Think Again: The Globalization Backlash

Lost your job? Your cultural identity? Your democratic rights? Your clean air and water? Blame globalization -- everyone else does. From Seattle to Copenhagen and Washington, D.C., to Genoa, protesters of all stripes and creeds have turned globalization into a shorthand for many of the world's ills. But judging by the widespread misconceptions about the true consequences of the integration of markets, politics, and cultures, a smaller world is not necessarily a smarter one.

BY JOHN MICKLETHWAIT, ADRIAN WOOLDRIDGE | SEPTEMBER 1, 2001

"Globalization Means the Triumph of Giant Companies"

Nonsense. If you listen to antiglobalists, we live in a world of "Disneyfication" and "Coca-Colonization" in which giant companies simultaneously trample over their smaller commercial rivals and turn national governments into helpless lackeys. They are wrong on both counts.

The proportion of output from big companies has declined, not increased. Globalization radically shifts the balance of advantage from incumbents to challengers. Incumbents could once protect themselves behind lofty barriers such as the high cost of capital, the difficulty of acquiring new technology, or the importance of close relationships with national governments. Globalization reduces the importance of all these things. Lower barriers make capital easier to raise, technology easier to buy, markets easier to reach, and ties with national governments ever less important. You no longer have to be a multinational to have the reach of one.

By all rights, Motorola Inc. ought to be the undisputed ruler of the wireless world. The company was the first to mass-produce car phones. It also sits in the heart of the world's biggest market for them. But it has been humbled by Nokia Corp., a relatively small company from Finland that only a decade ago was more interested in bathroom tissue than mobile phones. Nokia's only weapons were better phones and better management. Against these, mere size proved a puny defense -- which helps explain why giants such as AT&T Corp. and General Motors Corp. (GM) now look so vulnerable.

The idea that companies are now more important than governments is equally misleading. Far from getting smaller, governments in most Western countries remain colossal, consuming more than 40 percent of Western Europe's gross domestic product (GDP), for example. They continue to expand their influence over corporate behavior through regulatory policy. Bill Gates rapidly discovered that a rather obscure Justice Department antitrust lawyer, Joel Klein, was a much more fearsome opponent than any mere company. Jack Welch, the face of American Big Business, met his Waterloo in Belgium when the similarly anonymous bureaucrats of the European Commission blocked what would have been the biggest merger in history, that between General Electric and Honeywell.

As for the oft-quoted "statistics" about so many companies being bigger than countries -- the idea that GM is as big as Denmark -- these compare sales figures with GDP. Since GDP measures value added, the correct corporate comparison is profits. As Martin Wolf of the Financial Times has pointed out, GM then slides from being as large as the 23rd biggest country to the 55th, about the same size as a basket case like Ukraine.

 SUBJECTS: GLOBALIZATION
 

John Micklethwait and Adrian Wooldridge are, respectively, U.S. editor and Washington correspondent of the Economist and authors of A Future Perfect: The Challenge and Hidden Promise of Globalization (New York: Times Books, 2000).