes, takes different forms in different places.
While Burger King and thousands of other companies are operating in local markets around the world, much of the discussion at the conference focused not on globalization through adaptation, but on the contentious issue of international trade and the changes that are necessary to make it work better. The consensus was that governments speak highly of the benefits of more open trade, but then turn around and protect their own industries that are being threatened by more efficient producers. The distinction is particularly true, said Latin American participants, of developed countries that protect their producers from competitors in less-developed countries.
Ira. S. Shapiro, a trade attorney and former general counsel to the Office of the United States Trade Representative, conceded that the United States has a reputation for overusing and abusing antidumping laws. While acknowledging that economists generally agree that consumers are better off with more open trade, “the political reality is that governments protect their producers,” he said. Noting that the U.S. Congress barely approved the trade liberalizations negotiated in the Uruguay Round in the 1990s, Shapiro said trade “is extraordinarily contentious and somebody is always aggrieved.”
Even developing countries aren’t immune to competition. The process of globalization is creating intense competition that governments are no longer able to manage, said Jorge Montealegre, an investor in Costa Rica. Mexico, for instance, did many things right, diversifying its economy away from oil, creating incentives to bring manufacturing plants to the country and participating in the North American Free Trade Agreement. Yet some of the factories that were set up in Mexico in the last decade or more are now closing as companies rush to move manufacturing to China, with its much cheaper labor. And Central America’s burgeoning textile business will be threatened when quotas come off a few years from now, opening the possibility that China will win more of that business, too. “In globalization, nobody is in charge,” Montealegre said.
The trade discussion, dominated as it was by talk of country-versus-country and company-versus-company, prompted one member of the audience to argue that globalization doesn’t exist. “Country and company positions are very individualistic,” he said, and don’t represent a truly global economic picture. True globalization demands “geographically neutral” decision-making by companies and governments, something that clearly isn’t happening on a broad scale. To be truly global, he suggested, companies must have directors and managers from around the world. “Forget globalization. What we really need to talk about is international trade.”
But Shapiro, arguing that globalization is not a myth, countered that the process of globalization “doesn’t wipe out national interests or parochial corporate interests.” He cited as evidence that globalization is a reality the remarkable advances in the past several years in communications, technology and transportation that have changed the way the world works. Only recently, he pointed out, has communications technology enabled American companies to set up call centers in India and have their customers talk to someone with a Midwestern accent who works in Calcutta. Similarly, he noted that software engineering can be and is done anywhere. “This is a changed world in which the word ‘globalization’ is appropriate,” he said.
Ramirez, who has worked under different owners of the Burger King chain, said globalization is evident to him in the definite shift in the perspectives of boards of directors, away from a focus on growth in the home market toward a quest for growth wherever in the world it can be found.
Overall, panelists agreed that globalization has improved the lives of people throughout most of the world. “They’re better off, they’re more informed, they have more choices and more hope,” said Nichols. Certainly Burger King has created job opportunities and even career opportunities wherever in the world it has gone, Ramirez added.
But changes for the better have been slower than some panelists would like. While gratified that there is a sweeping view that open markets and lower trade barriers are the best way to build global prosperity, “globalization and expanded trade have not yet delivered enough benefits to enough of the world,” said Shapiro.
The problem, he pointed out, is that there is no shortage in the world of talented, hardworking people who, with proper training and tools, can be enormously productive. The result is that they become world-class producers before they become world-class consumers. “The real challenge is to have social structures so that people are joining the middle class and consuming” goods and services, he said. “Otherwise, we will continue to have overcapacity.”
Pedro Palme, a Venezuelan economist, looked at the same problem from a slightly different perspective. He argued that there are not enough large markets to absorb the increasing productive capacities of rapidly expanding industries. “Globalization needs global markets,” he said. “Economic integration is needed to create those markets, but economic integration isn’t easy because of asymmetries in economies, education and competitive advantages.”