After a decade of delirium, globaloney is a word whose time has come. Once the Iron Curtain was lifted, the free market emerged triumphant. As trade walls fell, Western and Japanese industrialists fanned out over the world, searching for big deals, cheap labor and billions of customers. By the middle of the 1990s, the Internet was turbocharging what came to be called globalization. A word rarely heard in the 1980s, it spread like optimism, promoted by big-thinking politicians like Bill Clinton and Tony Blair. A search of more than 40 major English-language newspapers and magazines found 158 stories that used the word “globalization” in 1991, rising to 2,035 in 1995 and peaking at 17,638 in 2000. It was an apt word, to an extent. E-mail was indeed making the world a smaller place, and the long U.S. boom was based in part on cheap new supply and rich new demand overseas. As the dot-com frenzy intensified and markets soared, it became almost shamefully easy to raise money for cross-border merger deals. The urge to “go global” was irresistible.
Before long, globalization took on the aura of an elemental force. It came to mean whatever a person wanted it to mean, whether economic integration or the spread of wealth, Coca-Colonization or the spread of AIDS. For Kofi Annan it was “world inclusivity.” For Bill Gates it was the world united by the Web. For CEOs of many multinationals it was the hope that the same products could be sold everywhere–and the fear that those who did not go global would be swallowed by those who did. These days it inspires nearly as much eye-rolling as “e-solutions.” “When I hear the word ‘global’ in meetings, I’m very careful,” says Antony Burgmans, co-chairman of Unilever. “That’s often the moment you get into trouble.” Very little in business is actually global, he warns. Marketing must attract the local village woman splurging 40 cents on a packet of shampoo.
The G word now faces such deep skepticism that much of it has probably gone too far. Globalization is far from “dead.” But it’s a good deal more ill than you might think. World trade shrank 4 percent in 2001, after growing at a 5 percent annual pace for a decade. This may be just a temporary symptom of the broad global slump, but in 2002 the United States took major protectionist steps backward (on steel and farm subsidies), raising concern that new free-trade talks may be stillborn. Without falling barriers, it’s not clear the boom can resume any time soon.
Global trade has a history of boom and bust. It will come back, eventually. But major international flows of capital were first set in motion only by the market reforms of the 1970s, and may prove even more fragile. Businesses are now investing only a small fraction of what they once poured into new ventures abroad. Investors have been fleeing Third World stocks since the hot-money crises in Asia and Russia of the late ’90s, and now foreign capital is abandoning Wall Street, too (charts).
A growing chorus of critics complains that international authorities are incompetent to thwart an emerging crisis. Even the legend of Alan Greenspan has been questioned, mainly by those who believe that the Federal Reserve’s cheap-money policy helped inflate the “irrational exuberance” he once saw on Wall Street. The International Monetary Fund is vilified ever more widely for micromanaging troubled economies into more trouble.
All this magnifies the uncertainty of multinationals, which are too worried to invest at home, much less abroad. Many mergers that defined the new global age (DaimlerChrysler, Vivendi Universal) are now limping. In 2001 Vivendi CEO Jean-Marie Messier bought a New York apartment, symbolizing his transformation of an old French water company into a global media conglomerate. In 2002 Vivendi fired Messier and began selling assets he’d acquired, including the apartment.
Globalization is not a 20th-century invention. After all, companies have long been seeking world markets. In 1628 King Charles I chartered the Massachusetts Bay Company to colonize the New World. When Americans rebelled, it was in part out of fear that crown trading companies had reduced India to slavery and would do the same to them. “The British East India Company was the McDonald’s of the day,” notes Princeton economic historian Harold James.
It was not until after World War II that globalization, American style, started to build up. In 1975 there were still only 7,000 multinational corporations; today, there are more than 60,000. Once the Berlin wall fell in 1989, big-company CEOs were taken by books like “The Borderless World.” But what followed was often just talk. PricewaterhouseCoopers consultant Frank Brown says clients would beg for help to “get global,” then make a thin commitment to it by opening up a two-man sales office in China. Many smaller firms saw the Web as a shortcut to reach world markets.
With cutesy titles like chief global pathfinder, dot-com executives were key to the spread of globaloney. Paper millionaires living in virtual reality seldom realized that opening offices in 20 countries meant filing real papers with real bureaucrats.
In Old Economy boardrooms, “G” also came to stand for “giant.” In autos, telecoms, media or finance, companies had to be big, and they had to be everywhere. CEOs parroted Jack Welch of General Electric in declaring their aim to become the first or second largest firm in their industry. But in the zeal to go global, some went bust. Remember Iridium? A $5 billion project backed by Motorola and other tech firms, it launched 66 satellites to create a global mobile-phone network–failing to foresee how quickly land-based rivals would make its plan obsolete. Iridium went bankrupt.
What people read about the wonders of globalization didn’t always match up with their daily lives. If globalization is so great, muttered some Americans, why is my job now in Mexico? Activists’ criticism of multinationals for hiring Asian sweatshops or destroying the rain forest began to attract headlines. Ironically, the criticism further inflated the G word. By 1999, when riots erupted at the World Trade Organization summit in Seattle, the foes of globalization were doing as much to hype it as supporters were. Veseth thinks all this is over the top. McDonald’s as ruler of McWorld? Its franchises are run by locals. Michael Jordan, the personification of American culture dominance? He’s one of a kind. “People exaggerated globalization because they had something to sell,” says Veseth. “Now they exaggerate it to oppose it.”
Once the dot-com bubble burst in March 2000, the end of globalization hype could not be far behind. One by one, American-style CEOs lost their jobs in Europe, including Messier and Thomas Middelhoff of Bertelsmann media. With little fanfare, companies from Marks & Spencer to LVMH began selling off some of those must-have international assets in what became a de-merger wave. The terrorist attacks of September 11, 2001, put globaloney on ice, though the dire predictions did not materialize: airlines are flying, container traffic is rolling and multinationals can still produce in the developing world. But the rules are far less certain.
It is now economically correct to point out the world was never as global as it pretended to be. Wal-Mart may have made a highly public push into Germany and Britain in recent years, but by one estimate only 6 percent of its sales are outside North America. “To call them global is very flattering,” says Pehr Gyllenhammar, chairman of insurer Aviva, because home-country execs like to be seen as cosmopolitan. Financial markets are still almost provincial. Just try to wire $30 in petty cash from New Delhi to New York (it’s against Indian currency laws). Even international trade has never been as open as optimists implied. It still accounts for only about 10 percent of the U.S. economy, and the bulk of world trade occurs within regions like Europe or North America.
But the anti-global forces have not exactly been vindicated. One outcome of the current debate is a debunking of their charge that world trade benefits the wealthy at the expense of the poor. A main source for this argument is a 1999 U.N. report, which found a widening gap between increasingly rich nations and increasingly poor ones. But Xavier Sala-i-Martin of Columbia University later found that weighting the data by the size of national populations, rather than, say, counting Grenada as the equal of China, shows dramatically rising living standards for both rich and poor. Yes, the gap may be widening, but globalization has made everyone better off. The hitch: remote states of Central Asia and Africa remain outside the reach of global investors and traders.
A lot of people stand to benefit if globalization makes a big comeback. Direct investment (in factories and businesses) has taken a hard hit, but will rise again as companies continue to search for new markets. Trade is likely to pick up with the world economy.
Historians are careful to point out this is no sure thing. Global finance is a shambles. Another crisis now, when banks are not as well capitalized as they were during the 1998 emerging-markets contagion, could spill over into trade if it is compounded by bad policy. That’s what happened in the run-up to the Great Depression. Trade relations are like riding a bicycle, warns Princeton’s James: “Just staying where we are is the least likely of outcomes.”
It’s too soon to know which way the world will pedal. So far, much of the retreat can be blamed on the recession. “We came to perceive globalization as irresistible and immutable,” says Paul Laudicina, managing director of A.T. Kearney’s Global Business Policy Council. “We are guilty of the opposite excess now.” It would be nice to think the world can find a rational balance, but after a decade of wild hype, it may be too much to imagine.
