TEDGlobal 2012
Pankaj Ghemawat: Actually, the world isn't flat
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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
Our world is not flat, says ecnomist Pankaj Ghemawat -- it's at best semi-globalized, with limited interactions between countries and economies. Full bio
Double-click the English transcript below to play the video.
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I'm here to talk to you about how globalized we are,
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how globalized we aren't,
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and why it's important to actually be accurate
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in making those kinds of assessments.
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And the leading point of view on this, whether measured
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by number of books sold, mentions in media,
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or surveys that I've run with groups ranging from
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my students to delegates to the World Trade Organization,
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is this view that national borders
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really don't matter very much anymore,
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cross-border integration is close to complete,
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and we live in one world.
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And what's interesting about this view
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is, again, it's a view that's held by pro-globalizers
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like Tom Friedman, from whose book this quote is obviously excerpted,
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but it's also held by anti-globalizers, who see this giant
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globalization tsunami that's about to wreck all our lives
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if it hasn't already done so.
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The other thing I would add is that this is not a new view.
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I'm a little bit of an amateur historian, so I've spent
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some time going back, trying to see the first mention
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of this kind of thing. And the best, earliest quote
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that I could find was one from David Livingstone,
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writing in the 1850s about how the railroad, the steam ship,
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and the telegraph were integrating East Africa perfectly
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with the rest of the world.
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Now clearly, David Livingstone
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was a little bit ahead of his time,
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but it does seem useful to ask ourselves,
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"Just how global are we?"
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before we think about where we go from here.
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So the best way I've found of trying to get people
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to take seriously the idea that the world may not be flat,
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may not even be close to flat, is with some data.
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So one of the things I've been doing over the last few years
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is really compiling data on things that could either happen
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within national borders or across national borders,
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and I've looked at the cross-border component
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as a percentage of the total.
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I'm not going to present all the data that I have here today,
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but let me just give you a few data points.
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I'm going to talk a little bit about one kind of information flow,
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one kind of flow of people, one kind of flow of capital,
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and, of course, trade in products and services.
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So let's start off with plain old telephone service.
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Of all the voice-calling minutes in the world last year,
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what percentage do you think were accounted for
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by cross-border phone calls?
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Pick a percentage in your own mind.
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The answer turns out to be two percent.
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If you include Internet telephony, you might be able
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to push this number up to six or seven percent,
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but it's nowhere near what people tend to estimate.
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Or let's turn to people moving across borders.
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One particular thing we might look at, in terms of
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long-term flows of people, is what percentage
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of the world's population is accounted for
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by first-generation immigrants?
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Again, please pick a percentage.
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Turns out to be a little bit higher.
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It's actually about three percent.
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Or think of investment. Take all the real investment
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that went on in the world in 2010.
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What percentage of that was accounted for
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by foreign direct investment?
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Not quite ten percent.
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And then finally, the one statistic
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that I suspect many of the people in this room have seen:
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the export-to-GDP ratio.
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If you look at the official statistics, they typically indicate
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a little bit above 30 percent.
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However, there's a big problem with the official statistics,
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in that if, for instance, a Japanese component supplier
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ships something to China to be put into an iPod,
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and then the iPod gets shipped to the U.S.,
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that component ends up getting counted multiple times.
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So nobody knows how bad this bias
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with the official statistics actually is, so I thought I would
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ask the person who's spearheading the effort
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to generate data on this, Pascal Lamy,
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the Director of the World Trade Organization,
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what his best guess would be
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of exports as a percentage of GDP,
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without the double- and triple-counting,
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and it's actually probably a bit under 20 percent, rather than
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the 30 percent-plus numbers that we're talking about.
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So it's very clear that if you look at these numbers
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or all the other numbers that I talk about in my book,
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"World 3.0," that we're very, very far from
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the no-border effect benchmark, which would imply
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internationalization levels of the order of 85, 90, 95 percent.
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So clearly, apocalyptically-minded authors
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have overstated the case.
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But it's not just the apocalyptics, as I think of them,
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who are prone to this kind of overstatement.
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I've also spent some time surveying audiences
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in different parts of the world
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on what they actually guess these numbers to be.
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Let me share with you the results of a survey
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that Harvard Business Review was kind enough to run
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of its readership as to what people's guesses
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along these dimensions actually were.
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So a couple of observations stand out for me from this slide.
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First of all, there is a suggestion of some error.
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Okay. (Laughter)
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Second, these are pretty large errors. For four quantities
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whose average value is less than 10 percent,
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you have people guessing three, four times that level.
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Even though I'm an economist, I find that
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a pretty large error.
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And third, this is not just confined to the readers
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of the Harvard Business Review.
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I've run several dozen such surveys in different parts
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of the world, and in all cases except one,
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where a group actually underestimated
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the trade-to-GDP ratio, people have this tendency
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towards overestimation, and so I thought it important
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to give a name to this, and that's what I refer to
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as globaloney, the difference between the dark blue bars
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and the light gray bars.
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Especially because, I suspect, some of you may still be
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a little bit skeptical of the claims, I think it's important
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to just spend a little bit of time thinking about
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why we might be prone to globaloney.
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A couple of different reasons come to mind.
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First of all, there's a real dearth of data in the debate.
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Let me give you an example. When I first published
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some of these data a few years ago
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in a magazine called Foreign Policy,
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one of the people who wrote in, not entirely in agreement,
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was Tom Friedman. And since my article was titled
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"Why the World Isn't Flat," that wasn't too surprising. (Laughter)
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What was very surprising to me was Tom's critique,
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which was, "Ghemawat's data are narrow."
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And this caused me to scratch my head, because
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as I went back through his several-hundred-page book,
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I couldn't find a single figure, chart, table,
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reference or footnote.
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So my point is, I haven't presented a lot of data here
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to convince you that I'm right, but I would urge you
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to go away and look for your own data
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to try and actually assess whether some of these
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hand-me-down insights that we've been bombarded with
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actually are correct.
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So dearth of data in the debate is one reason.
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A second reason has to do with peer pressure.
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I remember, I decided to write my
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"Why the World Isn't Flat" article, because
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I was being interviewed on TV in Mumbai,
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and the interviewer's first question to me was,
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"Professor Ghemawat, why do you still believe
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that the world is round?" And I started laughing,
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because I hadn't come across that formulation before. (Laughter)
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And as I was laughing, I was thinking,
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I really need a more coherent response, especially
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on national TV. I'd better write something about this. (Laughter)
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But what I can't quite capture for you
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was the pity and disbelief
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with which the interviewer asked her question.
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The perspective was, here is this poor professor.
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He's clearly been in a cave for the last 20,000 years.
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He really has no idea
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as to what's actually going on in the world.
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So try this out with your friends and acquaintances,
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if you like. You'll find that it's very cool
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to talk about the world being one, etc.
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If you raise questions about that formulation,
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you really are considered a bit of an antique.
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And then the final reason, which I mention,
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especially to a TED audience, with some trepidation,
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has to do with what I call "techno-trances."
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If you listen to techno music for long periods of time,
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it does things to your brainwave activity. (Laughter)
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Something similar seems to happen
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with exaggerated conceptions of how technology
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is going to overpower in the very immediate run
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all cultural barriers, all political barriers,
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all geographic barriers, because at this point
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I know you aren't allowed to ask me questions,
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but when I get to this point in my lecture with my students,
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hands go up, and people ask me,
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"Yeah, but what about Facebook?"
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And I got this question often enough that I thought
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I'd better do some research on Facebook.
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Because, in some sense, it's the ideal kind of technology
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to think about. Theoretically, it makes it
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as easy to form friendships halfway around the world
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as opposed to right next door.
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What percentage of people's friends on Facebook
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are actually located in countries other than where
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people we're analyzing are based?
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The answer is probably somewhere between
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10 to 15 percent.
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Non-negligible, so we don't live in an entirely local
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or national world, but very, very far from the 95 percent level
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that you would expect, and the reason's very simple.
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We don't, or I hope we don't, form friendships at random
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on Facebook. The technology is overlaid
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on a pre-existing matrix of relationships that we have,
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and those relationships are what the technology
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doesn't quite displace. Those relationships are why
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we get far fewer than 95 percent of our friends
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being located in countries other than where we are.
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So does all this matter? Or is globaloney
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just a harmless way of getting people to pay more attention
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to globalization-related issues?
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I want to suggest that actually,
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globaloney can be very harmful to your health.
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First of all, recognizing that the glass
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is only 10 to 20 percent full is critical to seeing
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that there might be potential for additional gains
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from additional integration,
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whereas if we thought we were already there,
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there would be no particular point to pushing harder.
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It's a little bit like, we wouldn't be having a conference
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on radical openness if we already thought we were totally open
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to all the kinds of influences that are being talked about
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at this conference.
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So being accurate about how limited globalization levels are
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is critical to even being able to notice
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that there might be room for something more,
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something that would contribute further to global welfare.
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Which brings me to my second point.
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Avoiding overstatement is also very helpful
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because it reduces and in some cases even reverses
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some of the fears that people have about globalization.
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So I actually spend most of my "World 3.0" book
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working through a litany of market failures and fears
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that people have that they worry globalization is going to exacerbate.
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I'm obviously not going to be able to do that for you today,
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so let me just present to you two headlines
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as an illustration of what I have in mind.
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Think of France and the current debate about immigration.
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When you ask people in France what percentage
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of the French population is immigrants,
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the answer is about 24 percent. That's their guess.
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Maybe realizing that the number is just eight percent
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might help cool some of the superheated rhetoric
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that we see around the immigration issue.
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Or to take an even more striking example,
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when the Chicago Council on Foreign Relations
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did a survey of Americans, asking them to guess
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what percentage of the federal budget went to foreign aid,
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the guess was 30 percent, which is
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slightly in excess of the actual level — ("actually about ... 1%") (Laughter) —
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of U.S. governmental commitments to federal aid.
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The reassuring thing about this particular survey was,
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when it was pointed out to people how far
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their estimates were from the actual data,
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some of them — not all of them — seemed to become
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more willing to consider increases in foreign aid.
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So foreign aid is actually a great way
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of sort of wrapping up here, because
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if you think about it, what I've been talking about today
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is this notion -- very uncontroversial amongst economists --
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that most things are very home-biased.
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"Foreign aid is the most aid to poor people,"
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is about the most home-biased thing you can find.
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If you look at the OECD countries and how much
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they spend per domestic poor person,
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and compare it with how much they spend
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per poor person in poor countries,
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the ratio — Branko Milanovic at the World Bank did the calculations —
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turns out to be about 30,000 to one.
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Now of course, some of us, if we truly are cosmopolitan,
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would like to see that ratio being brought down
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to one-is-to-one.
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I'd like to make the suggestion that we don't need to aim
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for that to make substantial progress from where we are.
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If we simply brought that ratio down to 15,000 to one,
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we would be meeting those aid targets that were agreed
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at the Rio Summit 20 years ago that the summit
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that ended last week made no further progress on.
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So in summary, while radical openness is great,
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given how closed we are,
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even incremental openness could make things
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dramatically better. Thank you very much. (Applause)
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ABOUT THE SPEAKER
Pankaj Ghemawat - Globalization researcherOur 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.
Pankaj Ghemawat | Speaker | TED.com