Outlook: That was the year the world went global

How globalisation became the great theme of 1997
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It's an awful word, admittedly, but "globalisation", both of the world economy and business strategy, does seem to have been the big theme of 1997 for business and finance. When you think about it, virtually all the significant business and financial events of the year have been driven by the perceived need to adapt to progressive integration of the world economy. It scarcely needs saying that this process is by no means a new one; it is as ancient as trade itself. All the same, we do now seem to be at something of a watershed of development. Over the past year there has been a quantum leap, a huge acceleration of the process.

The most obvious manifestation of this has been in the economic crisis and accompanying market turmoil of the Far East. No national economy, it now appears, can remain immune to the power and disciplines of international capital; the derigiste, semi-corrupt, cronyism of these economies has been rudely exposed and the currencies and equity markets of the region have suffered accordingly. Capital pursues the highest returns, and perhaps belatedly, but certainly decisively, it has made up its mind that much of what was going on in the Far East was protected and uneconomic.

The triumph of the American economic model has been an integral part of the progressive globalisation through the movement of capital of the world economy. Indeed, the word "globalisation" may be a bit of a misnomer, for what is happening is not so much a homogenisation of different forms of economic organisation and management as a world-wide mimicking of the US economy, the integration of the world into the American way of doing things.

This has been the year in which the Asian economic model, and other forms of communitarian capitalism, have been finally discredited. Japan and her protectionist ways have been humbled as never before to the extent that even her most traditional and conservative leaders now accept that Anglo-Saxon style structural reform is the only way out of a vicious deflationary circle of monetary and fiscal tightening. Capital and the conscience free, often brutal way in which it moves about is perhaps the largest part of this process, but the freer movement of intellectual property, technology and skills across national boundaries that has been a feature of recent years is the other part of the equation.

Paradoxically, the new Labour Government has been able to embrace this process in Britain with a degree of enthusiasm that eluded its Conservative predecessor, which philosophically ought to have been much more in tune with it. The Bank of England has finally been granted independent control over monetary policy while Gordon Brown is proving himself a much tougher Chancellor in terms of fiscal discipline than Kenneth Clarke. For the first time in recent memory, a clear strategy for economic management into the indefinite future has been laid out, and most people accept that ministers are going to stick to it.

Combined with the last Government's labour and capital market reforms, putting Britain well ahead of the wave in terms of structural reform in Europe, this has allowed Britain to bask in an almost unprecedented degree of approval from financial markets. One result of this has been a strong pound, which may be something British industry is going to have to learn to live with.

The change of Government has also brought about a sea change in Britain's attitude to and relationship with Europe, including the single European currency. If the truly global market place still has a way to go yet, it is about to become a reality in Europe bringing about, for the first time this century, a trading block on a par with that of the US. New Labour has reformed Britain's position on the single currency in a way that now makes early participation at least possible.

Focus and consolidation have been the twin mantras driving the corporate sector this year. Again, the progressive breakdown of national barriers across industries as diverse as telecommunications, banking and engineering has been the sub text for the jargon. The need to perform in an increasingly competitive international market place has driven managements to "focus" on their core capabilities and skills. This has been accompanied by consolidation within industries, both at a national and international level, in order to bring about economies of scale and better serve the needs of more demanding and better informed customers.

At its most ambitious, this process was epitomised by British Telecom's bid for MCI, one of the US's largest long-distance telecommunications carriers. The merger drew some hostile comment from the press and certain parts of the City and it may well be that the target was misconceived. Alternatively, BT may just have been ahead of its time in its attempt to establish the global telecommunications company, for the Americans eventually closed ranks and outbid BT.

The year end has brought with it the world's most ambitious banking merger to date - that of Switzerland's top two banks, Swiss Bank Corporation and Union Bank of Switzerland. In its wake has followed a whole host of me-too calls to national regulators. Martin Taylor of Barclays has gone public with his view that British banks should be allowed to respond with their own mergers. In the City, the UBS/SBC merger is bringing about a further shake-out in the investment banking sector with the loss of up to 3,000 jobs as UBS Phillips and Drew is subsumed by SBC Warburg.

Meanwhile, NatWest and Barclays have given up the investment banking quest entirely, finally admitting they are unequal to the task of competing on cost and market reach with Wall Street's bulge bracket operators. The City, that most international of market places, is itself falling victim to the process of globalisation.

Elsewhere, Guinness and Grand Metropolitan have merged to create the world's largest drinks combine. ICI has reinvented itself by selling off its diverse bulk chemical interests to more appropriate managers and buying Unilever's speciality chemicals business. Unilever has meanwhile chosen to "focus" on its core consumer products and BTR is selling off half its assets so as to concentrate more effectively on the needs of its main engineering businesses.

Another key pressure on managements this year as never before has been to maximise the use of capital in the most cost-effective way. This has spawned a legion of share buy-backs, special dividends and other forms of capital repayment. Again this is a phenomenon imported from the US which looks set only to accelerate over the next few years. And again, since cost of capital is now viewed as a key constituent of international competitiveness, it has its roots in the process of globalisation.

All these pressures of the old year are going to be present in even greater form in the new. We live in a time of great economic change and opportunity. Despite the traumas of the Far East and the deflationary brake they will be applying to the world economy, we also live in a period that justifies great optimism. The challenge for policy makers as we enter the next millennium is not so much that of attempting to slow or accelerate the process of globalisation. An unstoppable momentum has already developed and it is too late for that.

Rather, it is to address the easily put to one side and socially destabilising side effects of the process - the growing gap between rich and poor and the environmental degradation that goes with it. The world may be integrating as never before, but it is also dividing as never before - into the haves and the have nots. On that pessimistic note, and for those readers who have got this far, a prosperous and happy new year to all.