Hurdles to globalization

January 28, 2007|By Alan Randolph

Thomas L. Friedman argues in The World Is Flat that we are in the midst of powerful trends in the global economy that present exciting opportunities and challenges. Gaps between nations and cultures are closing, and a very different way of life is in the making.

Having spent six months last year teaching and conducting research on trade and international business in Peru, and making study trips to Chile, Argentina and Colombia, I can say that Mr. Friedman has it just about right. What needs to be added to the discussion, though, is an acknowledgement that while there is a flattened landscape, there are also high mountains - and those obstacles could inhibit our society's ability to adjust quickly to forces on the rise in emerging markets around the globe.

Peru - indeed, all of Latin America - is faced with a decision of whether to choose leaders such as Hugo Chavez in Venezuela and Michele Bachelet in Chile. There is too much extreme poverty, the middle class is squeezed, and increasing numbers are leaving to build a better life elsewhere.

Meanwhile, Maryland is leaching manufacturing jobs as wealth concentrates in sectors such as high-tech, education and security.

Mr. Friedman says the world has been transformed by three converging forces: advances in technology, the fall of the Berlin Wall, and the continuing progress of business in establishing new markets and practices in the post-Cold War era. No argument here. As a business professor who has led students in Brazil, China, Poland and Germany, I was excited to live in Peru and study one of these newly opened markets. I knew I could gain insights about the U.S. and Maryland by viewing them through the lens of a sometimes forgotten continent.

It's this "sometimes forgotten" status of South America that proves to be the dark side of Mr. Friedman's point. With more than half of Peru's population making less than $200 per month, this country is hardly flat. Peru has wonderful natural resources, such as world-class wool and cotton, craftsman-grade silver and gold, wood, and fabulous cuisine. But educational and infrastructure problems hold back this country of about 28 million from being part of Mr. Friedman's vision of the 21st century.

What does Peru's plight have to do with us? And with Maryland?

Well, a lot. A recent BusinessWeek article asserts that the global economy has overwhelmed the ability of any government to control its domestic economy. For example, U.S. tax cuts have not led to the predicted increase in jobs. Too many jobs have gone abroad, and our country's gross domestic product is not growing much - recently around 2 percent annually. The number of people in poverty and without health coverage is rising. At the same time, foreign investments are up. It's clear that the global economy is driving the U.S. economy with cheap goods and cheap money.

How is this economy changing Maryland? State records show that manufacturing jobs here are down more than 8 percent since 1997, but overall there are 9 percent more jobs since then. Jobs in educational services are up 75 percent; science and technological services are up 35 percent; construction and information jobs are both up 28 percent; arts and entertainment jobs are up 20 percent. Maryland's GDP has risen by 60 percent since 1997, with inflation around 4 percent.

We are also an impressive exporter of goods to places such as China and Germany. Maryland's exports to China have jumped more than 250 percent since 2000. The state's exports into a sluggish German economy are up nearly 75 percent over the same period.

So, you could argue that Maryland is both gaining and suffering in the global economy. But over time, what will happen if we keep widening the gap between the well-off and not-so-well-off in our state? What if we import more and more of the basics, such as carpentry or masonry, while we excel at making highly sophisticated goods for export?

That's where struggling countries such as Peru come in. Its people, reasonably believing that there are good jobs here, will come and do the jobs that we need done - jobs that many middle-class Americans say they can't make a living from anymore. Things they do well at home in Peru - silversmithing, woodworking, textile production and other labor that should have value in international markets - will vanish and perhaps become a lost art in a tech-heavy world. The scales will tip further out of balance. The landscape between Maryland and Peru is flat, but the opportunities are decidedly not.

Is Maryland ready for Mr. Friedman's global economy? The answer is a moving target. But by now we know that resisting the new reality is not productive. Better to embrace it and try to bring things into equilibrium. Focus on increasing exports for Maryland's strongest industries, such as health care, machinery manufacturing and transportation equipment. Take steps to keep these businesses investing in innovation. And provide opportunities for all the economic classes, in terms of access to medicine, education and training.

Yes, the world is flat. But we need to work together to tear down the mountains that still exist. The economy only becomes truly global when all the people on that globe can benefit. If not, poverty, inequity and instability may flatten us all.

Alan Randolph is director of the Center for Global Business Studies in the Merrick School of Business at the University of Baltimore. His e-mail is wrandolph@ubalt.edu.

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