Harrington, "The Global and the Local"

THE GLOBAL AND THE LOCAL
James W. Harrington, Jr.
University of Washington

Globalization
The end of geography
The fleeting triumph of geography

GLOBALIZATION
As Dicken, Peck, and Tickell¹ have emphasized, “globalization” has an importance beyond the mere level of international trade, foreign direct investment, and financial flows across countries. Many writers have noted that the level of international trade (as a portion of world production) regained the levels reached in the early twentieth-century only at the very end of the twentieth century, and that FDI flows (relative to size of national economies) are not as large in 2001 as at the previous turn of the century. Yet we talk incessantly of globalization: we love it, we loathe it, we spill oceans of ink announcing it. What is “globalization,” and in its midst, what remains localized?

“Globalization” gets such strong reactions because the word has become a powerful rhetorical tool, used to defend all sorts of corporate decisions and demands, and used to explain all sorts of economic maladies. Don’t underestimate the currency of the word in an argument. However, my purpose is to improve our analytic and prescriptive abilities, so I will not dwell any further on the rhetorical uses of the word.

I generally call a factor or product “global” if it is either ubiquitous — the same everywhere — or highly mobile — movable across countries at a cost that is only a small fraction of its value. We’ve learned that the most traditional, neoclassical model of trade assumes that basic factors (natural resources, climate, labor, and capital) are immobile, that products (goods and some services) are mobile, and that technology (the way goods and services are produced) is ubiquitous. The whole reason for gains from national specialization and international trade is that the mix of basic factors varies across countries.

The product life cycle model² assumes that natural resources and labor are immobile, that technology is created by corporations (rather than being ubiquitous), and that capital and technology become mobile within the multinational corporation. Don’t think that this is a late-twentieth-century novelty. Multinational corporations have been around for centuries — think of the Dutch East India Company or the Hudson’s Bay Company.

Back to the question: “What remains localized?” Well, in the model I’ve just sketched, natural resource endowments and labor remain local. Labor is not totally immobile, of course: people do migrate. But the migration is controlled by countries, and, perhaps more importantly, once people immigrate, they take on the regulatory characteristics of their destination country. The issue of regulation is key here: nation-states establish their own systems of government and social regulation. So, the regulation of economic activity, in addition to natural resources and labor, remains local.

Or does it? What of Thomas Friedman’s “golden straightjacket”³ or Walden Belo’s “iron cage”⁴ — the international markets for investment and financial flows that discipline countries into more liberalized (individualistic) and transparent regulation of companies and labor? Can economic regulation remain “local”?

This is the core of the debates over globalization: the debate whether globalization is “real,” and the debate whether globalization is “good.” To repeat: “globalization” is not just the increase in the mobility of capital and products. I might call such an increase “internationalization.” Globalization is the increase in international rather than national regulation of economies,⁵ through international organizations such as the IMF and the WTO, and through the real and threatened mobility of corporate investment. Regulation of national trade policies, regulation of national rights of establishment, regulation of national treatment of international operations, regulation of government subsidy to corporations, regulation of government purchasing policy, regulation of the privatization of resources, regulation of privatization of intellectual property. Yes, this is globalization, and it is real, though it is still quite partial.

Is globalization “good”? It is totally foreign to my personality and intellectual stance to give a single answer. (1) The reduction of trade barriers benefits consumers everywhere, and benefits the owners of abundant factors in each country. In the US, that would be highly skilled workers, large-scale agribusiness, shareholders in internationally active corporations, and owners of intellectual property. In Mexico, that would be workers in internationally oriented manufacturing, corporations and individuals with oil rights, owners and workers in tourist enterprises. In Canada, that would be natural resource owners, highly skilled workers, and workers in certain manufacturing sectors (such as automobiles and telecommunications). (2) The reduction in government subsidy to industrial sectors reduces inefficiency within and across countries. (3) The privatization of resources and (4) the protection of intellectual property motivates the development of new resources and of innovation. Private ownership of land and resources can lead to more careful stewardship of land and resources than state ownership. The most egregious examples of careless resource depletion and environmental disasters have resulted from state ownership and control, throughout the former Soviet Union, in much of China, and as close as the Hanford Military Reservation here in Washington State.

On the other hand; on the other hand. Think about the two most common elements in the litany of who benefits from globalization, as I’ve defined it (the increase in international rather than national regulation of economies): consumers and internationally oriented corporations. Here in the U.S., everyone is a consumer (how many Americans make their living in a subsistence, non-cash, economy?) and just over half of all households rely on some stock ownership for retirement benefits. Thus, most of us see some benefit from internationalization (which I define as increases in the flows of products and investment) and from globalization. However, in places that are moving from localized, peasant, subsistence economies or from publicly controlled, centrally planned economies to cash-exchange, market, privatized economies, globalization is a mixed process. Productivity is increased, almost without exception. Innovation is almost always increased. Wages are often increased.

But; but. Wages may not rise, in the face of an endless supply of potential workers moving from subsistence to the cash economy. This seemingly endless stream is pushed into the urban, cash economy because of privatization of resources and industrialization of agriculture. The returns to increased productivity may flow entirely to the current holders of wealth, because of the negligible bargaining power of individual workers within a growing legion of workers. Lower prices on consumer goods may mean nothing to people who are separated from earlier means of subsistence, but who earn wages too low (if any) to consume in the cash economy. Standards of employment may not even support the reproduction of labor, placing children in the workplace instead of in the classroom, wearing young women out until they become an economic burden to their families, or endangering parents’ lives before children can be raised. Traditional, communal ownership of land and resources encourages wiser use than ownership by corporations that may sell the depleted resources and move on to greener fields.

What of this harmful, even shameful face of globalization? From what does it spring? Is it inevitable? Back to the question “What’s global and what’s local?” The regulation of financial capital, trade flows, and corporate investment is increasingly removed from national governments to international arrangements, while the regulation of labor and environmental standards remains a function of location. Yes, this encourages investment in locations where labor and environmental standards are low — to the extent that productivity in such places is sufficiently high, and that the resultant products are sufficiently mobile. This is a limited extent. The giant sucking sound that Ross Perot heard from Mexico was actually quite muted, by Mexico’s infrastructure shortcomings and by the high proportion of American employment in activities that are not highly mobile —health care, retailing, education, transportation — and that are US specialties — business services, high-value-added manufacturing, wheat production.

Is it unavoidable that some processes are regulated globally and others, locally? In a word, no. Forty years ago, no one thought that international agreements, organizations, or markets could regulate nations’ decisions about internal investment, government procurement, or government subsidy. It was radical enough to think that GATT negotiations could reduce tariffs substantially across all nations (through what became the Kennedy Round), or that a group of European countries could put aside postwar jealousies to coordinate subsidies and remove trade barriers for specific commodities. Yet today, the Uruguay Round of the GATT and its organizational offspring, the WTO, have created conventions for international recognition of intellectual property rights, rights of establishment, and restrictions on national-government subsidies and procurement restrictions. IMF “structural adjustment” policies restrict national governments’ tax, expenditure, and ownership policies. Forty years from now, could there be international agreements on child labor, workplace safety, and environmental standards? Yes. Would countries with huge populations and limited infrastructure still promote exports and inward investment based on low wages and low production costs? Yes. Could basic requirements for safety and waste promote the development of healthier labor forces that could face intergenerational upward mobility? Yes. Is it necessary that international prohibitions on government subsidies would eviscerate national systems of health care and public health? No.

However, these are not the directions in which we’re headed right now. Corporate interests in wealthy countries, which drive the policy innovations in trade and investment policy, prefer that capital be hypermobile and investment policy be ubiquitous, while labor and environmental regulation remain fractionated and localized. National elites in poor countries, hungry for industrialization and the employment it brings, consider international performance standards for labor or environment to reduce their chances for export competitiveness. Dissenting voices in the wealthy countries too often seem to be motivated by a conservative desire to close borders to trade, or an unsustainable desire to impose wealthy-country wages and environmental standards on poor countries.

How can we break the impasse? First of all, we must not silence the voices — from the North, the South, the capitalists, or the workers. Indeed, more information may be the vehicle for a solution. Information about work conditions may inspire outrage within poor countries and beyond. Information about environmental degradation may spur corporate shareholders to action, out of fear of subsequent liability. Information about the sources and conditions of products will allow consumers to make decisions about what they buy, at what prices. We need to disseminate information about production technologies that save money and resources by reducing wasteful by-products (and, perhaps, to disseminate international subsidies for their adoption). Electronic communication, and revolutions in data handling and data mining have allowed international integration of corporate activities; they can enable the international integration of labor and environmental monitoring.

Second, organizational capabilities need to be extended. International strategic alliances among separate companies have become the norm in business. Increasingly, value is added in a production chain though flexible, changing, project-specific networks. International strategic alliances are now a goal of labor and environmental organizations, coordinating information flows and organizational capabilities. The General Agreement on Tariffs and Trade has given way to the stronger, more centralized structure of the World Trade Organization. International labor, environmental, development, and human-rights organizations need to be strengthened, to allow increased globalization on these fronts, as well.

THE “END OF GEOGRAPHY”?
For me, geography is not a subject matter but an approach: an approach to understanding that compares a phenomenon or process in different places in order to see the interaction of process and context, and to see the attenuation of interaction of processes over distance. Geographers need to know how to decipher process and context; need to know the sources and pitfalls of localized data and representation. All this, to understand processes by understanding the contexts that give rise to them. Thus, as long as places are distinct, and are separated by physical, climatic, geological, and institutional differences, geography is an important approach to understanding. (1) Capital, products, and technology may be mobile; (2) formal regulation of investment, labor, and production standards may become ubiquitous; but (3) climates, histories, social interactions, food preparation, and child care will remain local.

However, change is an important factor. (I would not privilege geography above history). Let me construct two brief, obvious historical examples of the importance of sudden changes in our use of geography.

In the late-19th century, the transcontinental railroad and the telegraph enabled the creation of a national market in the U.S. for manufactured goods. Taking advantage of this required: increased scale economies, national brands, and the weakening of local manufacturers and independent retailers. Manufacturing became concentrated in northeastern cities, which benefited from economies of agglomeration and intensive localized communication and coordination. The results included the social concentration of capital investment and profits from the new transport modes and the new, national manufacturing sectors. “Robber barons” made fortunes, built mansions, endowed museums, and started universities in American commercial centers.

In the late 20th century, the telecommunications revolution, government deregulation, and increased economies of scale in transportation enabled international production and distribution systems — what I call “internationalization.” Taking advantage of this required: corporate networking to create specialized and flexible production chains, computer networking to allow selective data sharing, and international branding. Production has dispersed internationally, but localized economies of agglomeration still dominate as control centers in the international economy. The results have included the concentration of capital investment and profits from the new telecommunications modes and from the new international service, manufacturing, and software sectors. “The new robber barons” include key professional or managerial “labor” as well as owners (key corporate managers, computer specialists, athletes, and entertainers). They have made fortunes and built new companies, and have begun to revolutionize philanthropy, in old and new commercial centers around the world. New technology, new geographic scale, same old story of social and geographic concentration of wealth.

THE FLEETING TRIUMPH OF GEOGRAPHY
Yes, geography still matters. From the production perspective, locational advantages (agglomeration, appropriate labor, transport and communications infrastructure) still exist: now they can be used and managed on a global scale. From the development and trade perspective, comparative advantages (national resources being more efficient in production of certain goods or services) still exist: there are even greater, worldwide opportunities for specialization and trade. However, both of these sets of advantages, existing within flexible networks of production organizations, can be transitory: the position of a location or of a company is not assured. Boeing hopes to illustrate that the control operations of a corporation can be located in any control center. Boeing will soon attempt to illustrate the utility of international production networks in reducing costs, increasing international marketability, and fostering international development.

It is up to us, as citizens, voters, workers, shareholders, and consumers, to design the contours of globalization, to determine what resources and products become highly mobile, what standards become ubiquitous, and what remains local.

NOTES
¹ Peter Dicken, Jamie Peck, and Adam Tickell, “Unpacking the Global,” in Geographies of Economies, edited by Roger Lee and Jane Wills, Arnold Publishers (London), 1997.
² Raymond Vernon, “International Investment and International Trade in the Product Life Cycle,” Quarterly Journal of Economics 80: 190-207 (1966).
³ Thomas L. Friedman, The Lexus and the Olive Tree, Anchor Books (New York), 1999.
⁴ Walden Belo, “Building an Iron Cage: Bretton Woods Institutions, the WTO, and the South,” in Views from the South, edited by Sarah Anderson, International Forum on Globalization (Sausilito), c. 1999.
⁵ Dicken, Peck, and Tickell emphasize that globalization is a qualitative change. I’ll take my cue from their suggestion, to contrast the quantitative change in my definition of internationalization (mobile things become more mobile) to the qualitative change implied by my definition of globalization (an increase in the types of things that are ubiquitous or highly mobile — not just capital and products, but forms of economic regulation, and perhaps even labor).