Blog: The Global Game

Developing from the Inside Up

17 April 2015

Last week’s TWOG questioned the “level playing field” of economic development: that a country has to throw open its markets to foreign competition if its economy is to take off. In this global game, the New York Giants take on some high school team form Timbuktu. Guess who wins.

The Globalization Model

This is but one model of economic development, which we can call globalization; it works from the outside-in. Thankfully, there are two others. But this one dominates our beliefs, if not our reality.

Check its record: you may be surprised: No major economy ever developed this way, not the U.K, not Japan, not South Korea, not even the United States.1

Last week’s TWOG questioned the “level playing field” of economic development: that a country has to throw open its markets to foreign competition if its economy is to take off. In this global game, the New York Giants take on some high school team form Timbuktu. Guess who wins.

The Globalization Model

This is but one model of economic development, which we can call globalization; it works from the outside-in. Thankfully, there are two others. But this one dominates our beliefs, if not our reality.

Check its record: you may be surprised: No major economy ever developed this way, not the U.K, not Japan, not South Korea, not even the United States.1

The Interventionist Model

So enter a second model, which we can call interventionist, and depict it as top-down. It explains more of the successful reality. Economies grow behind various government efforts to promote and protect their national enterprises.

These efforts have taken a variety of forms. Most common have been protective tariffs, even in what have since become the wealthiest countries of the world. Common too has been the state construction or subsidization of national infrastructures to help businesses develop—for example, dams for power generation and highways to move goods. The U.S. government granted land for the building of privately-owned railroads, at the same time that it was maintaining significant tariff barriers.

The interventionist model took its most extreme form under the communist regimes of Eastern Europe, with their comprehensive five-year plans and extensive ownership of economic enterprises. Happily for their people, those days are over. Unhappily for them, and many other people, this was replaced by the globalization model, which has since been promoted as the only game in town. (See the TWOG of November 7, entitled “Has the Berlin Wall fallen on us?”)

Once again, check the reality. The interventionist model is alive and well throughout the world, if not in this extreme form. Or sometimes it is alive and sick, because while the rich countries force the globalization game on poor countries, they themselves cheat by playing the interventionist game, for example by using tariffs or domestic subsidies to keep the agricultural produce of poor countries out of their own markets.

Of course, tariff barriers have mostly come down. But subsidies to domestic enterprises have not, as in the case of cheap loans to help them sell their goods abroad. Some of this may be justified, in helping young enterprises to get off the ground. But these interventions have hardly been limited to that. Tune in to all the accusations that Airbus and Boeing fling at each other about such practices. Of course the bigger and richer the country, the more it can do this kind of cheating, and so the greater likelihood that its enterprises will win in the global game.

The Indigenous Model

Happily for most of us, there is a third model, which offers the greatest hope for this troubled globe—as soon as we recognize the central role it has played in all successful economic development (even though elements of the other two models are always present as well). We can call this model indigenous, and depict it as inside-up.

The enterprises that build and sustain a healthy economy rarely come in from the outside. Some are created by the state—which at times can be for good reason—while many others are supported by it in one way or another. Most, however, are built by local entrepreneurs, who engage local people with their novel ideas. These companies tend to source locally, including their use of law firms, consultants, and advertising agencies, all of which further aids the growth of the domestic economy.

Every major country has its iconic examples of such enterprises. Say America and think Google or IBM; say India and it may be Tata or Infosys; in Japan, Honda; in Brazil, Embraer. No matter how global these particular enterprises have become, all have maintained their headquarters, and their roots, in their countries of origin. And so they keep providing significant economic benefits. (Not so for the smaller countries—I speak here as a Canadian. The iconic enterprises are more frequently sold off to foreign interests, with the loss of such benefits. But the government must not interfere: after all, this is a global game, run by the big guys.)

Even in the most developed countries, however, further economic development depends not on these large established enterprises so much as on the establishment and retention of new indigenous ones. They create the jobs, instead of doing the downsizing. (See the April 2 TWOG on downsizing as bloodletting.) Think about the role that the Apples, the Googles, the Facebooks, and the rest play in the American economy today.

Global enterprises coming in from the outside do not usually build on a country’s unique strengths, or encourage the autonomy necessary to learn, which is key to all development. People forced to imitate learn only how to copy. Some of this is obviously necessary in today’s world, but it can never be sufficient for any country. Pride in our own accomplishments may not figure in economic theory, but it sure does in the success stories of great enterprises—and great economies. So it is time to get past the dominating game of globalization, with all its cheating, in order to foster the healthy development of all countries, rich and poor.

© Henry Mintzberg 2015

1. Chang, H.-J. (2002). Kicking Away the Ladder: Development Strategy in Historical Perspective. Anthem Press. When I first published about these ideas, in 2006, I had to explain why Ireland was not an exception: it already was rather developed, and within the E.U., when it went so one-sidedly to this outside-in model. Given Ireland’s subsequent economic performance, I no longer need to make this point.

Levelling the Level Playing Field

10 April 2015

Let’s level with each other. What we call a “level playing field” for economic development is played with Western rules on Southern turf, so that the New York Giants can take on some high school team from Timbuktu. The International Monetary Fund prepares the terrain and the World Trade Organization referees the game. Guess who wins.

Selective Rules

The rules of this game have been written by people educated in the economic canon of the already developed West. The “developing” countries of the world are supposed to open up their markets to global corporations that stand ready to enter with their manufactured goods.

Let’s level with each other. What we call a “level playing field” for economic development is played with Western rules on Southern turf, so that the New York Giants can take on some high school team from Timbuktu. The International Monetary Fund prepares the terrain and the World Trade Organization referees the game. Guess who wins.

Selective Rules

The rules of this game have been written by people educated in the economic canon of the already developed West. The “developing” countries of the world are supposed to open up their markets to global corporations that stand ready to enter with their manufactured goods.

Of course, the developed countries play by the specific nature of this rule too: their markets are already open to such goods. In fact they have been open since these countries became developed—but not before. (That’s the subject of next week’s TWOG: that countries develop primarily through a bottom-up indigenous model, not an outside-in globalization one.)

Unfortunately the poorer countries don’t have a lot of manufactured goods to sell. And when they try to sell what they do have, namely agricultural produce—to play the game on the fields of the rich countries—this rule is promptly suspended. You don’t mess with the countries that make the rules of this global game.

New Bullying

Now, just as the international economic agencies are waking up to the consequences of their levelling, a new set of rules is making the playing field even more level: companies can take on government themselves.

Thanks to intense lobbying, a host of bilateral trade agreements provide for special courts of arbitration that enable private companies to sue sovereign countries. This has been made necessary, so the argument goes, to protect companies from governments that renege on contracts. Fair enough.

But instead, these courts are being used by global companies to do something quite insidious: stop legislation, even on matters relating to health, culture, and environment, that they claim to reduce their current or expected profits. “Today, countries from Indonesia to Peru are facing investor-state suits.”1 In fact, companies needn’t go that far: just by threating such lawsuits, which may require legal costs the countries can’t afford, some countries have been bullied into cancelling proposed legislation. And, by the way, in this version of the game the goals are scored at only one end: governments cannot use these courts to bring claims against the companies.

In December 2013, the New York Times ran an article and editorial about how “big tobacco” has been using such litigation to “intimidate” poor countries into rescinding regulations intended to control the use of tobacco. The health minister of Namibia reported receiving “bundles and bundles of letters” from the industry about its attempts to curb smoking rates among young women.”2

In an article in the Guardian about these courts, George Monbiot wrote:

The rules are enforced by panels which have none of the safeguards we expect in our own courts. The hearings are held in secret. The judges are corporate lawyers, many of whom work for companies of the kind whose cases they hear. Citizens and communities affected by their decisions have no legal standing. There is no right of appeal…

One NGO labeled this “a privatized justice system for global corporations”, and a judge on these courts was quoted that “it never ceases to amaze me that sovereign states have agreed to [such] arbitration at all…”3

Now we have Bill Gates and Michael Bloomberg to the rescue. They have set up a fund to help countries defend themselves against these tobacco suits. That’s noble. But more noble still would be for national courts to strike down these lop-sided courts as outrageous violations of the public interest and sovereignty of their nations.

Playing in our back yards too

This new version of the game is now really global: those of us who live in a “developed” country should know that it is being played in our own back yards, against us, by companies that claim we are their cherished customers.

In my back yard, the North American Free Trade Agreement includes such a court. One Canadian official reported seeing “the letters from the New York and D.C. law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years.” These firms believe that we Canadians no longer have the right to legislate on pollution and global warming. One pharmaceutical company even “demand[ed] that Canada’s patent laws be changed” (Monbiot, 2013). How level must the playing field become before we throw the bullies out of the game?

If your back yard is European, your Union is negotiating a trade pact with the United States. As a consequence, the lobbying so prevalent in the United States has come to Brussels with full force: corporate lawyers are all over these negotiations, indeed have been even before they started.4 Will you Europeans acquiesce, the way we Canadians did? Or will you have the guts to stop this assault in its tracks, and thereby tell the rest of the world that public democracy is more important than private profiteering?

© Henry Mintzberg 2015. For more on these points, see Rebalancing Society…radical renewal beyond left, right, and center (Berrett-Kohler, Amazon.com, Amazon.co.uk)

1. Perez-Rocha, M. (2014, December 4) When corporations sue governments. International New York Times.

2. Tavernise, S. (2013, December 13). Big Tobacco steps up its barrage of litigation. International New York Times.

3. Monbiot, G. (2013, November 4) This transatlantic trade deal is a full-frontal assault on democracy. The Guardian.

4. Lipton, E. and D. Hakim. (2013, October 18). Lobbying Bonanza as Firms Try to Influence European Union. New York Times. Another New York Times article (Hakim, 8 October 2013) revealed that European officials had been “consulting with business leaders on both sides of the Atlantic on how to structure a free-trade pact” before the talks had even begun…. Among other things, the business community was seeking an active role in writing new regulations…”