Redefining Global Strategy (or would you rather be a Jackalope?)

Pankaj Ghemawat, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter. Harvard Business School Press, 2007.

Thomas Friedman has famously argued that the world is flat -- that globalization has reduced many of the barriers to competition that once existed between and among countries. You've got to study hard -- invest in education, infrastructure and knowledge -- if you want to succeed in the flat world. Otherwise some smart guy from Bangalore is going to take your job! There's little to prevent this in the flat world of globalization today.

I suppose you can think of Pankaj Ghemawat as that smart guy from Bangalore, although he's really from the Harvard Business School and IESE Business School in Barcelona. He's studied globalization good and hard and ... guess what? ... it turns out the world isn't flat after all. Globalization isn't complete -- it is "semiglobalization" at best -- and businesses (and by extension, I suppose, nations, although he doesn't really talk about this) need to take into account the differences if they want to succeed.

The book is written in Business-schoolese, with diagrams, acronyms and lots of exclamation points (although, to be fair, it is far from the worst offender in this regard). Ghemawat uses the acronym CAGE to denote the differences among countries: Cultural, Administrative, Geographic and Economic. He does a nice job using this framework to show why India's trade with the United States has evolved along different lines from the China trade. India has Cultural advantages (more English speakers) and Geographic disadvantages (Indian ports are much farther away from the U.S. and are logistical nightmares compared to more efficient Chinese ports). This helps explain why China exports more products (where language is less important and ports are critical) while India exports more services, where language is key and electronic delivery sidesteps transportation bottlenecks. The full analysis is much more complex than this, of course, but you probably get the idea.

The CAGE differences also create regional CAGE similarities. One of the defining characteristics if semiglobalization is regionalization and it can take many forms. We are used to thinking of regionalization is Geographic terms, but there are also Cultural regions (the English speaking world, for example, or the Indian and Chinese diasporas) as well as Administrative regions (collections of countries with common legal systems and government structures due, for example, to common colonial influences) and of course common Economic regions (the
US-EU-Japan triad countries with their high incomes and large markets).

How does a business deal with CAGE differences and similarities? With AAA strategies, of course! AAA stands for Adaptation, Aggregation and Arbitrage. Some companies learn to adapt to the differences in order to succeed. Adapting can be costly, but it is often cheaper than the mistakes you make when you don't apart. Others choose their markets carefully so that they fall into one of the CAGE regions. Then they can Aggregate based upon commonalities and profit from economies of scale. Finally, businesses can Arbitrage the differences among countries, especially in production though variations on outsourcing. Luxury goods companies, which are some of the most successful global businesses, often arbitrage cultural differences, for example.

The most successful businesses will find ways to profit from two of the three As, Ghemawat suggests but he cautions against trying to employ all three strategies, comparing the resulting business a Jackalope (see drawing at right). I wonder if there are enough internal trade-offs among strategies that they form a trilemma -- pick two and the third is impossible? Ghemawat doesn't suggest a trilemma, but he is sure skeptical about the potential of a AAA play.

This is a very interesting book that deserves the attention it has received recently -- and not just because it disagrees with Thomas Friedman. When I started reading it I was fascinated by the brief case studies that Ghemawat uses to illustrate his framework, but annoyed with the framework itself with its acronyms and B-school jargon. I liked the stories but I wasn't that keen on the lectures that they came wrapped in. But, to my surprise, the frameworks became more and more useful as the complexity of the problems increased. Now I cannot wait to try to apply Ghemawat's analysis to the global wine market and so to write a new story myself.

My advice: stick with this book and you will be rewarded. Otherwise you could end up with a strategy that is as well designed as a jackalope.

The Discovery of France

Graham Robb, The Discovery of France: A Historical Geography, from the Revolution to the First World War. W.W. Norton, 2007.

This is probably the best non-fiction book I have read in 2007. It is an eye-opening (and imagination stimulating) account of the "discovery" of France by its own people in the 18th and 19th centuries. Discovery? Well, yes. Much of France was unknown, even to the French, until as late as the 20th Century. The famous Gorges du Verdon, the most monumental geological site in all Europe lay undiscovered (except by the locals, who always knew it was there) until a hundred years ago, despite being placed only a few miles from a provincial center.

The discovery of France begins by explaining why discovery was necessary. Communication was difficult and sometimes impossible because of the complex set of languages and local dialects that existed in France and persist today. There was no lingua franca in France until the state determined to make Parisian French the standard -- over all objections. Discovery was further frustrated by systems of roads and transportation that made travel to some places all but impossible.

Lack of human contact combined with impenetrable language barriers predictably created isolated cultures with intensely suspicious local residents, who, in the first chapter, are frightened enough by anything new to hack to death a government surveyor who has entered their small little world to make a map of it.

The story of why France was undiscovered and the role of the state, technology and economics in finding it is fascinating and is told here with real style. I found something to appreciate on almost every page. Having read this book, I think I have a better understanding of French colonial policies during the golden age of French globalization (I wrote about this in Chapter 8 of Globaloney). French colonial policy was to wipe out native language, culture, food, etc. and replace it with standard Parisian practice -- an external policy that clearly reflected internal fears and concerns.

Rodrik on One Economics, Many Recipes

Dani Rodrik, One Economics, Many Recipes: Globalization, Institution, and Economic Growth. Princeton University Press, 2007.

You can think of this book as a highly rigorous reply to the Washington Consensus. The Washington Consensus, as it has become enshrined in the development literature, was a simple universal prescription for structural change and economic growth. One problem with the Washington Consensus was that it often didn't work, sometimes with tragic consequences.

Dani Rodrik, Professor of International Political Economy at the Kennedy School of Government/Harvard, explains why. Economic growth is very important, he says. It is just about the most important thing you can imagine for a less developed country because most of the other goals that you might propose are difficult or impossible to achieve if growth is not present. There is a reason why development economics is biased towards growth.

But when we look at the data, we find that there is no one sure path to development. Rather there are many successful recipes for growth (and many unsuccessful ones, too). If the world is going to grow, including especially the less developed countries, the world is going to have to accept that that growth will be diverse, powered by different engines and following different rules of the game.

The rules of the game are economic institutions. Rodrik argues that as much as markets are needed for economic growth (that's part of the Washington Consensus), effective market-supporting institutions are also needed and these institutions need to be designed in ways that take into account economic, political and even natural resource differences among countries.

The diversity of successful development requires us to rethink the institutions of international economic governance, too. The WTO, for example, has become mainly a forum for economic liberalization discussions. But free trade isn't a goal, Rodrik argues, it is a means to a goal -- the goal of economic development. The WTO today actually undermines that goal by trying to shoe-horn different countries into a single model of economic institutions. A development-driven WTO, he says, would instead take on the more difficult job of mediating trade tensions that result from the institutional diversity that economic growth requires. Free trade would be slower to develop with such a WTO in place, Rodrik suggests, but economic development might progress more evenly and at a faster pace.

This is a thorough and thoughtful critique that enlightens by going beyond the usual generalizations about the Washington Consensus and development, replacing overstatement with tight analysis and thoughtful consideration of the data. And it is very readable, too.

I must admit that I was initially disappointed when I opened One Economics. The book is a collection of nine papers, some that have already been published and some that are still "forthcoming." I am not a big fan of collected papers volumes because they seldom hang together very well. I would almost always prefer a purpose-written book that makes good use of the format to present an extended but tightly organized argument rather than presenting bits and pieces written at different times for different audiences.

It seems to me that purpose-written books almost always have more impact than collected paper volumes. That's why Joe Stiglitz, Jeffrey Sachs and Naomi Klein write them. But they take more time to write, too, which is a factor. Rodrik does a pretty good job dealing with the inherent problems of this format, in my opinion, but I wish he'd find the time for a big book.

The Shock Doctrine

Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism. Henry Holt, 2007.

In Chapter 2 of my book Globaloney: Unraveling the Myths of Globalization I provide a users' guide to the rhetoric of globalization and explain how to manufacture bogus arguments about globalization that readers will lap up like warm milk. Here's how it goes:

First, don't base your argument on facts, base it on images and metaphors. They are more readily manipulated that facts.

You need evidence, so use exceptional cases and pretend that they are typical cases. Arrange these exceptional cases like breadcrumbs that will lead the reader inevitably to an extravagant conclusion that neither metaphor nor selective evidence can possibly support.

And then say that you don't really mean to draw such an outrageous conclusion, even if your carefully chosen facts seem to lead there. You can deny with confidence because the damage is already done. Your reader is hooked.

In Globaloney I show how Adam Smith used this technique to make the case for global free trade based upon what he saw one day in a little Scottish pin factory. Smith was the master of this sort of rhetoric and Naomi Klein shows that it still works.

Metaphor: Economists give the name "shock therapy" to economic reforms that are implemented all at once rather than phased in a little at a time. The common argument for shock therapy is that vested interests can resist and distort gradual policies. It is necessary to break those interests to achieve real change, hence the all at once approach. Poland had shock therapy. The shock was a hard one, but economic and political reforms did take hold. Russia went the gradual route and you can see how successful they have been in breaking up the power of the oligarchs and political elites.

There is also a medical treatment called shock therapy (electro-shock therapy, actually), which, we are told, aims to wipe out a person's personality so that she becomes a clean slate and can be reprogrammed from scratch. The people in charge presumably have the power to decide what the new personality looks like and they reprogram to suit their interests. My descriptions of economic and psychiatric shock therapy are both oversimplified, but you get the point. And you can probably see where this is going.

Since the names of the two therapies are the same, they must be the same. The logic of electro shock must have informed the practice of economic shock therapy? The strategy of shock therapy therefore is to erase a nation's personality and replace it with the neoliberal caricature that serves the interests of the evil doctors who run the world economic system. Since shock therapy is introduced during crises and disasters, it is necessary to take advantage of disasters, or perhaps even to manufacture them as an unethical psychiatrist might manufacture a nervous breakdown to create the opportunity to electro-shock treatment.

Now you need evidence, and Klein provides dramatic examples of shocks that range from Chile under Pinochet, Tiananmen Square, Hurricane Katrina, the tsunami in Southeast Asia, and now Iraq. Is it a accident that all these disasters were followed by the introduction of market fundamentalist reforms and an invasion by transnational corporations? Coincidence? You be the judge! Doesn't it seem like someone must have been pulling the strings? Someone with an interest in creating disasters in order to take advantage of them.

And of course Klein's readers draw the conspiracy theory conclusion because they are probably already leaning that way. Besides, that's where the breadcrumb trail leads. So Klein can disavow this conclusion in confidence that her point has been made. Nice!

I've been following the press reaction to The Shock Doctrine and it is pretty interesting. In an interview in the Financial Times Klein defends her use of the shock therapy metaphor not because it is particular accurate, but because it was fair game. The economists in favor of all-at-once reforms are the ones who invented shock therapy as a metaphor, she says, I just turned it against them.

Joseph Stiglitz wrote a tortured review in the Sunday New York Times Book Review. He doesn't seem to want to say anything really nasty about Klein's book, perhaps because they are both icons of the anti-globalization movement and are fated to share the stage of anti-G events. But he has trouble saying much that is good about it, either. Stiglitz is an academic (and Nobel laureate) not a journalist like Klein and he's aware that his comments will be held to a high standard, so he ends up justifying Klein's opposition to neoliberalism not based upon her own overstretched metaphors but because of important institutional economic factors that Stiglitz has written about in his books. She's right, he seems to say (or maybe partly right about some things), but for the reasons that I've written about elsewhere.

The core of Klein's argument is not bullshit. Change does tend to come as a response to crisis and, when crisis strikes, everyone tries to turn it to their own advantage by capturing the issue and bending or spinning it using metaphors and dramatic special cases. The key word here is everyone. It isn't just that businesses try to make a buck or that neoliberals with a political agenda try to transform chaos into order of their own design. Every interest does this, not just the ones that Klein chooses to highlight. You can see this in the reaction to 9/11. Writers and politicians of all stripes and all ideologies used that crisis as a tool to sell their products, services, policies, ideas and campaigns. And it is still going on. Naomi Klein, obviously, is doing it herself with this book.

The problem of issue capture in the aftermath of a crisis is a serious one because crises are always with us and they are more immediate and personal (and therefore more exploitable) in this age of information technology. So the opportunity for and payoff to issue capture have both increased. Is this book playing the game it seeks to expose by manufacturing a crisis crisis and then spinning it into an anti-globalization narrative? Hmmm. Well, I never said that. But just follow the breadcrumbs ...

Supercapitalism

Supercapitalism by Robert B. Reich. Knopf, 2007.

When I was in elementary school I would sometimes "cheat" on books by reading the last chapter first so that I would know how everything turned out. I thought I was being smart by doing this, but I probably ruined the books and spoiled a lot of surprises. I've tried to resist the temptation to cheat since third grade and I've been successful, mostly.

But I couldn't stop myself from cheating on this new book by Robert Reich. I tried to read it the honest way, but I got all bogged down in Reich's pointed re-telling of 20th century American political and economic history. I guess I have just read too darn many books that selectively tell that story in order to lead the reader to a particular (and seeminly inevitable) conclusion. I even did this myself in Mountains of Debt. So I cheated and jumped to the final chapter, "A Citizens Guide to Supercapitalism" and I'm glad I did.

That final chapter really cuts to the case and the points that Reich makes there makes me as glad that he wrote this book as I was sorry about it when I was working my way through the history. Herewith a quick summary.

Capitalism and democracy don't necessarily come together as a package, but they do work effectively together because capitalism allocates power in one way, which can be subject to abuse, and effective democracy creates a countervailing power that can correct or offset capitalism's faults. Capitalism, for example, creates prosperity and inequality. Democracy can (and should according to Reich) act to reduce the inequality and rein in capitalism's abuses generally. You can't expect capitalists to act in the public interest, that's not their role. You need an effective political system to do that.

Capitalism and democracy (which Reich associates with an almost golden mid-century era) has been replaced by hyper-competitive supercapitalism. Corporations are now driven even more intensely to serve the interests of their customers, who want more for less, and their investors, who want more and more. Business can's afford to look after social interests because this increases costs and lowers profits and and neither customers nor investors will tolerate that. One false move and buyers and investors will move on to someone or something else -- and there's always something else in the huge global economy. Reich's corporations are not the masters of their universe but the victims of it.

At this point you expect Reich to condemn capitalism, or at least the capitalists, but he won't do it. He lays the blame at the feet of the politicians who are busy soliciting contributions from these very corporations. They capture the corporate donors or are captured by them. In any case, they don't any longer play the role of balancing the forces of supercapitalism because they are part of it. The real problem with supercapitalism, he argues, is not so much capitalism as democracy -- and his book is really a plea (and a plan) to try to restore democratic institutions so that they can play their critical balancing role in society.

I found much to agree with in Reich's analysis and I recommend this book -- or at least the last chapter!

Globalization and Football

David Goldblatt, The Ball is Round: A Global History of Football. Penguin/Viking 2006.

I'm gearing up to teach a course on globalization and football (soccer), so I couldn't resist ordering this book from Amazon.co.uk (it will be published in the U.S. next year) based on a glowing review in Four Four Two, the British football magazine. Well, I guess I have to give it a glowing review, too. Better than Harry Potter, if you are interested in the political economy of sport!

It's a fat book, 911 pages of text plus notes, bibliography and index. You might wonder how anyone could have that much to say about a game, but then you would probably be missing the point. Goldblatt in an IPE scholar as well as a football fan (I'm using a book that he co-edited in one of my classes this fall) and so he cannot help thinking about how the play on the field reflects the economic, political and social conditions in society more generally. His history of football over the last 100 years is therefore interwoven with a a critical analysis of world history during that era so that the context and connections are clear. You cannot help but be impressed with Goldblatt's mastery of all of this history and his detailed knowledge of football. It is an incredible achievement. I will certainly use this book in my course.

This isn't to say that the book is perfect. I would say that the analysis of European and Latin American football and society is the book's strength. Africa is almost as good, I think, but less complete. The analysis of Asia seems superficial by comparison. And the United States? We are hardly there at all! But that's appropriate, given our place in the global football market.

The Beautiful Game

Leon Grunberg and Sunil Kukreja (editors), Discourses on the Beautiful Game. Ashwin-Anoka Press (New Delhi/Kuala Lumpur), 2007.

Soccer is the beautiful game, of course, and it is more than a game. I wrote a chapter on the globalization of soccer for my 2005 book Globaloney and my friend and colleague Sunil Kukreja invited me to edit an excerpt of that chapter for a special issue of the International Review of Modern Sociology, which he and Leon Grunberg edited. That special issue has now appeared in book form.

Reading through the book, it is easy to understand why I say that soccer is more than a game. The nine articles (by an international group of scholars) deal with such topics as why American's do not embrace professional soccer the way the rest of the world does (that's my piece), why soccer is important to the identity of English soccer communities and how soccer figures into post-colonial relations in Algeria. Other articles deal with soccer economics and team management, the use of performance enhancing drugs in professional soccer and persistent issues of racism and hooliganism.

What makes soccer so interesting, of course, is that it is a game that reveals so much about both the players and the spectators and the world they live in. That's why the study of soccer (as a lens through which to view bigger issues) has caught fire in academic circles. I'm even going to teach a course about it in a couple of years.

Two of my favorite books about soccer and society are Futebol: Soccer, the Brazilian Way by Alex Bellos and A Season with Verona: Travels Around Italy in Search of Illusion, National Character, and...Goals! by Tim Parks. Click on the links and scroll down to read the reviews.