People don't know what they're protesting about

Misunderstanding the nature of the process called globalisation
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The Independent Online

"Everyone thinks globalisation means countries will all become the same," an economist told me recently. "Actually, it means countries will become more diverse, because they will specialise more than they do now."

"Everyone thinks globalisation means countries will all become the same," an economist told me recently. "Actually, it means countries will become more diverse, because they will specialise more than they do now."

This is an insight the protesters at the IMF and World Bank meetings in Prague this coming weekend would do well to grasp. The outward and visible signs of globalisation might seem to be the names of the multinationals - the McDonald's, the Coca Colas and the Shells - and these are the sort of obvious targets for street protest. But to see globalisation primarily as the conquest of the world by multinationals is to misunderstand the nature of the process, and the way globalisation has enabled some countries to become extraordinarily specialised.

The most extreme example of specialisation is Finland, where a single company, Nokia, has become the world's largest manufacturer of mobile phones and Europe's most valuable enterprise. Round about have clustered a host of hi-tech companies, helping to make the Finns the most technically advanced nation on earth, at least in the field of telecommunications.

Nearer home, the London economy has become extremely dependent on two industries, financial services and communications. Both happen to be booming so the London economy is also booming, growing at nearly double the rate for the country as a whole.

London has become much more specialised than other metropolitan areas such as New York, Paris or Tokyo, and, as a result, has gained ground in relative prosperity. But specialisation carries risks and Finland and London would be vulnerable were their growth engines to falter.

So the dangers of globalisation are as much for the apparent winners as for the apparent losers. For the regions and countries which feel they are being overwhelmed by forces beyond their control, the threat is obvious: in the short term, they are disadvantaged until they can discover competencies they too can sell to the rest of the world. But for the winners the threat is more subtle: they will become over-dependent on booming single industries that will some day go into decline.

For over-reliance on a single industry, perhaps Glasgow is the best UK example. Its domination of global marine engineering meant that after shipbuilding went into decline, the building of new industries to pick up the slack was difficult. Some day, maybe 50 years hence, Silicon Valley will be a depressed area.

Specialisation had its dangers, but much better to have the prosperity, enjoy it, then use part of the wealth thrown off to stack surplus resources for the leaner days to come. As globalisation marches on, specialisation must be built on sound foundations.

This is particularly important when seeking inward investment. The issue is whether such investment is exploiting a real comparative advantage or whether it is merely seeking tax breaks that will some day be swept away. If the former there is a good chance the investment will stick. If the latter, there will be a problem. Ireland, whose economy has been transformed over the past decade by foreign investment, is trying hard to ensure such investment really does build on local skills. So Ireland tries to identify the things the country is inherently good at - having a population relatively young and well-educated by European standards - then encourages inward investment that uses these assets. The numbers game is out. Ireland doesn't want investment that creates lots of low-skill jobs.

Critics of globalisation should focus on the points that make a region unable to benefit from globalisation, rather than the outward manifestations of the phenomenon. Instead of being upset by the invasion of McDonald's, people should figure out why local fast-food enterprises are not setting up establishments overseas.

And how might that be? In two important ways, global trends may be tilting the balance towards regions that might have felt left behind by globalisation.

First, as a general rule speed now beats size. In some industries, say, oil, size still matters most. But in others, including network industries such as telecommunications, the very large companies are finding size does not insulate them from predators. Look at BT.

Besides, size in terms of market capitalisation at least, changes fast. A decade ago JP Morgan was the largest bank in the US in market cap - last week it lost its independence because it was too small to compete against competitors that had grown faster.

So niche regions or companies that can move quickly can benefit from globalisation in ways that larger ones probably can't.

Second, culture counts. Up to now, the US has benefited from having the world's most easily exported popular culture, a culture that it has attached to products as well as services. But the new technologies make it possible to distribute niche culture to a global audience: in these islands, Ireland, Scotland and Wales all have obvious identifiable cultural assets that are attractive to the world, and a diaspora that forms an immediate core market for them. Clever English counties could start to think of branding themselves more aggressively, too: Yorkshire, Cornwall?

Of course, globalisation is a threat in the sense that any new source of competition is a threat. But if, as seems likely, we are to get a weekend of demos in Prague, consider the threats of excessive specialisation and the opportunities that flow from levelling the global playing field, thanks to the new technologies.

From a distance, globalisation looks like a tidal wave heading on one direction. From within, it is a mass of complex swirling currents, creating winners and losers in the short term, but ultimately helping increase living standards everywhere.

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