Senior Research Scholar and Executive Director of the Center for the Globalization of Education and Management at the NYU Stern School of Business Steven A. Altman is our guest for this month's Salon.
Global Finance (GF): “Globalization” is not well-defined. What does it mean for you at the Center for the Globalization of Education and Management?
Steven A. Altman: We think of globalization in terms of flows of trade, capital, information, and people between countries. By focusing on flows, we can measure globalization based on hard data. Our center’s director, Pankaj Ghemawat, and I co-author a biennial report on the state of globalization called the DHL Global Connectedness Index. The next edition will come out this fall.
Altman: The world’s overall level of globalization declined during the 2008 financial crisis, but surpassed its pre-crisis peak in 2014. On depth, which compares a country’s international flows to its domestic economy, the most-connected economies are Singapore, Hong Kong SAR (China), Luxembourg, Ireland and Belgium. On breadth, which evaluates the extent to which international flows are distributed globally, the leading countries were the UK, the US, the Netherlands, South Korea and Japan.
GF: What is the most interesting finding?
Altman: That flows across borders are far smaller than people think. Just 3% of people live outside the countries where they were born, 5% of phone-call minutes are international, foreign direct investment is 7% of gross fixed capital formation, and about 21% of value-added around the world is exported. On average, people estimate that the international proportion of these kinds of flows is five times greater than it actually is.
GF: What does this mean for policymakers?
Altman: Globalization makes a handy scapegoat, but many problems commonly blamed on international flows really have domestic roots. Consider income inequality. The US ranks first among major advanced economies on inequality but last on imports as a percentage of GDP. That juxtaposition supports the view—reinforced by many studies—that trade has a smaller role in inequality than technology and domestic economic policy. Our general prescription is to couple international openness with domestic policy interventions that address globalization’s side effects. Our research also debunks the myth that distance no longer matters, highlighting the value of strong links to neighboring countries. A true view of distance effects implies the EU will still be the UK’s top market even after Brexit, and Canada and Mexico will remain key partners for the US regardless of what happens to NAFTA.
GF: How could these data impact business strategy?
Altman: It shows there is still a great deal of room for companies to create value across national borders. But because markets are less integrated than many people think, managers often underestimate how much they need to adapt to cross-country differences.
GF: What’s the impact on public/private-sector power relations?
Altman: Countries still have a great deal of power over companies. While companies choose where to locate, they have to follow the laws and regulations in those locations. Look at the EU’s new data protection regulations.
GF: With protectionism rising, what are the risks to trade?
Altman: We’re watching this very closely. Trade grew faster in 2017 than in any year since 2011, but escalating tariff threats in 2018 put future growth at risk. To help companies prepare for the possibility of a trade war, we’ve done some historical analysis. One of the key lessons was that trade may plummet but it will not perish. Companies need to be ready for a sudden disruption to supply chains or market access; but since trade does not dry up entirely during a trade war, they still need to pay close attention to international opportunities and threats.