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TechWatch: Controversy, Friction Challenge Globalization

Steve Hilton and Giles Gibbons, in their book Good Business, see globalization as a force for good. “Capitalism and globalization turn out to be the best ways of getting rid of bad working conditions,” they argue. David Korten (Ethix Conversation, September/October 2002, author of When Corporations Rule the World) sees globalization “as neither inevitable nor beneficial … enriching the few at the expense of the many … destroying the real wealth of the planet … eroding the relationships of trust.”

Prabhu Guptara, executive for UBS, suggests that globalization “is the daughter of technology” (see Conversation, p. 8), an inevitable consequence of the technological revolution. John Micklethwait and Adrian Wooldridge in their book A Future Perfect, see it differently. “The world is littered with examples of how hopelessly messy and sometimes contradictory the link between technology and globalization can be.”

How should we think about the issues of controversy surrounding globalization? And what is its relationship with technology? And what are the barriers to the growth of globalization in the future?

Why the Controversy over Globalization

It was just four years ago that the streets of Seattle were filled with protestors during the meetings of the World Trade Organization, October 1999. Though this event marked the “coming out” of globalization protests, they continue. Similar demonstrations marked the recent WTO meetings in Cancun, Mexico in September 2003.

Korten reflected in his book on the Seattle protests with the summary, “thousands of protestors committed to nonviolent resistance courageously stood their ground in the face of violent police battalions.”

By contrast, Lew Platt, former CEO of Hewlett Packard, saw the issues quite differently. In his Ethix conversation he said, “I was absolutely dumbfounded to see IAM workers from Boeing and longshoremen from the Port of Seattle participating in the protests against the WTO. I think these demonstrators must not understand what’s going on. Without robust world trade I don’t think the job of longshoreman exists. And I don’t know how big Boeing would be as a company if it sold only domestically. It’s world trade that provides jobs for most of those people.” (Ethix, April 2000, p. 8.)

Logically, it is easy to align with Platt on this controversy, but Korten touches a deep concern within many people. The world is changing too fast. Globalization means the loss of jobs. It also means the homogenization of culture, which does away with traditional distinctives. Benjamin Barber spells this out in his book Jihad vs. McWorld.

Beyond the societal issues, are the concerns over the sweatshops made famous by past missteps from Nike and Kathy Lee Gifford. Searching for cheap labor across the world in the name of profits for large corporations raises significant concerns over the globalization of business, as does destroying the environment by moving factories to countries with less stringent laws. So it is easy to see the appeal in Korten’s argument.

But, Robert Reich offers a different view in The Future of Success. He argues that we, the consumer, are the ones who drive corporations to lower their prices when we buy only at the lowest price. In turn, this drives corporations to look across the world for lower priced labor. Finally, Hilton and Gibbons provide many examples of corporations supporting social justice as a part of their business in the world.

There remains plenty of room for controversy in the large gap between Korten and Platt.

The Relationship of Globalization and Technology

I find the controversy over the relationship between globalization and technology to be much less murky. A key argument minimizing the role of technology in globalization by Micklewait and Woolridge in Future Perfect is based on the significant decline in global trade beginning around the time of World War I. This is due to increased trade barriers and tariffs that were put in place at that time, along with strong nationalistic fervor of the period. The more recent increase in world trade since the end of World War II, is strongly related to reduction of trade barriers and political positions, rather than the rise of technology, they argue.

However, I would question whether world trade is the proper measure of globalization. Jack Welch, former CEO of General Electric, offered this definition of globalized business at the Boeing Leadership Center in 1999. He said a company may sell its products internationally, or manufacture its products internationally, but this does not make a truly globalized business. Only when it creates products internationally is the business truly global.

This aligns with Guptara’s discussion of globalization.

Since technology is at the heart of the international exchange of ideas, this demonstrates another fundamental role in globalization. Of course, this can’t be measured simply by measuring exports. To illustrate this complexity, Motor Trend magazine, an auto publication in the U.S., stopped giving its foreign car of the year award a few years ago. They could no longer figure out what a foreign car is. Would it be the Toyota, designed in California, tested in Arizona, and built in Kentucky; or the Mercury, built primarily of non-U.S. parts though sold through Ford Motor Company?

Technology has created the software industry in India. This is true not because software is a part of the IT industry, but because technology enables Indian software experts to work collaboratively over the network with companies from around the world. There are no shipping costs for either the raw material (the specifications) or the final product! Any digitized product (software, capital, books, entertainment, etc.) is subject to these same forces.

Thus I would argue, with Guptara and others, that technology is the vital force in the modern form of business globalization.

Forces of Friction

In The Road Ahead, written in 1995, Bill Gates suggests that technology and the Internet will go a long way toward creating “friction-free” capitalism. That is, it will create a seamless path for finding products and prices, making transactions, and changing the nature of the marketplace. Nine years later we can still see at least four sources of friction: trade barriers, lack of common ethical standards, transportation costs, and misunderstandings through electronic communication. I’ve already discussed the role of trade barriers in slowing the worldwide exchange of goods and ideas.

Thomas Friedman, in his book The Lexus and the Olive Tree, says that globalization will actually lead to an increase in global ethical standards around the world. He uses the term “golden straight jacket,” to describe the requirement for open boundaries, rigorous financial accountability, and trusted relationships. Countries that don’t adopt these standards will be left out of the global networks through which business will be conducted. This force is a good one, he argues, driving all countries to a more ethical standard.

When it comes to creating physical goods from raw material, it may be possible to find lower cost labor in other parts of the world. But in order for the corporation to sell goods at correspondingly lower price (or at a higher profit), they must factor in the shipment costs of both the raw material and the finished goods. This is a key source of friction in the design/build/ship/support flow of goods, regardless of the technology. It would suggest that manufacturing jobs lost to overseas subcontractors could come back, in part, through innovation. However, this innovation would lead to fewer jobs in the final analysis. Guptara says it well when he talks about technology “eating up” certain kinds of jobs.

Of course, technology played a vital role in earlier versions of globalization as well. It was transportation technology that made possible the rise of the steel industry in Japan, where they have neither the natural resources for making steel, nor the market to use much of the finished product. But it wasn’t just transportation. Other technology, including robotics, made possible the innovations that caused this industry to thrive. Many companies in the U.S. didn’t make this investment, and lost out.

Parenthetically, the lower costs of labor and weaker environmental laws are not the only factors in moving jobs to other countries. National self-interest is still at work, when nations insist they get new jobs before they buy certain high-priced goods. Hence we get “offset programs,” where terms of purchase require jobs within that country.

Finally, there is friction that comes from communications breakdown in an electronic world. It would seem that information based products might be the ultimate frictionless products in the global economy. It doesn’t matter where they are designed or built, since there are no transportation costs. But, all of us have experienced the loss of clarity that comes from electronic communication without personal contact.

I saw a good example of this between engineers and manufacturing people when I was at Boeing. When the engineers and manufacturing people did not get to know each other, but exchanged information only through a spec sheet, significant misunderstanding arose. This was solved by moving many of the engineers out to the factory floor, where they could fully appreciate the implications of their designs. This closer link between the two parties both sped up the process and improved the result.

So in a global business world, there is a loss when the only communication between the designer and the software engineer is a spec sheet. Overcoming this sort of “friction” requires face-to-face contact on occasion, for all but the simplest of tasks.

While technology has created many opportunities for global networks of tasks, it is important to look at the “friction” in the system to understand the limitations. Today’s outsourcing in this newer form of globalization often ignores this friction.

Conclusion

Globalization is perhaps inevitable, because of technology. But there are huge opportunities for abuse in the new system. Some, like the WTO protestors, may seem to be voicing an illogical position from a business perspective. But underneath what they say is a concern (environmental, cultural, fairness for workers, ethical for business) that must be heard. The sources of friction are many and could bring the system to its knees. Companies, and countries, that want to thrive in this era of globalization will seek to mitigate the abuses, while dealing with the friction.

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Al Erisman is executive editor of Ethix, which he co-founded in 1998.
He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990,
and received his Ph.D. in applied mathematics from Iowa State University.

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