What now for globalization?

The future of capitalism is here, and it is not what any of us expected.

Lowell Bryan and Diana Farrell in  the McKinsey Quarterly

                                                                                        

I have written often in these posts about the effects of globalization and the rise of the market state on higher education.  Given the economic events of the past year, some recalibration of understanding of  these forces is obviously in order.  This post describes some of my immediate thoughts, starting with a re-visitation of the work of Philip Bobbitt that underpins the arguments made in several of my previous posts.

In his influential 2002 book, The Shield of Achilles, Philip Bobbitt described the global transition from a nation-state form of organization (in which the state seeks to provide for the welfare of its citizens) to that of a market state (in which the state seeks to maximize the opportunity of its citizens). This transition is being driven by large global forces that include technology, changing demographics, and the rise of global marketplaces for goods, knowledge, and currencies.  He suggested that there are three models that define the main characteristics of the new market state, and that states will eventually have to make decisions that will lead them primarily towards one or the other of these. The three models are (p 283)

(1) a mercantile state–i.e. one that endeavors to improve its relative positions vis-a-vis all other states by competitive means, or (2) an entrepreneurial state, one that attempts to improve its absolute positions while mitigating the competitive values of the market through cooperative means, or (3) an managerial market-state, one that tries to maximize its position both absolutely and relatively by regional, formal means (trading blocks, etc.). 

Each of these different models has its own strengths and weaknesses and strategic implications. The Entrepreneurial Market-State is rather libertarian, looking for minimal state intervention in the economy and the private lives of citizens. “Privatized health care, housing, pensions, and education, as well as low taxes and low welfare benefits all characterize such states.” (p671). The US fits into this category.  The Mercantile Market –State “relies upon a strong central government to protect national industries, subsidize crucial research and development, and steer certain important enterprises toward success.”   “Opportunities available to the consumer…are sacrificed to the long-term opportunities of the society.”  In addition, “These societies are able to maintain social cohesion...in part because income disparities are suppressed, variations in take-home pay between manufacturing workers and service workers are rationalized, and elaborate social welfare subsidy systems, including public housing and access to education, are put in place…” (all p.671) Ensuring social stability might be said to be the goal of the Mercantile Market-State.  Many Asian economies fall into this category. Finally, there is the Managerial Market-State. This form is characterized by “free and open markets within a regional trading framework, a government that provides a social safety neat and manages a stringent monetary policy, and a socially cohesive society.”(p.672) “Strong national unions negotiate contracts across whole sectors of the economy rather than by individual company or factory.” Assuring social equality is one of the major goals of this form. Much of Europe falls into this category.  Bobbitt predicts strong competition (or perhaps conflict) between these different forms of market state as each seeks to become the constitutional archetype of the market-state.

If one adopts Bobbitt’s perspective, one would have to say that we are in the midst of the first major battle in the competition between these models.  The current global financial meltdown has certainly hit  countries that are evolving in the direction of each of these three market-state models, but all fingers of blame seem to be pointing (rightly or wrongly) towards the American version of the entrepreneurial market state.    In fact, the current meltdown seems to be providing advantage for other forms of the market state.  For example, the Los Angeles Times described recently a typically managerial state initiative of the leaders of the EU, and the suggestion of some push-back from proponents of other types of market states:

European leaders mounted a united front against the global financial crisis Sunday, proposing sweeping new market regulations, but it remained unclear whether economic giants such as the United States and China would go along.

Heads of government and finance ministers from Europe's largest economies joined German Chancellor Angela Merkel in Berlin to lay the groundwork for a common European position on economic reforms before an April 2 summit of the Group of 20 nations in London.

Obviously, the US currently is also revisiting the strengths and weaknesses of its own model of the entrepreneurial state, and numerous changes will certainly be forthcoming even here.  In particular, the “libertarian” slant of the US approach described above seems to be undergoing great scrutiny, and elements of the managerial market state are being proposed as remedies.

Nevertheless, the basic drivers described by Bobbitt as producing a change from nation-state to market-state are still in place.   Thus the eventual transition to a market-state still seems highly likely, but the forms and characteristics of the market state that will eventually be adopted by different states may not be so easily predictable as they seemed to be just a few years ago.

The time scale of the transition is also much more unpredictable than would have seemed likely only a short time ago. While the basic drivers of this transition are still in place, some have been damaged significantly by the events of the recent past, and consequently the pace of change will certainly decrease.  For example, Bryan and Farrell describe damage to the global capital markets:

No one designed the global capital market, but it has been a boon to humanity, stimulating globalization and growth by enabling the free international flow of capital and trade.  The financial crisis of 2008 severely damaged this useful system. Through greed, neglect, or ignorance, the participants abused it until they broke some of its basic mechanisms. ...

In short, global integration and growth will revive only if the global capital market does.  Yet it has sustained a body blow that will have repercussions for years, even if international leaders make the necessary long-term adjustments.

It is also obvious that protectionism is on the rise because of the recent problems. However, there has been a gradual increase in such sentiments over time, driven in large part by perceptions that the benefits and burdens of globalization have not been shared equitably. I discussed some aspects of this problem in the US in an earlier post.  In any case, the political obstacles to globalization have been increased by shrinking economies around the world, and this will likely also stretch out the time scale of change of state models.

Philippe Legrain,in a short, interesting February 2009 article in McKinsey's What Matters, considers several reasons why globalization could stall or even fail. His opening words deserve remembering as we strategize about the future:

Twenty years ago, nobody foresaw the imminent fall of the Berlin Wall; two years ago, no one was predicting the partial nationalization of the Western banking system. The future is unknowable; caution, skepticism, and, above all, humility are essential in seeking to peer into it.