Redesigned Global Networks Must Pay Attention to Previously Ignored Regions, Countries
More than 75% of respondents to my recent globalization survey thought that the world – and the U.S. economy – benefited as economies, cultures and populations grew more interdependent over the decades.
But as we know, globalization’s image has suffered over the last few years. That probably has something to do with why 23% thought globalization was somewhat unbeneficial or not beneficial.
That 23% probably are thinking about areas that have not benefited from decades of globalization. But truthfully, those areas have suffered because countries have pursued policies that undercut the benefits of globalization – tariffs, quotas, taxes, subsidies. Such barriers distort comparative advantage, incentivize inefficient resource allocation and leave entire regions and countries behind.
While executive leadership cannot do much about the global context of politics, wars, they can respond to the ongoing VUCA (volatility, uncertainty, complexity, ambiguity). The best way for us to level the playing field is to redesign our global network, examine the entire world as our supply depot and try to make sure that other regions benefit from comparative advantage.
Globalization/Deglobalization – Survey Says …
But first, let’s take a closer look at the survey results. I asked, “Is globalization a net benefit to global living standards and the U.S. economy?”
- 52% of respondents said “extremely beneficial.”
- 25% of respondents said “somewhat beneficial.”
- 6% of respondents said “somewhat unbeneficial.”
- 17% of respondents said “not beneficial.”
The Benefits of Globalization
The benefits of globalization have been profound.
Globalization has increased economic growth, opened up new markets and promoted trade. Companies operating in global markets create jobs and economic diversification. Globalization promoted cultural exchange, which fosters tolerance and understanding. It also promoted technological advancement, innovation and improved living standards as comparative advantage (more on that in a bit) made goods more affordable.
In fact, according to The World Bank, the global poverty rate plunged from 36% to 9% between 1990 and 2017, lifting 1 billion people out of poverty. The World Bank uses national poverty lines to measure poverty worldwide. A United Nations report puts the number of people lifted out of extreme poverty at 2 billion. (The U.N. defines “extreme poverty” as living on less than $2.15 a day at 2017 purchasing power.)
A lot of that benefit comes from comparative advantage.
Comparative Advantage
I recently analyzed the path global supply chain leaders must follow to respond to today’s world of constant VUCA.
Comparative advantage plays a key role. Comparative advantage or specialization goes back to the beginning of civilization. Each family did not try to do it all – instead, people who specialized in farming farmed, hunters hunted, blacksmiths blacksmithed, etc.
Trading the surplus allowed people to increase their standard of living. As the world evolved, such trade went beyond the village, beyond the community, beyond the region and beyond the nation.
When comparative advantage is allowed to play out, the world is flat (apologies to Thomas Friedman, author of the book The World is Flat). Unfortunately, politics and VUCA keep getting in the way.
That 23%? They Have A Point
Despite the unmitigated benefits of globalization, those negative views are not wrong.
They simply have a different perspective. They see how China has accrued many of the benefits of globalization. They see how leadership in the West is responding to decades of Chinese anti-competitive practices with our own subsidies, tariffs and quotas. They see areas of the world that did not benefit as much from – large swaths of Southeast Asia, India, Africa and South and Central America, even parts of the United States.
Executive leaders cannot repeal trade laws, tariffs or export controls. We cannot eliminate VUCA.
We can, however, examine our entire global network. The only way we can deal with whatever VUCA comes around the next corner – and there will be more in a world of perpetual disruption – is to continuously redesign our supply chains in an attempt to flatten the playing field.
As we flatten the playing field, we need to reflect on the 23% who view globalization in a negative light. Beyond regions of the world that have not benefited, I am sure they are thinking of the jobs that disappeared in areas like the U.S. Midwest and the South – manufacturing, textiles and more. Many have been hurt by an uneven playing field, and we need to make sure that free and fair trade mandates the winners and losers, not the political gamesmanship that has hurt so many communities.
I would love to discuss what your organization is seeing as you examine your global network with an eye toward the future.