dispelling some myths: uncertain and multiple paths to globalization

T

803Thunderbird International Business Review, Vol. 45(6) 803–813 • November–December 2003

© 2003 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/tie.10105

bookreviewsbookreviews

Dispelling Some Myths:Uncertain and MultiplePaths to Globalization

Brink Lindsey. 2002. Against the Dead Hand: The UncertainStruggle for Global Capitalism. New York: John Wiley &Sons. 336 pages; ISBN 0-471-44277-1.Peter Hall & David Soskice (Eds.). 2001. Varieties of Capi-talism: The Institutional Foundations of Comparative Advan-tage. Oxford: Oxford University Press. 540 pages; ISBN 0-199-24775-7.

nologies that are giving rise to anage of information. While somesee in globalization the promiseof peace and prosperity, othersview globalization as a negativeforce and even the work of thedevil. Even for those who aresupportive of globalization, thereis much confusion. For example,will each country follow the samepath toward economic develop-ment and full membership in a

INTRODUCTION

he worldwide trend of globaliza-tion is sparking dramatic changes.A borderless global economy isemerging as barriers to the inter-national flows of capital, technol-ogy, goods, and services arebeing removed. This process isbeing spurred by fast advances intransportation, as well as in com-puter and communication tech-

Reviewed byEugene Clark

Dr. Eugene Clark is a professor of law and head of the law school at the Universityof Canberra. Prior to resuming his role as head of the law school he was for sever-al years pro vice-chancellor. Professor Clark is the author of 15 books and hundredsof professional journal articles dealing with law and management. He serves on theeditorial board of several journals and advisory boards of several companies. E-mail:[email protected]

global economy? How do weaccount for the fact that capital-ism seems to have taken differentforms in different countries? Ona practical level, what are theimplications of all of this for man-agers who must operate in aglobal economy? These are just afew of the questions discussedand analyzed in two recent publi-cations by Lindsey and Hall andSoskice.

PROBLEMS OF DEFINITION

Concepts like “globalization”are slippery. The term has manydimensions—economic, politi-cal, social, linguistic, and geo-graphic. It is context specific andmulti-faceted in its impact uponalmost all aspects of the profes-sions and business (Sutter,2002). Globalization is a com-plex multi-dimensional con-struct, and consequently there isno single or simple means ofdescribing it. Globalization is aresponse to situation-specificconditions and is reflective of thegeneral character of the econom-ic and political institutions(Clark, Cho, & Hoyle, 2000).

For purposes of this article, glob-alization is a broad concept refer-ring to the mix of factors thathave led to the development ofglobal, as opposed to local, per-spectives; the integration ofnational markets; and the declineof governmental barriers against

the international flow of goodsand services (Cohn, Fraser, &McBride, 2000; Saari, 1999).Also relevant to globalization areadvances in telecommunications,technology, finance, internation-al competition, energy resources,workforce diversity, and WTOtrade agendas as well as theemergence of English as the lan-guage of commerce. These andother factors have led to theemergence of a “global” econo-my with its focus on internation-al trade and the gradual removalof national trade barriers (Clark,Cho, & Hoyle, 2000).

THE MYTH OF THEINEVITABILITY OF GLOBALIZATION

Brink Lindsey’s Against theDead Hand presents a historicalperspective of the struggle forfree trade, a free market econo-my, and globalization. Lindseymounts a persuasive case thatglobalization is anything but aforegone conclusion; that thepowerful doctrinal forces inher-ent in the failed and controlledsystems of the past are still verymuch alive. Globalization cannotbe taken for granted. Lindseyargues that we are in an:

. . . interregnum between thedashed hopes of centralized con-trol and the full promise of eco-nomic freedom. During this peri-od, elements of past and futurestrain against each other, and the

Eugene Clark

804 Thunderbird International Business Review • November–December 2003

Concepts like“globalization”are slippery.

tensions sometimes erupt in spec-tacular upheavals. The financialcrises that have up-ended EastAsia, Russia and Latin America inrecent years are testaments to theinstability of the present state ofaffairs. (Lindsey, p. X).

For example, in Russia after thefailure of centralist planning, thebulk of industrial assets cameinto the hands of the “Insiders”of the failed Soviet system. It islittle wonder then that Russia hascontinued to struggle with gen-uine reform. Lindsey’s mood ofcaution stands in stark contrastto the unbridled optimism forglobalization found in such pop-ular books as Thomas Fried-man’s The Lexis and the OliveTree (1999).

Notwithstanding these celebra-tions of the future, the truth isthat the past is very much withus. The anti-globalization move-ment is strong and its mantra ofcontrol and centralizationremains attractive to those whowould usurp power to their ownends even if it means wreckingthe economy and destroyingindividual freedom. These anti-globalization forces also deliber-ately confuse causes and effectsin blaming most current eco-nomic problems on globaliza-tion. According to Lindsey, theroot of such economic woesmore often lies in the counter-revolutionary forces of thosewho would return to the oldworld order of control, central

Dispelling Some Myths

805Thunderbird International Business Review • November–December 2003

planning, and anti-market poli-cies.

At the root of the old worldorder, argues Lindsey, is a funda-mental failure to understand thecomplex reality of the market-place. In contrast to the crudesimplicity of central planning,the profound sophistication of afree market economy remains acreative marvel. Importantly, thewhole system works on but a lit-tle knowledge and with its mil-lions of adjustments is far moreaccurate and responsive than anycentral planning could ever be.Identifying F.A. Hayek as one ofthe first economists to recognizethis fact, Lindsey quotes fromHayek (1948: 85–86):

It is worth contemplating for amoment a very simple and com-monplace instance of the action ofthe price system to see what pre-cisely it accomplishes. Assumethat somewhere in the world anew opportunity for the use ofsome raw material, say, tin, hasarisen, or that one of the sourcesof supply of tin has been eliminat-ed. It does not matter for our pur-pose—and it is significant that itdoes not matter—which of thesetwo casses has made tin morescarce. All that the users of tinneed to know is that some of thetin they used to consume is nowmore profitably employed else-where and that, in consequence,they must economize tin. There isno need for the great majority ofthem even to know where themost urgent need has arisen, or infavor of what other needs theyought to husband the supply. Ifonly some of them know directly

. . . the profoundsophistication of

a free marketeconomy

remains a creative marvel.

of the new demand, and switchresources over to it, and if thepeople who are aware of the newgap thus created in turn fill itfrom still other sources, the effectwill rapidly spread throughout thewhole economic system and influ-ence not only all the uses of tin,but also those of its substitutesand the substitutes of these sub-stitutes, the supply of all thingsmade of tin, and their substitutes,and so on; all this without thegreat majority of those instru-mental in bringing about thesesubstitutions knowing anything atall about the original cause ofthese changes. The whole acts asone market, not because any of itsmembers survey the whole field,but because their limited individ-ual fields of vision sufficientlyoverlap so that through manyintermediaries the relevant infor-mation is communicated to all.(quoted in Lindsey, p. 41)

Lindsey next turns to NobelPrize-winning economist RonaldCoase’s (1937) theory of thefirm. Coase argued that firmsarise when the transaction costsoutweigh the administrative effi-ciency of a firm in organizing thetransaction. Combining the con-cept of the market with that ofthe firm, Lindsey submits that:

Firms grow in size and scope tothe extent that reductions intransaction costs outweigh theloss of access to outside informa-tion . . . Centralized control max-imizes the faithful execution ofknown purposes . . . On the otherhand . . . when an activity requiresnimble responsiveness to changeand new ideas, rigidity and strictdiscipline are counter productive.In these situations, decentraliza-tion, flexibility, and experimenta-

Eugene Clark


tion are vital. This truth applies,not only to the larger overalleconomy, but to the individualenterprise as well. (Lindsey, p. 54)

Flourishing markets requiregood institutions as well as goodpolicies. In Chapter 8, “TheRule of Lawlessness,” Lindsey(p. 169) stresses that a free mar-ket economy does not mean asociety without rules. Indeedone of Lindsey’s major themes isthe centrality of law, especiallylaws providing a clear and reli-able framework for acquiring,holding, and transferring proper-ty, is vital. It is only when thelegal infrastructure and agenciessuch as courts exist that businessand economic activity can reachtheir full potential. For example,property and contract laws sig-nificantly:

. . . expand not only the circle ofpeople with whom dealings arepossible but also the time hori-zons over which dealings canextend. When property rights areinsecure and agreements are notlegally binding, market partici-pants will do business only withpeople they know and trust, or insituations where exchanges can beconsummated face-to-face. Allother possibilities are precludedby the high costs of monitoringand ensuring compliance. Goodlegal institutions slash those costsand thus allow a much more com-plex, and prosperous, division oflabor than otherwise would bepossible. (Lindsay, p. 175)

For example, lawyers have playedan important role in develop-ment programs and assistance

. . . Lindsey (p.169) stressesthat a free market economydoes not mean asociety withoutrules.

policies. In Eastern Europeancountries, as well as in theeconomies of such countries asLaos and Vietnam, major effortsare being undertaken to developthe institutional frameworks tosupport a free market economy.The role of legal reform in mak-ing such changes is increasinglyrecognized.

Turning from economic theoryto history, Lindsey points outthat globalization is not new. Infact in 1913, led by the techno-logical breakthroughs of theIndustrial Revolution, worldtrade had grown to the extentthat it equalled 11.9% of grossoutput of developed countries.This level of export wasunmatched until the 1970s(Lindsey, p. 63). More recently,world economic, political, andsocial events in the 1970s and1980s have led to a more inter-national outlook. With the endof the Cold War, the communityof nations has turned increasing-ly to issues of market reform,democratization, constitutional-ism and human rights, and sus-tainable development. Economi-cally, there has been an emphasison integration and liberalization.The role of state-controlledeconomies has declined as coun-tries turn to competitive marketsas the preferred model. Produc-tion and the delivery of serviceshas become increasingly global-ized with developing countriesbecoming more important bothas sites for production and new



markets. Finance and businessservices, aided by modern tech-nology, have also become global-ized. This means that an interna-tional trade in professionalservices such as law has, and willbecome, increasingly prominentin the years ahead.

Finally, in his Epilogue, Lindsaynotes that even before the eventsof September 11, 2001, he hadwritten that:

Radical discontent with moderni-ty still poses significant dangers, inparticular, . . . terrorists acting inthe name of Islam . . . In the trag-ic, broken societies of the Islamicworld—where free markets havegained little foothold, anddemocracy even less—radical hos-tility to modernity still festers on alarge scale . . . for the past quar-ter-century, Islamist fundamental-ism has roiled the region in whichit arose. Now it has reached outand waged a direct, frontal assaulton its antithesis, its “GreatSatan”—the United States. (Lind-sey, p. 271)

Like the threats posed by othercounter-revolutions, Lindseydoes not think the terroristthreat will succeed. Vigilanceagainst such threats is necessary,but so is understanding. Thetruth is that forces such as glob-alization make the world a muchsmaller and interdependentplace. If security, business andindividual freedom, and environ-mental protection is to be maxi-mized then we have to all be onthis fragile planet together. Thus,instead of answering force with

Like the threatsposed by other

counter-revolutions,

Lindsey does notthink the terrorist

threat will succeed.

more force, perhaps we shouldspend more energy in trying tolearn something about ouradversaries and what drives themto adopt such desperate meas-ures. As Stanley Fish (2002)observes, perhaps we are both-ered by the fact that our adver-saries have emerged not formsome primordial darkness, butfrom a history that has equippedthem with reasons and motivesand even with a perverted ver-sion of virtues we might admirewere not their exercise directedat destroying us. People whoblow themselves up for a causethey deeply believe in can hardlybe called “cowards.”

THE MYTH THAT GLOBAL-IZATION AND ECONOMICDEVELOPMENT OCCURSTHE SAME WAY IN EVERYCOUNTRY

Comparative studies of econom-ic systems have become increas-ingly popular, especially since thepublication of Michael Porter’sinfluential study, The CompetitiveAdvantage of Nations (1990).The chief contribution made byHall and Soskice and colleaguesin Varieties of Capitalism is toremind us of the folly of a “one-size-fits-all” mentality in relationto globalization and economicdevelopment.

The particular features of theU.S. economy have much to dowith the unique set of historical,

Eugene Clark


social, political, cultural, andeconomic contexts (Porter,1980). Other countries, operat-ing in different contexts, havepursued their own way to devel-opment. Varieties of Capitalismexplains how differences in eco-nomic and political institutionscan lead to competitive advan-tage and cause different coun-tries to pursue unique paths toeconomic development. Thesehistorical, political, and eco-nomic differences in turn influ-ence the behavior of firms inthose countries to conductthemselves and pursue differentstrategies in the face of the chal-lenges of globalization (Hall &Soskice, p. 1).

Evidence of the diverse paths toeconomic development and vari-eties of capitalism can be found inthe wide disbursement of tech-nology around the world. In fact,this has led to businesses search-ing around the world for the besttechnology. While Ford has builtcars in Germany since the 1930sit was only 8 years ago that itconstructed a research and devel-opment centre in Aachen, hometo one of the country's top engi-neering schools.

One aspect of this comparativecapitalism concerns the “institu-tional structures that give statesleverage over the private sector,such as planning systems andpublic influence over the flows offunds in the financial system”(Hall & Soskice, p. 2) In this

Other countries,operating in different contexts, havepursued theirown way todevelopment.

analysis, nations were character-ized as “strong” (e.g., France,Japan) or “weak” (e.g., UK).

Another aspect of comparativecapitalism as it developed in the1970s is the ability of a state towork with trade unions to getthem to temper their demandsand work with government andindustry to increase productivityand achieve national advantage(Hall & Soskice, p. 3). Then, inthe 1980s and 1990s, theoristslooked to the “social systems ofproduction,” which analyzedvarious sectors of a nation'seconomy, its innovation system,and production schemes in termsof their responsiveness to suchfactors as technology change(Hall & Soskice, p. 3).

Hall and Soskice build uponand re-evaluate these earlierperspectives of comparativestudy of capitalism by bringinginto focus the role played bybusiness associations and otherrelationships of firms in a polit-ical economy (p. 5). Accordingto Hall and Soskice the institu-tions and related agencies in aparticular country establishnorms and expectations thatimpact upon economic behav-ior. In focusing on the firm,Varieties of Capitalism providesan analytical bridge betweenstudies of business and compar-ative political economy.

Hall and Soskice see firms (tradeunions, business associations,



cross-shareholding networks,etc) in a relational way. Legal,political, economic, social, andcultural forces will help shapeand explain why firms in onecountry act differently fromthose in another country inresponse to similar forces, suchas technological change. Halland Soskice identify what theycall “deliberative institutions,”meaning those that act to getother firms to share informationand collaborate and agree upon acommon course of action orapproach (p. 11).

Hall and Soskice draw on distinc-tions between “liberal” and“coordinated” market economiesto show that there are many dif-ferent paths to capitalism andresponses to globalization. Liber-al market economies “tend to relyon markets to coordinate endeav-ors in both the financial andindustrial relations systems, whilethose with coordinated marketeconomies have institutions inboth spheres that reflect higherlevels of non-market coordina-tion” (p. 19). Examples of liberalmarket economies include theUnited States, Australia, Canada,Ireland, and the UK. Coordinat-ed market economies are exempli-fied by Germany, Japan, and theScandinavian countries.

Hall and Soskice conclude thatliberal market economies are par-ticularly supportive of radicalinnovation, whereas coordinatedmarket economies seem particu-

Hall and Soskicesee firms in a

relational way.

larly suited to promoting incre-mental change. Different institu-tional structures give rise to“comparative institutionaladvantage.” This is not to say,however that one form of capi-talism is better than another (p.21). Rather, certain types ofinstitutional structures make iteasier to produce some kinds ofgoods more efficiently than oth-ers because the political econom-ic context provides the necessarysupport for that type of activity.These institutional differencesbetween countries lead corpora-tions in those countries to adoptdifferent strategies in response tothe forces of globalization.

In summary, Varieties of Capital-ism presents a serious challenge tothe popular yet simplistic viewthat competitiveness acrossnations assumes some sort ofmonolithic pattern or form of aparticular type. The reality is thatfirms are not similar acrossnations. Depending upon theinstitutional structures and politi-cal, economic, and cultural struc-tures extant in a particular coun-try, firms will adopt variousstrategies in response to global-ization. The comparative capital-ism approach developed by Halland Soskice makes a significantcontribution to our understand-ing of the emergent forms of cap-italism. It also helps to explainand account for the underlyingprocesses that bring about thesedifferences in political economies.

Eugene Clark


ANTI-GLOBALIZATIONMOVEMENTS

It is important to acknowledgethat while the two booksreviewed here assume that global-ization is a positive force, otherswould disagree (Ebo, 2000;Felice, 2002). For example,Noreena Hertz in The SilentTakeover: Global Capitalism andthe Death of Democracy (2001)maintains that “in the age ofglobalization multinational cor-porations lack national loyaltiesand cannot be relied upon toserve governments or nationalpopulations by delivering oneither taxes or jobs.” Hertz is dis-mayed by the fact that we seem tohave lost sight of the fact thatglobalization was supposed to befor a higher purpose—stability,increased standard of living,improved social cohesion for all.She realizes that capitalism has aunique capacity to producewealth, but it is less successful inpromoting justice and democracy.

According to Hertz, the 100largest companies control 20% ofthe world's wealth. Of the top100 economic entities in theworld 51 are companies; 49 arecountries. One U.S. supermarketchain has higher revenue thannations such as Poland, Hun-gary, and the Czech Republic. Sopowerful are these companiesthat nations compete to offerthem incentives to locate there.One well-known global media

The reality isthat firms arenot similaracross nations.

company pays only 6% tax world-wide. During a period in which itmade $A31.4 billion in profit, itpaid no corporations tax. Thissilent takeover has disempow-ered citizens who have becomedisillusioned by their lack ofpower. The anti-globalizationprotests that have been muchpublicized in the media show theanger, but such protests are apoor substitute for democraticaction (De Soto, 2000).

Other antagonistic responses toglobalization come from groupssuch as the Food Sovereigntylobby. It highlights that 2.8 bil-lion people survive (barely) onless than $2 a day. The argumentis that such deprivation is causednot by state action or inactionbut by the global economic sys-tem itself. According to thisgroup, trade liberalization hasbeen the greatest force under-mining livelihoods around theworld. Many NGOs now call fora “unifying concept of FoodSovereignty,” i.e., “the primacyof people's and communities’rights to food and food produc-tion, over trade concerns.”(http://www.ictsd.org/weekly/02-06-12/story2.htm and theNGO Declaration at: http://www.foodfirst.org/progs/glob-al/food/finaldeclaration.html).

Such forces are beginning tohave some impact as seen in thelatest UNCTAD recommenda-tion for a re-enhanced HIPC



(Highly-Indebted Poor Coun-tries) Initiative with accelerateddebt relief and a new interna-tional commodity policy (Held& McGrew, 2002). The need formarket access for developingcountries into industrializedeconomies, and the potential forcooperation through regionaltrade and investment and techni-cal assistance are also highlighted(“The Least Developed Coun-tries Report 2002: Escaping thePoverty Trap” at http://www.unctad.org/en/docs/1dc02p2ch5.en.pdf)

IMPLICATIONS FOR MANAGERS OPERATING IN A GLOBAL ECONOMY

On a practical level, it is clearthat the forces of globalizationpresent many challenges to man-agers who must operate in thisnew environment. These chal-lenges include how to manageinternational competitiveness,how to cope with increaseduncertainty and change, how todevelop a learning organization,and how to manage to growingconvergence of industries, espe-cially in information services andinformation communicationtechnology sectors.

These challenges will in turnrequire managers and wholeorganizations to be more cre-ative and develop enhanced tech-nical skills. Such skills as lan-

This silenttakeover has

disempoweredcitizens who

have becomedisillusioned by

their lack ofpower.

guage proficiency, cultural sensi-tivity, and emotional intelligencewill also become important(Shenkar & Luo, 2002).

As globalization spreads andthe global economy becomes areality, managers will also haveto develop a more global mind-set and outlook (Clark 2002).Such managers will be sensitiveto local contexts and needs andyet able to optimize activitiesworldwide. For such managers,the concept of a “network” willhave less to do with technologythan with the ability to formglobal alliances, develop abroad customer base, andestablish truly global brands(Blanpain, Lansbury, & Park,2002).

As with countries, firms operat-ing in this new environment willpursue many different paths tosuccess. Many firms are likely tobe born global. Others willevolve from a domestic companywith a product orientation, fewcompetitors, and one countrymarket. These firms may then gointernational and become morecompetitive and culturally sensi-tive. They may then becomemultinational with numerousproduction and marketing cen-ters. Finally, these firms will goglobal, link and leverage theirresources, share technology, andplace operations where they arethe strongest and most cost-effective.

Eugene Clark


CONCLUSION

Against the Dead Hand andVarieties of Capitalism make asignificant contribution both toraising our awareness andimproving our understanding ofglobalization. Both publicationshelp one to think systematicallyabout the many interrelatedissues involved with globaliza-tion. These issues include WTO,EU, employment policies, therole of institutions such as thelegal system, sustainable devel-opment and the special problemsof developing countries. Finally,these two important new booksalso lead one to conclude thatthe topic of globalization willremain on corporate, national,and international agendas forsome time to come.

REFERENCES

Blanpain, R., Lansbury, R., & Park, Y. (Eds.)(2002). The Impact of globalization onemployment relations. The Hague: KluwerLaw International.Clark, E. E., Cho, G., & Hoyle, A. (Eds.).(2000). E-Business: Law and management inthe 21st century. Canberra: Info-Sys Law.Clark, R. P. (2002). Global awareness: Think-ing systematically about the world. Lanham,MD: Rowman & Littlefield Publishers.Coase, R. H. (1937). The nature of the firm,In Oliver E. Williamson & Sidney G. Winter(Eds.). (1991). The nature of the firm: Ori-gins, evolution, and development. New York:Oxford University Press.Cohn, T., Fraser, S., & McBride, S. (2000).Power in the global era: Grounding globaliza-tion. Basingstoke, Hampshire, UK: MacmillanPress.De Soto, H. (2000). The mystery of capital:Why capitalism triumphs in the West and failseverywhere else. New York: Basic Books.

Ebo, B. (2000). Cyberimperialism? Globalrelations in the new electronic frontier.Westport, CT: Praeger Publishers.Felice, W. F. (2002). The global new deal:Economic and social human rights in worldpolitics. Lanham MD: Rowman & Little-field. Fish, S. (2002, September). Practice rela-tivism instead of blaming it. The AustralianFinancial Review, 6, 11.Friedman, T. (1999). The lexis and theolive tree. New York: Farrar, Straus andGiroux.Hayek, F.A. (1948). The use of knowledgein society. In Individualism and economicorder, (pp. 85-86). South Bend, IN: Gate-way Editions. Held, D., & McGrew, A. (2002). Govern-ing globalization: Power, authority and



global governance. Cambridge, UK: PolityPress.Hertz, N. (2001). The silent takeover:Global capitalism and the death of democ-racy. London: Heinemann Press.Porter, M. E. (1980). Competitive strategy:Techniques for analyzing industries andcompetitors. New York: Free Press.Porter, M. E. (1990). The competitiveadvantage of nations. New York: Free Press.Saari, D. J. (1999). Global corporationsand sovereign nations: Collision or cooper-ation? Westport CT: Quorum Books.Shenkar, O., & Luo, Y. (2002). Interna-tional management. New York: John Wiley& Sons.Sutter, K. (2002). Global order and globaldisorder: Globalization and the nation-state. Westport, CT: Praeger Publishers.

dispelling some myths: uncertain and multiple paths to globalization

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