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TEDGlobal 2012

Pankaj Ghemawat: Actually, the world isn't flat

June 28, 2012

It may seem that we're living in a borderless world where ideas, goods and people flow freely from nation to nation. We're not even close, says Pankaj Ghemawat. With great data (and an eye-opening survey), he argues that there's a delta between perception and reality in a world that's maybe not so hyperconnected after all.

Pankaj Ghemawat - Globalization researcher
Our world is not flat, says ecnomist Pankaj Ghemawat -- it's at best semi-globalized, with limited interactions between countries and economies. Full bio

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Double-click the English subtitles below to play the video.
I'm here to talk to you about how globalized we are,
00:15
how globalized we aren't,
00:20
and why it's important to actually be accurate
00:22
in making those kinds of assessments.
00:26
And the leading point of view on this, whether measured
00:29
by number of books sold, mentions in media,
00:32
or surveys that I've run with groups ranging from
00:37
my students to delegates to the World Trade Organization,
00:40
is this view that national borders
00:44
really don't matter very much anymore,
00:47
cross-border integration is close to complete,
00:51
and we live in one world.
00:55
And what's interesting about this view
00:57
is, again, it's a view that's held by pro-globalizers
00:59
like Tom Friedman, from whose book this quote is obviously excerpted,
01:03
but it's also held by anti-globalizers, who see this giant
01:08
globalization tsunami that's about to wreck all our lives
01:11
if it hasn't already done so.
01:16
The other thing I would add is that this is not a new view.
01:19
I'm a little bit of an amateur historian, so I've spent
01:23
some time going back, trying to see the first mention
01:27
of this kind of thing. And the best, earliest quote
01:31
that I could find was one from David Livingstone,
01:35
writing in the 1850s about how the railroad, the steam ship,
01:38
and the telegraph were integrating East Africa perfectly
01:45
with the rest of the world.
01:49
Now clearly, David Livingstone
01:52
was a little bit ahead of his time,
01:55
but it does seem useful to ask ourselves,
01:58
"Just how global are we?"
02:01
before we think about where we go from here.
02:03
So the best way I've found of trying to get people
02:06
to take seriously the idea that the world may not be flat,
02:10
may not even be close to flat, is with some data.
02:15
So one of the things I've been doing over the last few years
02:19
is really compiling data on things that could either happen
02:22
within national borders or across national borders,
02:26
and I've looked at the cross-border component
02:31
as a percentage of the total.
02:34
I'm not going to present all the data that I have here today,
02:37
but let me just give you a few data points.
02:40
I'm going to talk a little bit about one kind of information flow,
02:44
one kind of flow of people, one kind of flow of capital,
02:48
and, of course, trade in products and services.
02:53
So let's start off with plain old telephone service.
02:57
Of all the voice-calling minutes in the world last year,
03:01
what percentage do you think were accounted for
03:06
by cross-border phone calls?
03:11
Pick a percentage in your own mind.
03:13
The answer turns out to be two percent.
03:18
If you include Internet telephony, you might be able
03:21
to push this number up to six or seven percent,
03:25
but it's nowhere near what people tend to estimate.
03:28
Or let's turn to people moving across borders.
03:33
One particular thing we might look at, in terms of
03:37
long-term flows of people, is what percentage
03:40
of the world's population is accounted for
03:44
by first-generation immigrants?
03:47
Again, please pick a percentage.
03:50
Turns out to be a little bit higher.
03:54
It's actually about three percent.
03:57
Or think of investment. Take all the real investment
04:00
that went on in the world in 2010.
04:05
What percentage of that was accounted for
04:08
by foreign direct investment?
04:11
Not quite ten percent.
04:15
And then finally, the one statistic
04:18
that I suspect many of the people in this room have seen:
04:21
the export-to-GDP ratio.
04:24
If you look at the official statistics, they typically indicate
04:27
a little bit above 30 percent.
04:30
However, there's a big problem with the official statistics,
04:33
in that if, for instance, a Japanese component supplier
04:38
ships something to China to be put into an iPod,
04:43
and then the iPod gets shipped to the U.S.,
04:47
that component ends up getting counted multiple times.
04:49
So nobody knows how bad this bias
04:53
with the official statistics actually is, so I thought I would
04:56
ask the person who's spearheading the effort
05:00
to generate data on this, Pascal Lamy,
05:02
the Director of the World Trade Organization,
05:06
what his best guess would be
05:08
of exports as a percentage of GDP,
05:10
without the double- and triple-counting,
05:14
and it's actually probably a bit under 20 percent, rather than
05:16
the 30 percent-plus numbers that we're talking about.
05:21
So it's very clear that if you look at these numbers
05:24
or all the other numbers that I talk about in my book,
05:28
"World 3.0," that we're very, very far from
05:32
the no-border effect benchmark, which would imply
05:36
internationalization levels of the order of 85, 90, 95 percent.
05:40
So clearly, apocalyptically-minded authors
05:47
have overstated the case.
05:51
But it's not just the apocalyptics, as I think of them,
05:54
who are prone to this kind of overstatement.
05:58
I've also spent some time surveying audiences
06:01
in different parts of the world
06:05
on what they actually guess these numbers to be.
06:07
Let me share with you the results of a survey
06:11
that Harvard Business Review was kind enough to run
06:14
of its readership as to what people's guesses
06:17
along these dimensions actually were.
06:21
So a couple of observations stand out for me from this slide.
06:25
First of all, there is a suggestion of some error.
06:31
Okay. (Laughter)
06:36
Second, these are pretty large errors. For four quantities
06:39
whose average value is less than 10 percent,
06:44
you have people guessing three, four times that level.
06:47
Even though I'm an economist, I find that
06:51
a pretty large error.
06:54
And third, this is not just confined to the readers
06:57
of the Harvard Business Review.
07:01
I've run several dozen such surveys in different parts
07:03
of the world, and in all cases except one,
07:06
where a group actually underestimated
07:09
the trade-to-GDP ratio, people have this tendency
07:12
towards overestimation, and so I thought it important
07:17
to give a name to this, and that's what I refer to
07:20
as globaloney, the difference between the dark blue bars
07:23
and the light gray bars.
07:28
Especially because, I suspect, some of you may still be
07:31
a little bit skeptical of the claims, I think it's important
07:35
to just spend a little bit of time thinking about
07:39
why we might be prone to globaloney.
07:42
A couple of different reasons come to mind.
07:46
First of all, there's a real dearth of data in the debate.
07:49
Let me give you an example. When I first published
07:53
some of these data a few years ago
07:56
in a magazine called Foreign Policy,
07:59
one of the people who wrote in, not entirely in agreement,
08:01
was Tom Friedman. And since my article was titled
08:05
"Why the World Isn't Flat," that wasn't too surprising. (Laughter)
08:09
What was very surprising to me was Tom's critique,
08:14
which was, "Ghemawat's data are narrow."
08:18
And this caused me to scratch my head, because
08:23
as I went back through his several-hundred-page book,
08:26
I couldn't find a single figure, chart, table,
08:29
reference or footnote.
08:34
So my point is, I haven't presented a lot of data here
08:37
to convince you that I'm right, but I would urge you
08:41
to go away and look for your own data
08:45
to try and actually assess whether some of these
08:48
hand-me-down insights that we've been bombarded with
08:51
actually are correct.
08:55
So dearth of data in the debate is one reason.
08:57
A second reason has to do with peer pressure.
09:01
I remember, I decided to write my
09:05
"Why the World Isn't Flat" article, because
09:08
I was being interviewed on TV in Mumbai,
09:11
and the interviewer's first question to me was,
09:14
"Professor Ghemawat, why do you still believe
09:18
that the world is round?" And I started laughing,
09:21
because I hadn't come across that formulation before. (Laughter)
09:26
And as I was laughing, I was thinking,
09:29
I really need a more coherent response, especially
09:32
on national TV. I'd better write something about this. (Laughter)
09:35
But what I can't quite capture for you
09:39
was the pity and disbelief
09:42
with which the interviewer asked her question.
09:44
The perspective was, here is this poor professor.
09:48
He's clearly been in a cave for the last 20,000 years.
09:52
He really has no idea
09:57
as to what's actually going on in the world.
09:59
So try this out with your friends and acquaintances,
10:02
if you like. You'll find that it's very cool
10:06
to talk about the world being one, etc.
10:09
If you raise questions about that formulation,
10:13
you really are considered a bit of an antique.
10:16
And then the final reason, which I mention,
10:20
especially to a TED audience, with some trepidation,
10:23
has to do with what I call "techno-trances."
10:27
If you listen to techno music for long periods of time,
10:30
it does things to your brainwave activity. (Laughter)
10:34
Something similar seems to happen
10:37
with exaggerated conceptions of how technology
10:41
is going to overpower in the very immediate run
10:46
all cultural barriers, all political barriers,
10:50
all geographic barriers, because at this point
10:54
I know you aren't allowed to ask me questions,
10:57
but when I get to this point in my lecture with my students,
11:00
hands go up, and people ask me,
11:03
"Yeah, but what about Facebook?"
11:05
And I got this question often enough that I thought
11:09
I'd better do some research on Facebook.
11:12
Because, in some sense, it's the ideal kind of technology
11:14
to think about. Theoretically, it makes it
11:18
as easy to form friendships halfway around the world
11:22
as opposed to right next door.
11:25
What percentage of people's friends on Facebook
11:28
are actually located in countries other than where
11:34
people we're analyzing are based?
11:37
The answer is probably somewhere between
11:41
10 to 15 percent.
11:44
Non-negligible, so we don't live in an entirely local
11:47
or national world, but very, very far from the 95 percent level
11:51
that you would expect, and the reason's very simple.
11:56
We don't, or I hope we don't, form friendships at random
11:59
on Facebook. The technology is overlaid
12:03
on a pre-existing matrix of relationships that we have,
12:08
and those relationships are what the technology
12:13
doesn't quite displace. Those relationships are why
12:16
we get far fewer than 95 percent of our friends
12:19
being located in countries other than where we are.
12:23
So does all this matter? Or is globaloney
12:27
just a harmless way of getting people to pay more attention
12:32
to globalization-related issues?
12:38
I want to suggest that actually,
12:40
globaloney can be very harmful to your health.
12:42
First of all, recognizing that the glass
12:47
is only 10 to 20 percent full is critical to seeing
12:50
that there might be potential for additional gains
12:55
from additional integration,
12:58
whereas if we thought we were already there,
13:00
there would be no particular point to pushing harder.
13:03
It's a little bit like, we wouldn't be having a conference
13:06
on radical openness if we already thought we were totally open
13:10
to all the kinds of influences that are being talked about
13:14
at this conference.
13:17
So being accurate about how limited globalization levels are
13:18
is critical to even being able to notice
13:23
that there might be room for something more,
13:26
something that would contribute further to global welfare.
13:30
Which brings me to my second point.
13:34
Avoiding overstatement is also very helpful
13:37
because it reduces and in some cases even reverses
13:41
some of the fears that people have about globalization.
13:46
So I actually spend most of my "World 3.0" book
13:51
working through a litany of market failures and fears
13:54
that people have that they worry globalization is going to exacerbate.
13:59
I'm obviously not going to be able to do that for you today,
14:04
so let me just present to you two headlines
14:07
as an illustration of what I have in mind.
14:11
Think of France and the current debate about immigration.
14:14
When you ask people in France what percentage
14:18
of the French population is immigrants,
14:21
the answer is about 24 percent. That's their guess.
14:24
Maybe realizing that the number is just eight percent
14:28
might help cool some of the superheated rhetoric
14:33
that we see around the immigration issue.
14:37
Or to take an even more striking example,
14:41
when the Chicago Council on Foreign Relations
14:45
did a survey of Americans, asking them to guess
14:47
what percentage of the federal budget went to foreign aid,
14:50
the guess was 30 percent, which is
14:54
slightly in excess of the actual level — ("actually about ... 1%") (Laughter) —
14:58
of U.S. governmental commitments to federal aid.
15:03
The reassuring thing about this particular survey was,
15:07
when it was pointed out to people how far
15:10
their estimates were from the actual data,
15:13
some of them — not all of them — seemed to become
15:16
more willing to consider increases in foreign aid.
15:19
So foreign aid is actually a great way
15:23
of sort of wrapping up here, because
15:26
if you think about it, what I've been talking about today
15:30
is this notion -- very uncontroversial amongst economists --
15:33
that most things are very home-biased.
15:37
"Foreign aid is the most aid to poor people,"
15:40
is about the most home-biased thing you can find.
15:43
If you look at the OECD countries and how much
15:47
they spend per domestic poor person,
15:50
and compare it with how much they spend
15:53
per poor person in poor countries,
15:55
the ratio — Branko Milanovic at the World Bank did the calculations —
15:59
turns out to be about 30,000 to one.
16:04
Now of course, some of us, if we truly are cosmopolitan,
16:08
would like to see that ratio being brought down
16:14
to one-is-to-one.
16:18
I'd like to make the suggestion that we don't need to aim
16:20
for that to make substantial progress from where we are.
16:23
If we simply brought that ratio down to 15,000 to one,
16:27
we would be meeting those aid targets that were agreed
16:32
at the Rio Summit 20 years ago that the summit
16:36
that ended last week made no further progress on.
16:39
So in summary, while radical openness is great,
16:43
given how closed we are,
16:47
even incremental openness could make things
16:49
dramatically better. Thank you very much. (Applause)
16:52
(Applause)
16:56
Translator:Joseph Geni
Reviewer:Morton Bast

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Pankaj Ghemawat - Globalization researcher
Our world is not flat, says ecnomist Pankaj Ghemawat -- it's at best semi-globalized, with limited interactions between countries and economies.

Why you should listen

There seem to be two leading views of globalization: either that it is done and the world is flat (a view popularized by Tom Friedman) or that it has led to a world dominated by corporations (Naomi Klein). Pankaj Ghemawat disagrees with both -- and his case, backed by data, can be convincing. His most recent book, World 3.0, based on extensive research and backed up with abundant data, explores the true face of globalization--and shows that the world is not one vast market, but many small, interconnected, discrete entities, with varying degrees of openness to one another. That even the most open economies are still relatively closed. That we live in a world of semi-globalization at best. Ghemawat also refutes the assumption that globalization leads to homogeneization. According to The Economist, World 3.0 “should be read by anyone who wants to understand the most important economic development of our time.”

Ghemawat is a professor of strategic management at IESE Business School in Spain. In his latest work, he explores another kind of networked economy--the cross-border "geography" of Facebook and Twitter followers.

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