The Lexus and the Olive Tree: Understanding Globalization

I have been reading Thomas Friedman’s The Lexus and the Olive Tree. Here are some comments I would share:

The overall point he makes – that the world is changing with commerce becoming more global now that the Cold War is over – is obviously correct.

The book was written at the height of the dot.com bubble, and Friedman was more impressed with the impact of the technology then than I am now. But many of us were more optimistic seven or eight years ago.

The book seems to assume that the virtues of the American system that lead to rapid innovation in Internet technology were the virtues of the future. It was not so long ago that the virtues that Japan typifies, virtues that lead to technology deepening and high quality, were seen as paramount. The Economist has suggested that in the future the situation may change and Japanese style virtues may again dominate those of the American style (or indeed, the virtues of Indian or Chinese culture may dominate).

Friedman treats the Information Revolution as if "all good things go together". He seems not to consider that people with malevolence in their hearts will seek to harness the technology for their own ends, to the detriment of others. Unfortunately, some of the corrupt are likely to enhance their corruption with ICT; some of the power hunger are likely to utilize the technology to coerce more effectively; some of the greedy are likely to achieve their greedy ends at electronic speeds. While Friedman recognized that hackers might use ICT for destructive ends, he did not seem to foresee that terrorists would use their laptops and the Internet to advance international terrorism.

Friedman is a journalist and the book is often fun to read, since he has developed the skills of a professional newspaperman. It is full of anecdotes and quotes from people who generally have something to say. I found however, that it took too long to make its points, and that it lacked the rigor that a more quantitative treatment might have produced. Arguing anecdotally is helpful when the anecdotes are prototypical, but dangerous when they are atypical. Interviews are great when the interviewee is right, but perilous when the interviewee is wrong.

The chapter on the McDonnald's theory of modern war already had to be revised between the first and second edition of the book. Friedman did not seem to predict that the United States and a few allies would invade Iraq. He does not discuss the high level of civil and limited wars.

The Lexus versus the Olive Tree

The title refers to the warring tendencies for growth of political and economic systems to take advantage of economies of scale versus the emphasis on local autonomy and local control. This was an issue faced by the founding fathers of the United States of America, and resolved for centuries in the U.S. Constititution.

Today globalization is clearly taking place. It is not the first time that large areas have been unified for commerce. One thinks about the Persians, the Greeks and Phoenicians, the Romans, China and the Mongols. At the peak of Islamic power, it was possible for a Moslem to travel peacefully from Spain to China in Islamic lands. In all these cases, there were limits to expansion related to the transportation and communications technologies of their times. The political and economic institutions differed from empire to empire, but all of these failed eventually.

In the time leading to World War I, European powers created huge colonial empires, and there was an era of globalized trade analogous to our own. That era ended with the two world wars and the Great Depression. I suppose the current era will also end, but Friedman doesn’t seem to tell us how or when.

Free Market Capitalism

It seems to me that Friedman sees the American brand of Free Market Capitalism as providing the basis for globalization, and this is certainly true in the sense that the fall of Communism undermined Communism as an alternative. He was writing at the peak of success of the Washington Consensus, which defined privatization of state enterprises and export-oriented production as priorities for development. The book today seems optimistic about the universality of the American brand of capitalism given the success of countries such as India and China with their versions, the failures of Latin America and Africa to grow rapidly and their versions, and the continued success of more socialistic states in Europe.

The six D’s

The book sets out six dimensions for the analysis of globalization, based on Friedman’s learning experiences as a reporter: politics, culture, technology, finance, national security and environment. Not a bad list, if somewhat short.

The main item left out, in my opinion, is the nature of the real world. It counts who has the oil! HIV/AIDS is a factor in Africa. Land-locked countries lag economically. Geographic access to markets helps.

Friedman’s concern with institutions and governance seems pretty conventional. Everyone I know has talked about getting the institutions and policies right for decades.

Getting institutions right is not all that easy. The United States, for example, has institutionalized a political system that gives rural states more Senatorial power in comparison with the large urban states than their population would justify. This will not be easily changed. We have institutionalized worker protection systems (insurance, pensions, wage increases) and some of our enterprises are finding it difficult to compete in the new globalized economy, but the protections will not be easily changed.

This blog focuses on Knowledge for Development, and I was pleased to read in the just published Global Industry Report of UNIDO that they see knowledge as a key determinant of success. The knowledge stock of a people is not to be expanded quickly nor cheaply, and knowledge depreciates as that used in a poor society will not serve to operate the richer society to which it aspires. Friedman underestimates the importance of knowledge.

The Internet

The book treats the Internet as a magic carpet. Friedman did not seem to realize that the growth of the Internet would be most rapid among those who already had telephones and computers, and would slow down when people had to get one or the other for access. It slows down further when people have to hook up the electricity before they can plug in the computer and install the telephone, and further still when they have to build the road to lay the power lines before the electricity is available. There is a lot of the world still without electricity and telephones!

Don’t get me wrong. I think the Internet is a great thing. Just not quite as great as Friedman portrays it.

He writes glowingly about the growth of mobile phone access. I think that most of what is happening is that people with home and/or office phones are adding personal, mobile phones to the mix. Certainly wireless technology makes phone connections affordable to poor people who could not afford land lines to their villages, but the technology is not yet a panacea for connecting the poor.

Friedman does not address broadcast technology, but that is now transforming in developing nations as it was in the early 20th century in the United States and Europe.

Friedman seems to assume that once there is connectivity, there will be access, use, and benefit. He does not address the issue of content. Nor does he address the issues of reengineering and structural adjustment that are required to achieve the full benefits available from information and communication technologies.

Winner takes all and the elimination of poverty

There is an interesting discussion about the huge salaries that stars of the international media receive. Friedman extends the metaphor to companies and nation states without much thought. It seems easier to make a million selling one movie to a global audience than to make a million selling food to that same global audience, and Friedman does not seem to realize that there is a difference between goods were use by one person excludes use by another versus those goods that can be used by many without loss to any.

Divergence between the wealth of rich countries and that of poor countries has been the rule for two centuries. There was “club convergence” after World War II, when the countries that had been heavily damaged during the war rebuilt. A few countries have crossed the gap between poverty and prosperity – notably the Asian and Celtic Tigers.

I think that the citizens of all countries are increasingly realizing that good government, good institutions, and good policies count. There is hope that more countries will develop rapidly. But unfortunately the success of poor nations is less likely than Friedman appears to suggest.

An alternative view

I wonder whether it might be more useful to view regional development, and the interplay among great regions of the world:

· Europe is unifying economically and politically under a common market and the EU;
· The North American Free Trade Association is faced by huge disparities between Mexico and the Anglophone nations, and the United States faces the challenges as the sole world superpower combined with the need to reengineer its institutions and policies to continue its world economic leadership;
· The nations of the former Soviet Union are seeking to build new institutional frameworks, as well as new political and economic culture;
· The former satellites of the USSR are moving into the Western European block’
· China is embarked on a highly successful economic development, while seeking to adapt political institutions to its changing reality;
· India too is embarked on a successful economic path, and is also seeking to perfect its political institutions;
· Latin America, after a long hiatus of lackluster economic performance, is seeking new solutions to its economic problems and seems to be moving to the left politically;
· Africa is seeking to emerge from decades of economic stagnation, inept and corrupt governance, and a plethora of failed and almost failed states.
· The Islamic world is seeking to find an Islamic path.

I don’t think “globalization” as a conceptualization captures all of the richness of these paths.