It is perhaps fitting that we are meeting on this particular day, because this is March 15, the dreaded “Ides of March.” And I am going to address a subject of growing concern and distress to many people — the subject of globalization.
In the play “Julius Caesar,” the Ides of March are a “strange-disposed time.” Thunder and lightning fill the air, and people are amazed to see the owl, or “the bird of night,” sitting in the marketplace at noon, “hooting and shrieking.”
Turning to our own time — What could be any stranger than the extraordinary upheavals we have just witnessed over the Danish cartoons? Here we saw people using the tools of globalization — instant messaging and worldwide communications — to spread strife and to try to set the clock back to a much earlier time. That does indeed seem very like “the bird of night” hooting and shrieking in the marketplace at noon.
Shakespeare’s play becomes tragic because the characters, including Caesar himself, either misread the signs and indicators, or deliberately misconstrue their meaning. In talking about globalization, it is vitally important that we think clearly and reach the right conclusions.
Let’s begin with a simple and easy-to-understand definition. As I am going to use the word, globalization relates to “the death of distance.” It relates to intensified global connectedness and the whole raft of changes — economic, social, political and cultural — that spring from that.
As Tom Friedman declared in “The World is Flat,” globalization has “accidentally made Beijing, Bangalore and Bethesda next-door neighbors.” Inside this accidental, virtual neighborhood, we find that we — as Americans — no longer have a lock on many of the best jobs inside the United States. Candidates from other countries are now just a “mouse-click” away.
Employers may hire qualified chemists, engineers, physicians and other highly trained people in India or China at a fraction of the cost of such people in our own country. To cite an example — at JP Morgan Chase, we now have over 6,000 people working for us in India in a technology/operations-based center that is much more than just a call-center shop.
In my view, globalization, in that sense, is real and irreversible for most of the world. That includes the United States, Europe and Japan. It also includes most, if not all, of the developing world.
Globalization opens new opportunities for all of us. At the same time, it intensifies the challenges before us.
There is an overwhelming body of evidence to support the view that globalization is not a zero-sum game. The American people as a whole — and most other people around the world — have profited enormously from the globalization over the past two decades. But even though the winners greatly outnumber the losers, there are some losers. You have seen some painful evidence of that in this state — with the loss of the textile, furniture and apparel industries.
And that brings me to my central point: To deal with globalization, whether as an individual, a community, a country, or a business, you want to get out in front of it. You want to be a leader.
To be a leader in a globalizing world is like shooting a Class 4 or 5 rapid. To avoid being thrown onto the rocks, you have to paddle like crazy, so you are moving faster than the current, and you have to manage change, using the extra speed that you have generated to execute quick turns, which are essential to navigation in such a fast-changing and challenging environment.
Standing at the edge at this roaring rapid, which we call globalization, Americans today feel an understandable sense of alarm. But we have surmounted other great challenges in the past.
Lethal Complacency
Following World War II, the rest of the world — including all of Europe and most of Asia — was pretty much flat on its back. So that was part of the reason for U.S. economic dominance in the 1950s and ’60s.
But the main reason is that we had a diverse, hard-working workforce, natural resources, the ability to innovate and change, and good leadership around a market-based system. We played to our “comparative advantage.”
Too much success for too long led to complacency and arrogance; it led to a potentially lethal combination of high cost and slipshod quality.
In the early ’80s, many of our biggest and most respected companies woke up to the awful realization that they couldn’t compete. This is how Jack Welch put it in his book: “The incredible efficiency of the Japanese was both awesome and frightening. The Japanese were tearing apart the cost structure in industry after industry. Television sets, automobiles, and copying machines were getting hammered.”
What Jack then did — and I am a big fan — became a huge turning point — not just for GE, but, really, for U.S. business as a whole. Instead of trying to resist globalization, he actively embraced it.
As Jack said in his own special way, “Ideally, you’d have every plant you own on a barge,” so you could move it anywhere in the world you wanted.
He set out to make GE a clear leader — the global “No. 1” or “No. 2” — in every one of its businesses — a strategy of “Fix, Sell, or Close.” And in his first few years as CEO, he closed or sold a lot of businesses in the U.S.
But where Jack was really ahead of his time was in recognizing the potential for radical and positive change in the management of people and the management of change. One of Jack’s favorite stories is about the hourly worker who told him, “For 25 years, you paid for my hands when you could have had my brains — for free.”
In “empowering” and “liberating” workers, Jack reawakened a sense of ownership and pride in the American workplace; he persuaded a lot of people — inside and outside GE — that America could compete. The example that he set, and that he has communicated so well to others, has a lot to do with the recent resurgence of the U.S. economy.
We All Benefit
Since the late ’80s, the U.S. has significantly outperformed Europe and Japan, precisely because our business sector has been less sheltered and more open and oriented to global competition.
In every region of the world, in fact, the countries that are faring the best are those that are most attuned and plugged into the world economy. The benefits to ordinary Americans from globalization are not just significant but enormous.
Recently, the Institute of International Economics measured the net benefit of globalization for the U.S. at one trillion dollars per year. That’s equivalent to a $9,000 benefit per U.S. household out of an average household income in the United States of $35,000 to 45,000. That’s big! For most Americans, globalization may be likened to a year-end bonus equal to about 25 percent of their base pay.
Because of imports, virtually every household in America has a better and cheaper TV, computer, printer, and toaster. Still further, while every plant closing is front-page news in the hometown paper, millions upon millions of Americans have benefited from the faster growth in incomes and employment that has come through globalization.
Yet the same person who buys a cheaper Chinese product over an American product at Wal-Mart is the same person who votes against free trade agreements. The dots have not been connected.
The second problem is that while the country as a whole benefits to the tune of a trillion dollars a year, every individual does not. There are people who do lose their jobs and are disadvantaged. Through better education and special training these people need to be helped or the political backlash against globalization will be difficult to manage.
Isolationist Mood?
On balance, then, globalization has produced amazing benefits both for the United States and for most of the rest of the world. So why is it we are seeing more and more of the attitude: “Stop the world (the globalizing world), I want to get off”?
Even for those who understand globalization, the speed of the change and multiple dimensions of change have been dizzying and unsettling. The accelerating pace of change is putting increasing pressure on long-established political and economic systems, especially in the developed countries.
In economic terms, globalization is all about the basic economic theory of “comparative advantage.” I would argue that comparative advantage has worked in the past because the speed of change had been such that political and economic systems had time to adapt and adjust. That’s not so true today, as we see from the following examples:
— The French referendum on Euro integration last May was supposed to be a slam-dunk in favor of greater integration. Instead it was voted down by an overwhelming margin. Voters got worked into a frenzy of fear over the notion that the so-called “Polish plumber” would take away French jobs.
— In Germany’s recent election, Chancellor Merkle just barely won after telling the German people they needed to change faster in order to regain lost economic vitality.
— Here in the U.S., we saw a political backlash last summer when the Chinese company — CNNOC — tried to buy Unocal, a relatively small energy company in California that was ultimately acquired by Chevron. And that controversy is superseded today with the political firestorm that occurred when the Dubai Port Authority emerged as the potential commercial manager for six U.S. ports.
But even if our political and economic systems are sometimes surprised and overwhelmed by the pace of change, there is a clear, if not easy, answer to what is broadly needed in the way of a response.
The answer is leadership. You need strong leadership to manage change in a fast-changing environment. Right now, we need leaders who are able to step forward and articulate the case for globalization, and who are further able to define our “comparative advantage” and to implement programs to bridge some of the disadvantaged of today and limit the disadvantaged of tomorrow.
Human Capital Is Crucial
So how will America compete in this rough and tumble global environment? What will be our comparative advantage?
I believe that the one thing that counts the most is our human capital — our ability to think and innovate, change and adapt. And more than anything else, our public school system is the foundation that supports our human capital. As it exists today, however, our public school system as a whole, despite many pockets of excellence, is not nearly as sturdy as it ought to be.
Now I would like to direct your attention to an extremely insightful report that has grown out of a joint study by some of the nation’s best minds in government, business and academia. It is called “Rising Above the Gathering Storm.” Let me turn to three of the principal recommendations from the report.
First — and most important, I believe — is “Ten Thousand Teachers, Ten Million Minds” — a program to increase America’s talent pool by vastly improving K-12 science and mathematical education. The report calls for the recruitment of 10,000 new science and math teachers each year through the award of competitive scholarships in math, science and engineering that lead to a bachelor’s degree, accompanied by a teaching certificate and a five-year commitment to teach in primary or secondary schools.
Second is “Best and Brightest” — and this calls for further action at the collegiate level. It calls for the creation of 25,000 new undergraduate scholarships in science, math, engineering, and technology.
Third is “Sowing the Seeds” — which calls for increasing federal investment in basic research by 10 percent a year over the next seven years. So this is all about further encouraging ideas and innovation in the workplace.
Be a Leader
You might ask, “What can North Carolina do to better compete in a globalized world?”
First, I would say that, relatively, North Carolina is doing remarkably well, especially against the loss of key industries over the past 25 years. Helped by a tradition of outstanding leadership from the governor’s office over many years, North Carolina benefits from the outstanding excellence of its universities.
In the financial services sector, North Carolina is now home to two very large and successful global organizations — Bank of America and Wachovia. And you have built the nationally acclaimed Research Triangle. None of those things happened by accident. They happened because people here acted as leaders and caused it to happen.
But let me come back to education. The whole education issue includes North Carolina, and it’s a big opportunity for the state to create its own comparative advantage. Other top-level priorities of NCCBI, including the right economic incentives, state-of-the art physical infrastructure and efficient regulatory policies, are, of course, critical to the state’s success.
In a globalizing world, there is no room for complacency. At the end of the day, and at the beginning of each new day, you have to accept change, embrace change, get out in front of it, and be a leader. Go make something good happen.
