Hope Floats
We could happily fill the rest of this book with examples of globalization spreading through the 1990s and early 2000s: privatizations in Ulan Bator; American firms setting up maquiladoras; Asian patriarchs sending their oldest sons to America to set up research arms. In the next section, we will look at the way that three “nonpolitical” forces—technology, capital, and management—are pulling the world together. Yet at the beginning of the twenty-first century, it is still hard to answer the question “Which John Maynard Keynes won?” On the face of it, the young Keynes who visited Italy triumphed. Globalist ideas are once again in the ascendancy. There are plenty of impressive statistics to show how the world is getting smaller. But there are also some very big things that would have delighted his later, more interventionist self. Despite all the talk about the death of big government, the states’ shares of GDPs are at levels about which Sidney and Beatrice Webb p. 25 might only have dreamed. Nor would they have been that unhappy with many parts of those regional trade agreements, which have often had the paradoxical effect of cementing barriers to further globalization. Europe’s single market, for example, has left the infamous Common Agricultural Policy in place. Immigration controls persist everywhere.
More generally, politicians from Bombay to Bonn remain at best fair-weather friends of economic liberalism. Like their equivalents in the Italy that the young Keynes visited, they support free trade in principle but can always find a reason to make temporary exemptions for people with political connections, whether they are French film producers, Midwestern farmers, or Indonesian timber merchants. In America, for example, support for free trade ebbs at the first sign of a trade deficit. The late 1980s saw an outbreak of Japanophobia in America and a lot of guff about the virtues of managed trade. George W. Bush, who had seemed an instinctive free trader, still rushed to protect America’s steel industry with tariffs in 2002, in order to win votes in the rust belt.
In 1997 and 1998, various developing countries reacted to the gathering crisis in Asia by retreating from planned reforms. Indeed, at one point—following the imposition of capital controls in Malaysia, Russia’s default, and the government of Hong Kong’s decision to intervene in the stock market (to frustrate evil “speculators”)—the chattering classes rushed to declare the death of laissez-faire capitalism. Osama bin Laden sent another jolt through the international system when al-Qaeda felled the World Trade Center in 2001. That year also saw world trade stall and border controls increase. The collapse of Argentina and the brutal “reelection” of Robert Mugabe in 2002 each showed how far the developing world had to catch up.
In the next few chapters, we will turn to the forces that are pushing the world closer together. These forces are indeed profound, enough to turn some surprising people into friends of globalization. But as we gaze at the might of the capital markets or the distance-destroying magic of modern technology, it is important to remember the young traveler to Italy in 1906, when the internationalization of the world was “nearly complete in practice,” and to remind ourselves that, given the frailty of human nature and the complexity of human affairs, the world can roll backward as well as forward.
Part Two – The Three Engines of Globalization
2 – Technology as Freedom
p. 29 WHAT DRIVES GLOBALIZATION? The gradual decision by politicians to step out of its way since the end of the Second World War has allowed a wide variety of commercial forces to come to the fore: the Internet, the foreign-exchange market, mergers, and foreign direct investment. Some people would argue (rightly but unhelpfully) that these gusts are all part of the same all-devouring hurricane called modern capitalism. We have chosen to cluster them and others under three headings, each of which we will address in the following three chapters: technology, the capital markets, and management.
Each of these forces is powerful enough in its own right, but what has given them their apparent invincibility in recent years is the fact that they all fit together so neatly. Free-flowing capital makes it easier for companies in even the most out-of-the-way places to buy new technology. New technology makes it easier to move capital to similarly obscure places. And management—by which we mean the spread of common management methods, the growth of the management industry of consultants and business schools, and the development of a new cadre of professional multinational managers—alerts companies to the clever ways in which they can use capital and technology. Companies that organize themselves better than their rivals do soon expand beyond their national borders, and in so doing put pressure on less cosmopolitan companies to follow suit or risk annihilation. And so the circle continues.
The Bolton Wanderer
p. 30 To most Britons, the name Ferranti is bound up with the past rather than the future. For much of this century, the Ferranti family was Britain’s preeminent electronics dynasty. But in the 1970s, the firm had to be rescued by the British government, and eventually it collapsed anyway, after an accounting scandal. To a visitor, the family photographs in Marcus de Ferranti’s house in the Boltons seem to confirm this backward-looking picture. Family photographs show a predictable journey through the British establishment, from Eton school days to skiing parties. Until recently, the only visible piece of technology was a computer in Ferranti’s study: Its screensaver image is of a small, deserted Scottish island where Ferranti wants to build a house. As for Ferranti himself, he has the easygoing charm of somebody who has never had to try too hard for anything. Play tennis against him, and, despite having spent a small fortune on trying to improve his game, he laughs when he loses.
In fact, Ferranti’s career has always been slightly unconventional and is now downright revolutionary. On leaving the University of Edinburgh in 1982, he became a fighter pilot—a worryingly meritocratic profession for lazy Etonians because it rejects nine out of ten applicants. He then spent two years working in a software subsidiary of GEC—the British defense giant that, ironically, had swallowed the rump of the Ferranti family business—before being offered a surprising assignment: a year in a unit set up by the Conservative government to deregulate British industry.
At first, Whitehall’s strange ways amused Ferranti. But he soon found his job frustrating. The Tories, already unpopular, were scared to take further moves to increase competition. Yet as Ferranti saw it, deregulation, particularly in telecommunications, had not gone far enough. Whenever he asked why the old monopolist, British Telecom, remained firmly in control, he was told that he was naive. And didn’t he know the Tories were going to lose? In November 1996, six months before the Tories fell, Ferranti left the unit and went to join his brother, an entrepreneur.
In June 1997, a friend named Richard Elliott came around to the Boltons for a drink after tennis. Another tall public-school boy who had always wanted to start his own business, Elliott had drifted into the army and then into the City of London. Ferranti pestered him about the inefficiency of various markets—in particular, why it cost so much to call overseas. Why was there no market on which people could trade telephone time? Ferranti sketched out an idea for an Internet-based exchange where telecommunicap. 31tion firms could post offers anonymously to buy or sell minutes of calling time between any two locations. Elliott, still imagining a building with traders in it, asked how on earth Ferranti would find the money to start a commodities exchange. Ferranti, the Pimms taking hold, explained that there did not have to be any bricks and mortar: All the exchange really needed was some software and a website. By the end of June, Elliott had handed in his resignation to his bemused bosses at Kleinwort Benson, and Band-X had set up shop in Ferranti’s study.
In retrospect, one of Band-X’s biggest assets was its founders’ ignorance about telecommunications. Two experienced executives from the industry whom Ferranti consulted before he set up the business both told him to give up immediately. Yes, the experts conceded, it was pretty simple nowadays to switch calls from carrier to carrier; and, yes, many big carriers did have excess capacity. But
most international telephone calls were still governed by rates set by complicated international treaties; only around 10 percent of them were sold at market rates. Ferranti, having done the sums, replied that there was still a sixty-billion-dollar market. Yes, the executives admitted, but it was a fuss to sell such time: You could do it, but only through special brokers who took 20 percent commissions. Ferranti replied that his exchange would charge just 1 percent, and, since all parties could see the bids or offers, each would know that they were getting the best price. “Really, you are so naive.”
In fact, Band-X grew quickly precisely because it was so simple. By August 1997, the exchange had collected two hundred members, and it had shown how far prices could fall in a free market. A minute between New York and London was being traded for about seven cents—a sixth of what British Telecom charged and about the same cost as a local call in London. The differential in the prices on more exotic routes was even bigger. A succession of telecommunications bosses filed through the Ferrantis’ drawing room (the head of one public-sector Scandinavian company was forced to play with the children while he waited). In June 1998, having amassed three thousand members, including firms from Bosnia to Bangladesh, Band-X became even more like a stock exchange when it bought its own switch in Telehouse, a central exchange in London, allowing it to settle its deals as well as arrange them. It also made it much easier to do spot trading—selling excess minutes when you have them rather than in advance.
The extra business generated by the switch means that Band-X has finally had to quit Ferranti’s study, and in 1999 they raised eleven million dollars from a Chicago-based venture capitalist in a deal that valued Band-X at p. 32 more than thirty million dollars. Like many Internet-related businesses, Band-X had to cut back its operations in 2001, but the company’s core business is growing. More important, the two Englishmen can claim at least a small role in the phenomenon that Frances Cairncross of The Economist has dubbed “the death of distance.”
Even before sans-culottes such as Ferranti began to challenge the old ways, the cost of a telephone call from New York to London in 1996 was only a couple of dollars, compared with around three hundred dollars (in 1996 prices) in 1930. Already if you wander around India you will find cheaper hands, eyes, voices, and brains doing plenty of surprising things: processing insurance forms, running Swissair’s back office, talking to General Electric’s American credit-card users, even guarding office buildings in California (the security pictures are simply sent by satellite). Now, thanks to a mixture of technology and deregulation, there is the tantalizing prospect of having the cost of making a call fall to practically nothing.
That revolution might be a little farther away than people hope. There are also plenty of more famous figures than Ferranti and Elliott. But even their effect is noticeable. Already consumer groups around the world are using Band-X’s revelations of the true cost of telecommunications in order to attack the old monopolies. And the cleverer brains in the industry are still convinced that a proper derivatives market in telecommunications time will evolve, despite Enron’s abortive push into the market. Needless to say, Ferranti and Elliott remain unperturbed about Band-X’s role in this revolution. The success of Band-X has ruined their social lives, they complain. The idea that they deserve any credit for reducing the cost of telephone time, let alone “killing distance,” genuinely amuses them. “It was obvious,” says Ferranti, gazing a little mournfully at his screensaver. “Some naive idiot was bound to have done it sooner or later.”
On the Waterfront
Band-X’s story should be read as a rebuff to two sets of people. The first is all those technodeterminists who think that it is merely enough for a gadget to exist for its effect to be universal. For example, Andy Grove of Intel has stated that “technology change and its effects are inevitable. Stopping them is not an option.”[1] But Band-X’s story is a complicated, accident-plagued one in which things like Pimms count more than bytes and in which the big idea is still some way from realization. The notion that the progress toward a “friction-free world” is as simple as the traffic lights changing in Palo Alto just p. 33 seems downright wrong. It might be merely an expression of Luddism (we remain the sort of journalists who often spend longer trying to transmit a story back to London than we do writing the thing in the first place), but the world is littered with examples of how hopelessly messy and sometimes contradictory the link between technology and globalization can be.
The second group of people contains all those crusty old liberals who still equate technology with Big Brother and the restriction of individual freedom; machines, for them, are a way to trap data about people, to coerce them, even to spy on “enemies of the state” from the sky. In fact, it is exactly the chaotic, unpredictable way in which technology spreads around the world that makes it so subversive. Technology gives entrepreneurs such as Ferranti the freedom to challenge giant companies and to break up concentrations of power. Technology gives people the power to weave connections all over the world. Technology allows people to escape from the tyranny of place.
When most people think of the impact of technology on globalization, they think of computers and telephones. Arguably, much more mundane inventions have had even greater effects: Few things have done more to allow people to escape from the tyranny of place, for example, than the air conditioner. Although the first air-conditioned home was built by a Minneapolis millionaire in 1914, the gadget did not begin to have a real effect on society till after the Second World War. In the United States, several people have claimed that air-conditioning had as much impact on integration in the South as the civil-rights movement did. As history professor Raymond Arsenault has put it, “General Electric has proved a more devastating invader than General Sherman.”[2]
And what is true for Savannah is also true for São Paulo, Seville, and Shanghai. “Historically, advanced civilizations have flourished in the cooler climates,” argues Lee Kwan Yew, Singapore’s senior minister. “Now lifestyles have become comparable to those in temperate zones and civilization in the tropical zones need no longer lag behind.”[3] Air-conditioning is the reason why offices and hotel rooms—those two staples of business life—feel pretty much the same everywhere. Meanwhile, air-conditioning also paved the way for the much derided theater of placelessness, the shopping mall. Stand in Pacific Place in Hong Kong or the Metrocentre at Gateshead, and it is not just the names of the shops—Benetton, The Body Shop—that are the same, but also that cool, dry, slightly lifeless atmosphere.
Something that has had an even greater effect on globalization is really no more than a twenty-foot-long metal box. In most big cities, a fair proporp. 34tion of the male workforce used to work down at the docks, loading and unloading things, first from trucks into warehouses and then from warehouses into ships. In 1956, a hauler from Cape Fear, North Carolina, named Malcolm McLean offered shippers space on the Ideal X, a vessel sailing from Newark, New Jersey, to Houston, which he had converted specially so that it could carry trailers. Soon shippers realized that it was unnecessary to include the wheels. Within a decade, ships with detachable containers were plying the Atlantic routes, and the life celebrated in A View from the Bridge and On the Waterfront began to disappear.
Rather than hundreds of dockworkers, these containers (which soon became known as longshoremen’s coffins) needed just a handful. And because the goods were better protected, manufacturers became much more likely to import complicated, small parts. (It is hard to imagine Marlon Brando muttering about being a contender while tossing compact-disc drives into the hold of a ship.) At the beginning of the twentieth century, 40 percent of America’s imports and exports were made up of “crude food” and “crude materials.” Now nearly 80 percent of exported goods are manufactured goods.[4]
By 2002, the world’s fifteen million containers carried 90 percent of its traded cargo. This seaborne revolution prompted similar changes on land. Led by America in the 1970s, governments began to relax the rules with
which they had shackled their freight and postal industries, allowing trucks to pick up containers at ports as well as drop them off and giving more freedom to private postal services. Haulers responded by teaming up with railways and even airlines, and as a result container transportation became genuinely intermodal, with boxes being switched rapidly from one sort of carrier to another. The typical ship now spends just twenty-four hours in a port, rather than three weeks. On land, the cost of rail freight in America fell by about a quarter between 1986 and 1996. Every day, FedEx alone delivers three million packages around the world.
Once again, this can sound fairly anodyne. But it has changed many manufacturers’ perspectives on the world. Cheaper, quicker transportation opened up new markets, encouraging even small firms to go global, and allowed companies to “source” components from the other side of the world and to experiment with “just in time” manufacturing methods. No longer relying on huge factories and warehouses, manufacturing has become a leaner business, with companies outsourcing their supply systems to logistics specialists. For example, FedEx runs most of National Semiconductor’s distribution system; in Malaysia, it coordinates the assembly of Dell PCs and deals with all the customs work.
A Future Perfect: The Challenge and Promise of Globalization Page 7
