Carlota Perez on the Downside of Globalization

Posted by: Steve Hamm on January 21

One of the best aspects of working for BusinessWeek is you get to speak to a lot of the smartest people in the world when you’re reporting stories. One of the best interviews I had recently was with Carlota Perez, on the challenges of globalization.

The interview helped inform BusinessWeek’s massive package on Managing the Global Workforce, which we prepared in advance of the World Economic Forum meeting in Davos this week.

It’s a strange thing, but sometimes some of the more interesting information and insights you gather in the course of preparing a story don’t actually show up in the quotes and exposition. That’s how things worked out with the Perez interview.

I was especially interested in one of her answers concerning dealing the impact of globalization on national workforces. (I interviewed her on Skype, then she thought things over and sent me answers via e-mail.) In case you’re not familiar with Perez, she’s the author of a famous book, Technological Revolutions and Financial Capital: the Dynamics of Bubbles and Golden Ages, and she’s a visiting senior research associate at Judge Business School, Cambridge University, UK.I’m going to publish her entire answer to a question I asked her. During the US presidential campaign, I’m sure the rhetoric vis a vis immigration and the offshoring of work will get hot at some point. Lou Dobbs will undoubtably fan the flames of fear and hatred. But, hopefully, cooler and smarter heads will prevail—Perez among them.

Click on to see what she had to say:

Hamm:

How should the world workforce be employed in such a way that it’s good for people on the whole planet.

Perez:

Corporations are not likely to place that goal at the top of their agenda. Capitalism is founded upon the principle of the common good resulting from the private pursuit of profit. Yet, much more often than not, it is governments that have to make sure that the principle works.

Globalization will inevitably hurt the standard of living of the US and Europe by putting increasing pressure on jobs and salaries all the way up the skill and knowledge scale. The sooner this is recognized, the better for everybody. Without intense job-creating investment in the advanced countries, the expected level of social well being is seriously threatened. But the solution is not to stop globalization but to reshape it with proactive policies for respecialization and intelligent regulation. There is regulation that stifles and regulation that stimulates entrepreneurship and growth. Take the environment as an example. Until there is strict, global enforceable regulation there cannot be confident investment in the potentially gigantic environmental industries and services. The same can be said about alternative energy sources and systems and many other investment and job growth opportunities in the advanced countries.

The other problem that requires an institutional solution is the marginalization of most countries in Latin America, Africa and the Middle East by the concentration of investment in China, India and Asia, in general. It is difficult to deny that impoverishment and loss of hope are among the roots of the waves of emigration, violence, terrorism and messianic leaders that have characterized events in many of those regions since the 1980s. Their recent growth revival is mainly due to the rising prices of their raw materials exports, not to investment in competitive production by global or local companies. In those countries too, a consensus vision for respecialization can generate some of the necessary synergies. However, a real positive-sum strategy might require a sort of Marshall Plan to promote investment in lagging countries on a sufficiently large scale. That would really unleash the creative potential of the whole planet and would increase markets for everyone. In fact, the real frontiers of “globalization” are not defined geographically but rather by access to Internet coupled with demand capacity.

But when governments don’t act intelligently, economic forces hit back hard and brutally. Just as the reluctance to regulate the “free” financial markets brought on the sub-prime crisis and a likely recession, letting the unrestrained markets continue to shape globalization is likely to bring social unrest and an energy and environmental crisis. The route to globalization is an explosion in freight traffic, generating increasing upward pressures on energy and transport prices and on the levels of carbon emissions. When the backlash hits, labor cost advantages will have to compete with access and cost advantages in energy and raw materials as well as with distance from main markets. And that will force a costly relocation of activities.

Golden Ages are all about demand growing in rhythm with potential supply. A truly all-encompassing globalization, with facilitating institutions and intensive employment creation based on a dynamic specialization and respecialization of all regions, could bring a global golden age and create a win-win situation for countries, corporations and people.

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