Chapter 5: Understanding Globalization (Cont’d)
The Forces Driving Globalization
Much as the Industrial Revolution of the 18th Century was driven by machines, so too is today’s globalization propelled by technology, in particular Information Technology (IT), and knowledge. The Industrial Revolution began with the invention of steam engines that were used primarily to pump water out of mines. Later they were adapted for other uses, from weaving machines to steamships and locomotives.
The mechanized weaving mills revolutionized the textile industry; locomotives and steamships, transportation. Machines could produce goods not only in mass quantities but also of consistent and reliable quality. And those goods could now be transported to vast distant markets, thanks to cheap mechanized transportation modes. The locomotive was also instrumental in opening up the vast American continent and propelling America into a major economic power.
IT is based on the digitization of data. Data, be they voice, graphics (pictures) or text could be reduced to blips of “off” and “on” switches, and then transmitted over cables or satellite at the speed of electricity (light). The entire text of this book could be reduced to billions of such bits and then transferred to a reader at the other end of the globe where he or she could download them on the computer and be able to read my book in exactly the same way as it was originally presented. The whole process would take seconds. To rely on airmail would have taken days if not weeks.
Through the wonders of IT I can listen in real time to a sermon delivered at a Jerusalem mosque and also view the khatib (preacher) as he is delivering it. Sitting in my home I was able to watch on the Internet Mahathir addressing the 2001 UMNO General Assembly. And if someone had a digital video camera, he or she could have recorded the reactions of the crowd and transmit the images worldwide, giving viewers another perspective on the assembly instead of relying solely on the “edited” videotapes that were being broadcasted by the state-controlled television channels. All these are made possible by the digital revolution.
Just like the early steam engines found their way into other activities, so too has IT weaved its way into every facet of modern life. Even the simplest household gadget like a coffee maker has a computer chip embedded in its innards to enable the homemaker to program it to start brewing at a certain time. Through the computer, which is the prime symbol of IT, I can communicate with someone at the end the globe just as easily as if he were in the next office cubicle.
The locomotives and steamships of the Industrial Revolution made mankind conquer the physical obstacles of geography, specifically distance. To 18th Century Britons, faraway Ceylon was not some imaginary island in the tropics but a place where they could order their beloved tea. Geography ceased to be a barrier to trade or travel.
With the IT revolution we have again made a quantum leap in progress with respect to geography. We have effectively or virtually eliminated it. We have now effectively neutralized the “tyranny of geography.” With IT, it matters not where you are, as long as you are connected to the information superhighway, it will take you anywhere on the globe in split seconds. IT makes possible the free flow of data and information across borders.
There are two remarkable aspects to the IT revolution. One is that there is no central authority in charge – no government, UN Agency, or powerful corporation. It is as amorphous as it is ubiquitous. Two, the costs are declining as fast as the technology is improving. Not only are the fixed costs (computers, laying of cables, satellites) decreasing; the marginal costs are declining even faster. Once the cost of launching the communication satellite into orbit is paid, the additional (marginal) cost of adding an extra channel is simply the cost of the technician turning on the switch.
The forces driving globalization are essentially these: technology, specifically in IT; capital (money); and ideas (knowledge). IT makes possible the near instantaneous transfer of funds worldwide. When MAS buys a new 747 jet from Boeing, there is no signed check to be delivered or mailed. Instead the moment escrow is closed, the funds are immediately wired from MAS’s bank in Kuala Lumpur to Boeing’s in Seattle. Likewise, when a reader in Malaysia orders my book from Amazon.com in America, he could use his debit or credit card to transfer money from his bank to Amazon.com’s bank. Whether the transaction is for $50 or $50 million, the same technology is used at the same transaction cost. Money is not the only item that can be transferred via the Internet. More important is the transfer of ideas. Information is now no longer the preserve of those in power but diffusely distributed.
During the Industrial Revolution, with machines doing the work of workers, there was a quantum leap in the productivity in all sectors of the economy. Where previously it would take a farmer a whole week to till his little farm with his ox and primitive plow, a tractor could do it in a matter of hours. In the factory, one worker could look after a dozen weaving machines, each producing yards of cloth per hour, an output that previously would have occupied thousands of workers. In transportation, steamships could reliably deliver goods to distant markets in a much shorter time than would the old schooners.
Each new generation of machines would in turn help produce even more complex and powerful machines. Old engines that were once powered by wood gave rise to newer models that burned coal, and later, natural gas and gasoline. Their designs too changed radically, from the internal combustion engine to diesel-powered ones and later, gas-powered turbine and jet engines. Each new design represented an improvement in efficiency.
Similarly, the present IT revolution means more than just the ease of transferring data. It permeates into every facet of the economy. Earlier I gave the example of the improved productivity in my own medical practice made possible by computers. When I published my first book The Malay Dilemma Revisited in 1999, I did not use a single sheet of paper nor spend a dime on postage stamps. I did the entire writing straight on the computer, edited it directly onscreen, and then e-mailed the entire manuscript to my publisher. When it was ready, it was e-mailed back to me for proof reading, again directly from the screen, and then re e-mailed back to the publisher.
Previously (and also presently with many publishers), the whole process would have consumed many a tree for the papers needed, and hundreds of dollars worth of postage, and countless hours of retyping. But with modern word processing software, corrections and editing involve only a few strokes on the keyboard.
When my book was ready for marketing, my publisher was able to e-mail the announcement to thousands of potential readers worldwide, again without spending a cent on stamps. Additionally the book was made available on major on-line bookstores without it being actually physically present in the bookstore. When a customer orders my book, that order is immediately transmitted electronically to my publisher, from where the book would be immediately printed and shipped out. The entire transaction, whether across town or the globe, could be executed in seconds and at a marginal cost of pennies (marginal in contrast to the fixed cost in the purchase of computers and software).
In another area, using sophisticated software, airlines can now predict with a high degree of certainty how many seats would be sold on any given flight based on past experience. It can then use this information to offer the anticipated unsold seats to last minute discounters (“bucket shops,” to use the language of the trade), thus converting what would have previously been empty non-revenue producing seats into productive ones. Again using computers, the airline could plot the most economical (least fuel consuming) route. Oil companies regularly use sophisticated computers to mine data abstracted from their explorations, thus reducing considerably their chance of a dry hole. The American military uses computers to guide their “smart” weapons to devastating effects, as the Iraqis learned to their sorrow during the Gulf War, and as the Talibans are now experiencing.
It took a while for economists to recognize the tremendous gains in productivity IT makes to the economy. In part this was because those improvements were not readily apparent or measured, unlike the obvious gains of the Industrial Revolution that were readily seen and thus measurable.
The modern technology that accelerates globalization is not limited only to IT. The costs of travel, transportation, and communication have also dropped steeply due to advances in technology. With such gains in productivity, costs are lowered and the savings passed on to consumers. An airline trip is now within reach of the average Malaysian.
During my student days in Canada I hardly made phone calls home; it was just too expensive. Today, Malaysians in America call home almost every weekend! The cheap cost of transportation also made it possible for retailers in America to order their merchandise from faraway places like Indonesia. It makes geography and distance minor cost factors. It is this that fuels international trade, and with it globalization.
In 1938, the ratio of the world’s imports to gross product was about 7 percent; by 1970 it crept up to only 10 percent. By 1996 however, it nearly doubled to over 18 percent. That is to say a greater proportion of the world’s products and services are being traded between nations. The statistic that is more significant is that countries that have a greater ratio of the value of their international trade to their gross product tend to be more prosperous. Stated differently, trading is the way to prosperity for nations; the more we trade the more likely we are to prosper.
Next: The Corollary to Globalization