TIP Strategies is a privately held Austin-based economic development consulting firm committed to providing quality solutions for public and private‑sector clients.
This blog is dedicated to exploring new data and trends in economic development.
We know intuitively that the world’s economies are interconnected. We see, for example, that our shoes are made in China, that our local companies export to Germany, and that many of our workers are from Mexico. The German Boerse is negotiating to buy the New York Stock Exchange. A Google employee is prominent in the Egyptian overthrow of Mubarak. These are all elements of globalization.
This intuitive understanding has not fully extended itself into local economic development organizations. An international recruitment strategy. Support for H1B visas. A position on immigration. These all matter to a successful partnership with private business. And they all require an understanding of the interconnectedness that we see around us.
What is Globalization? What isn't Globalization?
Globalization is simultaneously hailed for the wealth it produces and attacked for the unequal distribution of those economic benefits. The term “globalization” is often used as a catch-all to describe the scale and scope of economic activity made possible in the last 25 years by technological advances in transportation and communications.
A narrow definition of globalization describes only trends in cross-border trade activities. According to this definition, globalization is not a new phenomenon, and by some measures the world is actually less “globalized” now than it was at the end of the nineteenth century into the beginning of the twentieth century. Most often, the term refers to an increase of cross-border activities as well as a common set of “liberal” governing rules. These two mutually-reinforcing processes, whereby trade prompts the need for standardization, and these regulations facilitate future trade are generally referred to as "free trade."
It is hard to determine if the process of globalization has "flattened" the world, or if it has instead created greater and more significant divergences among and within economies. What is less questionable is that the global economy - from many perspectives - has become increasingly complex and interconnected. And it continues to morph.
Our Changing World
In a series of interactive cartograms, FedEx shows our changing world through a variety of worldwide demographics such as access to mobile Web, population density, and happiness. Choose a topic, press play, and the map changes accordingly.
The [Global] Social Network
Another compelling component of what we refer to as globalization is the interconnectedness of people and industries that is possible as a result of technological advances. Social and business relationships can be maintained through instantaneous communication at little or no cost. Not only are supply chains being transformed through outsourcing, but also local workplaces are increasingly virtual, with associates telecommuting domestically.
In one attempt to demonstrate social connectivity on a global scale, Facebook engineering intern Paul Butler visualized the international connections based on Facebook 'friend' pairs. For each pair of countries with a friend in one country and a friend in the other, a line was drawn. The more friends and distance between two countries, the brighter the lines on a black-blue-white color scale. Equally as interesting as the lines that do exist, are the spaces that are still black (talk about penetrating a new market). Click on the image to view the full size.
The Great Recession Goes Viral
A less "friendly" trend implicit in globalization is the interconnectivity of financial markets. In the post-liberalization era there has been a fundamental change in how global financial markets function: boundaries between economies are faint or nonexistent. The increasing interconnectedness of international economies poses a significant challenge to policy makers in both developed and underdeveloped countries that often results in decreased financial stability.
This interconnectedness can be helpful: U.S. consumer spending boosts the companies in China that make the goods that U.S. consumers buy. China in turn has more money to invest — in the United States. This "coupling" can mean the effects of a downturn in any one country can be softened. Globalization on one hand means recessions can be felt instantly around the world. But it should also mean that when a few key economies make a turning point toward recovery, those countries will quickly lift the rest of the world with them. Let's hope that interconnected markets that fall together also recover together. China's economy grew 10.3 percent in 2010; China's GDP surpassed Japan's for the first time in the second quarter of 2010.
Trade Wars: A New Hope?
China’s rise as one of the world’s leading exporters has been partially enabled by an artificially low currency evaluation, making Chinese exports cheaper in the global marketplace. China began to allowing the value of the Renminbi (or yuan) to begin rising against the dollar in 2010. If China’s double-digit economic growth and subsequently higher inflation rate continue, many economists expect the Renminbi to increase in value by 20-30 percent against the dollar over the next couple years. The result could mean American exporters will find their products and services more competitive in China. According to the Peterson Institute for International Economics, the U.S. external deficit would drop by $50 billion to $100 billion, creating perhaps 500,000 new and high-paying U.S. jobs (mainly in export industries).
China has demonstrated an alternative growth model to the American example. For the last few decades, the U.S. has promoted a model of global market liberalization that exposes developing industries to global competition. The Chinese example of protectionism and state-led investments in strategic sectors offers a compelling alternative to other emerging economies. The U.S advantage has historically relied on our growing and skilled workforce, the presence of a large number of high tech companies, and the willingness of traditional sectors to adopt new technologies. To remain competitive, we must renew investment in our aging infrastructure, attract skilled immigrants, and boost productivity by adopting next wave innovations.