The unsustainability of globalization in the face of ...kolegia.sgh.waw.pl/en/KGS/conferences/world... · 4 © Henley Business School Where business comes to life We have had 30 glorious

www.henley.ac.uk1 1© Henley Business School www.henley.ac.ukWhere business comes to lifeWhere business comes to life

The unsustainability of globalization in

the face of economic nationalism

Rajneesh Narula

1 © Henley Business School www.henley.ac.uk

Where business comes to life

Where business comes to life

2 2© Henley Business School www.henley.ac.ukWhere business comes to lifeWhere business comes to life

• Is globalization an unstoppable force? No! but it is not a buffet where you can

choose to benefits and ignore the costs.

• Freeing up trade and investment in goods and services has its costs, mainly to do

with creating imbalances and enhancing inequalities. Most significantly, it reduces

the power of the state to intervene in shaping the ‘domestic’ economy

• The good news: investing in knowledge infrastructure increases the odds of

coming out net positive. And Europe has a head start. Running complex

multinational firms and managing cross-border institutions is not easily mastered.

• The bad news: the state must provide the public goods that allow its human

capital to upgrade. Or allow free movement of people.

Slowing growth, falling tax revenues, immigration

pushback, Brexit, Donald Trump….

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• Increasing inequality within countries;

• Insecurity of employment, or pensions;

• Growing structural unemployment;

• No meaningful wages or work for wrongly skilled;

• The disappearing government/social safety net (education, roads,

health). States have privatized these.

• A dissatisfied public: Whose fault is it? Not mine! We did

what needed to do/ we want to dream of a better future

• Change is happening too fast! institutions are slow to adapt

Economic nationalism has simple roots. The

public want the benefits, but not the costs

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We have had 30 glorious years of increased

consumption, but now running out of juice

• Globalization stands on three

legs:

– Movement of goods and services

(trade)

– Movement of capital (FDI,

portfolio, loans)

– Movement of people

• Its about de facto economic

integration, in addition to de jure

integration

– EU states has benefitted from both

• Its not all about ICTs

– Bike rentals; Budget Flights;

Amazon; Netflix; Spotify, hotels,

insurance; internet banks

• Its also about:

– Software

– Logistics,

– Transportation,

– FDI in services

– Biotech

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Where has all this growth come from?

• Some (but not all) is about the

emerging economies

– China: from scratch

– End of the cold war

• Shift of developing countries to

openness

– Privatization

• Plus, dormant capital shifted from

black and grey to White

– Capitalising dormant assets

• New markets for

lending/investing

– New governance

mechanisms.

• WTO

• Regional integration

• Industry coordination and

standards

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• Transaction costs have fallen

– Transportation costs

– Coordination costs

– Enforcement costs

– Communication costs

• But not all costs have fallen , and not in all industries and

in all countries, or for all firms

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Where has all this growth come

from?


the MNE has benefitted most

• Largest 300 account for 70% of FDI

• Its still dominated (70-80%) by the

same 20 countries

• Just 20 developing countries continue

to account for roughly 80% of total

FDI flows to all developing countries.

• Massive shift towards services

• Fine-slicing of value chains

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• Coordination is not only between parent and affiliate, but also with

suppliers in host, competitors, regulators, universities, etc.

• Multiply this X 2 X 40

• Collaborate with whom? Outsource from where?

– Yes, outsourcing cost resources! Collaboration also! Reintegration costs,

fixed costs of managing relationships.

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Coordination costs do not decline

continuously as the firm gets larger


• Size still matters

• Local presence still matters

• Institutional and cultural differences still matter.

• Skills of coordinating and managing are not transferable between countries

• Finding the right kinds of skilled people is not easy! This is why firms are using

more expats than ever

• The network MNE is very, very difficult to manage!

• The larger the MNE, the more the complexity!

• Power struggles:

– Who owns what? Transfer prices?

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MNEs are not the solution: not easier

for firms to become multinational


10

The alliance network of Texas

Instruments, micro-electronics


• The cost of globalization is growing inequality, increased structural

unemployment.

– Gig economy;

– Poor quality of jobs – loss of lifetime employment.

– Fewer benefits

• People suffer from inertia: they do not like change, and they suffer from short

memories. Everybody expects to do better than their parents.

• The magic bullet – ‘education and basic infrastructure’ – is no longer what it used

to be.

• who pays? The state has no power to tax cross-border activity. The cost to

society has gone up – health, schools, knowledge infrastructure, pensions all cost

money.

‘Brexit’ is a typical example: too much

uncertainty

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– No

• Consumption based growth is not sustainable. Barring a new

technology wave, we (both the developing and the developed world) are coming

close to have squeezed out all we can, without even more global institutional changes.

• Neither rich nor poor want to tackle :

• Sovereignty

• Free movement of people

• Without handling sovereignty and cross-border regulation,

nothing will change.

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Can the emerging economies drive us forward

(again)?


• Surpluses and shortages – structural unemployment at a global level

• How do governments deal with this? Who pays to retrain farmers?

Bicycle repairmen? IT specialists who only know Fortran?

– New educational systems needed, universities produce skills for a bygone

era.

– Who pays for education - what is the new ‘minimum’? Is education still a

public good? Who pays for your retirement if there are no permanent jobs?

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Employment is the coming big

battleground


• Urban jobs versus rural jobs. By 2050, 70% of the world

will live in cities

• Global trade eliminates rural jobs, but workers cannot be

absorbed by the urban market, or by the urban

infrastructure. workers do not have the skills to survive,

and governments cannot afford the public goods needed

• Investment goes to urban areas, not to rural ones

– (not that different in Norway! Or Poland)

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In developing countries it is even

more complex


• Rich countries have been receiving subsidised human capital

– Rich countries underinvesting in education as well!

• One of the negative consequences of globalization is the price of a

good education is now the same, because the market for the best

minds is global. And developing country public education systems

cannot afford what we in the UK cannot.

• Quality of education matters, and firms will go looking for the best

and pay top prices.

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Brain drain to the rich countries


• Humans suffer from inertia – formal rules change faster than attitudes.

– Economic Nationalism is sure to rise, because globalization means you are

increasingly unable to control the ‘domestic’ economy (and meet the expectations of

the populace). How do you provide public goods and promote equality without

revenues?

– Creating global institutions that have the power to regulate (illegal transfer

pricing, tax avoidance, market-rigging, etc.) are needed, but unlikely to

happen.

• MNEs will have to play along by being more mindful of the sensitivity of societies

• Politics and religion (which are connected)

Globalization may have to go into

reverse, or at least stall

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Thank you!

Rajneesh NarulaProfessor of International Business Regulation

School of International Business & StrategyHenley Business School - University of ReadingE-mail: [email protected]

mailto:[email protected]

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The unsustainability of globalization in the face of ...kolegia.sgh.waw.pl/en/KGS/conferences/world... · 4 © Henley Business School Where business comes to life We have had 30 glorious