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The Contribution of Europe to Globalization

Working Paper by Eckhard Polzer

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By the end of the eighties, "globalization" was a term used at best by a few sociologists. The rest of us were occupied with international trade, the restructuring of the economy, the end of colonialism - a topic which by then hardly interested anyone anymore in the West - and Japan as the looming hegemonic power of the coming century. The iron curtain came down and George Bush spoke cryptically of a new world order, a concept nobody really knew what to make of. Today, everybody talks about globalization, and some even claim that the USA as sole superpower already behave like a world government, or at least as the world's policeman.

25.04.2000 · Research Group on the Global Future

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Globalization, a paraphrase for undefined fears

Since a couple of years, the rich nations had to accept that their blueprint theories are no longer valid. It is no longer sufficient to invent new products, which then, divided into handy incremental sub-systems, can be produced by cheap sub-contractors. Today, many of the former sub-contractors are offering their own complete systems, and the times when the competition for the best product idea took place only between the countries of the developed West are long gone. Nowadays, the speed of realization and commercialization, product quality and customer service, available venture capital and world-wide access to markets play a decisive role in addition to the new product idea.

Although world trade is increasingly determined by systemic factors, many resort to old concepts of the enemy, especially when it becomes more difficult to further one's own development. One of these is the argument that after-effects of colonialism still affect the countries of the former Third World. Neo-colonialism is a popular charge to distract at least temporarily from home-made problems. Those who deal daily with the effects of a global market can only shrug their shoulders at such blame. Most of the speculators who move billions between different securities daily in order to optimize their returns can hardly even remember what colonialism means. They only look at the track-records for the last three years, as if the countries they want to invest in were stock-quoted companies. Investors only distinguish between good and bad policies, between good and bad political leadership, between high and low expected returns.

Old allegations like economic imperialism and neo-colonialism quickly surfaced in the course of the Asian crisis. Thereby it was often gently overlooked that some countries eagerly accepted the IMF's money in order to put their economies back on their feet again, but refused the attached controls. Funding from the World Bank is also often welcome to finance projects, but reports to audit the usage of the funds are understood as illegitimate interventions into national sovereignty. However, without sensible controls no national economy, nor any business or political organization can work. The resort to out-dated charges only leads to additional tensions. That is least useful in a globally networked economy, the sole aim of which must be to generate more wealth for all.

No country, not even the rich West either, should be allowed to say goodbye to its past. However, if we acknowledge that the world is on the threshold of a new, common future, then permanent mutual accusations are of little help. A Europe which extensively destroyed itself during the first half of the last century had to realize that only cooperation could lead the way to a new beginning. A similar, only bigger new order, which shall organize the world economy to everybody's advantage, lies now ahead of us.

Europe can play a leading role in this process of change, as after the painful experiences of the last century, when the idea of extreme nationalism discredited itself in dreadful and inhuman ways, the model of Europe in its federal variety seems to work. Certainly, the Americans sometimes smile at European integration moving at a snail's pace. Sometimes they are upset, too, that not all developments correspond to their interests. But Europe moves, and within the last fifty years has moved, with determination in the direction of a culturally pluralistic but economically unified community of nations. The often crticized social security systems are not necessarily an obstacle for Europe, but rather insurance for its citizens that the economic returns will be enjoyed by all and not just a few.

If today criticism against unrestrained capitalism grows, then that is also to Europe's credit. This has nothing to do with a new form of dominance exerted by the West. Rather, it represents the quest for an answer to the old question: "What is man and how can he distribute the sources of his wealth justly?"

Global integration at breathtaking speed

In the last couple of years the impression has grown that economic developments no longer evolve step by step, but rather take big leaps. Of course, this is not helpful in creating trust. In addition, we are subject to accelerating changes in corporate governance and political management. Corporate returns are maximized in order to boost stock prices. A common strategy to achieve this is to concentrate on core competencies, i.e. to sell off and outsource those parts of the corporation with low yields. In any case, thousands of jobs are lost. Aiming to increase short-term profits, the big competitors in each sector merge or take over smaller ones. Such mergers and acquisitions in most cases do not involve the transfer of hard cash, but are usually financed through the exchange of equity. Initially, a further loss of jobs is the result. Increased returns come in only later; that it come in at all. Statistically, more than sixty per cent of all mergers flop due to incompatible corporate cultures. At first, there is no new value created in the form of new ideas or new products. However, the virtual value increase in the form of risen share prices is enormous. Most of all that feeds the array of lawyers and bankers structuring the deals. At the same time, the public enjoys the false security of bubbling stock markets. In the USA this has led to an alarming increase in private sector borrowing, as everyone wants to have a share of the bonanza.

The growing density of work means excessive demands on people. In addition, an ever higher degree of automation remains as the only means to further increase productivity. All this leads to high stress for the social security networks intended to support those that lose their job in the course of corporate restructuring. At the same time, an enormous redistribution of wealth is taking away place within the countries of the West: way from the mature industries towards the new, which stimulate the imagination of investors with the help of gigantic promises for the future. It is a historical milestone that AOL only because of the inflated value of its shares is able to buy a big conglomerate like Time Warner. As this system can only function if constantly new markets are opened up, a truly global economy is in the making. At the same time, a vicious circle of increasingly virtual values is emerging.

The USA has been living with a changing consciousness of its citizens for quite a time now. The negative impacts of a restructuring economy have been balanced by the optimism of the rising stock markets and the growing supply of jobs. During the eighties the country strode through the rock bottom under immense psychological stress for the nation. Now it is accustomed to rapid change and has learned to deal with it. Thereby the traditional "corporate man" has dropped out of the race. Nowadays everyone cares for his or her own sake, showing loyalty only to him or herself or at best to his or her family.

A similar development is only starting in Europe. The wave of corporate mergers and acquisitions just has gained momentum. As a result, much overdue structural change will be accelerated. The first signs are showing up concerning the service sector and the growing number of start-ups financed through venture capital. Despite a certain spirit of optimism, not everything new is accepted without criticism by Europe, especially regarding new biotechnological applications. At the same time, highest attention is paid to the environment. As for the exploding information technologies, Europe follows the rationale: "Information alone is not sufficient. We also have to understand the content and participate actively."

In comparison to the USA, the countries of Europe with only very few exceptions have a different view on the role of the state. Thus there exist different constitutions and different understandings of how to live democratically. High expectations towards the state to supply certain services are the rule. However, the insight is growing that the upper boundary has been reached with fifty percent state involvement. As a consequence, the pressure on governments to hurry along privatization is increasing.

Because of its complex inner structure, Europe today resembles the future trade bloc of Asia more than the economic monolith of America does. Increased cooperation should be the consequence, although the USA will continue to play the main role in Asia because of military security.

Economically, Europe does not fall back. The old dame sometimes only takes some more time to contemplate. For years Europe won the prize for innovation, but the prizes for commercialization regularly went to the USA and Japan. Now Europe has to invent itself anew, and it does this thoughtfully with full consciousness of the risks for the community of its member states, in case no viable long term social contract will be achieved.

More and more it becomes obvious that soaring stock prices are no longer compatible with high job security. This situation is apt to increasingly polarize capital and labor. Happily, the necessary social changes are hardly questioned. However, criticism arises concerning the uneven distribution of resources, increasing automatization marginalizing the human being, and the creation of a society shaken by envy and mistrust. The growing disparity of incomes we see in the USA is neither acceptable for Europe nor the social structures of Asia.

However, the wish for a just world will not hinder capital to flow into those investments with the highest return. On the contrary, it would be a mistake to encumber capital with a social component, even in its highly speculative and risk-taking form. Nevertheless, a new way to distribute the increasing returns from capital must be developed. That does not apply for pure capital investment where risk and return are more or less balanced. Where capital and talent in combination generate the actual value added, a way to fairly redistribute rewards to talent has to be found, or any economy runs the risk that talent concentrates itself only on short-term profit and dries out in other productive areas. The concept of talent has to be sufficiently broad here. Just because teachers are paid by the state that does not mean we can do without their talent. The same is true for doctors, nurses and a lot of other professions.

The emergence of this new society creates new global challenges most of all for the rich in this world. At the same time it offers the chance for a new beginning for the educated and motivated irrespective of their country of origin. A dilemma exists for those that are neither equipped with enough capital or talent to escape the vicious circle of poverty through their own power. As long as the human being is the subject of economics, the poor have to be supported, with measures more effective than just spending one percent of the rich nations' GDP. Once the human being is made the object of economics, we have lost more than simple a few percentage points of development help funds or remission of debt.

What are the future challenges?

A kind of world economy will certainly be unavoidable. Surely, the claim that the West again is crafting the rules will then be made by many. However, in the long run, neither the concept of the "West" can be retained, nor can be assumed that in the future the influence of the nation state will be as dominant as it has been in the past. The supranational organizations will be strengthened. They will have to be increasingly able to exert influence through regulations, in order to avoid excessive shocks like the Asian crisis. The attacks on the WTO in Seattle, primarily with the justified claim for "no taxation without representation", i.e. no influence without legitimization, show that we are on the right track.

Here the issue of a world-wide agreement on a basic concept of democracy, from which we are still miles away today, quickly arises. Democratic conduct not only consists in exerting the right to vote, but also demands the universal acceptance of some basic rights, without which the right to vote is at best used as a fig-leaf. Societies that are reluctant to advance the process of democratization often like to use the argument that their peoples are yet politically immature. Especially in Asia the necessity of a special Asian way is often stressed. Predominantly, this means the gradual move away from one party systems or military government towards more democracy. The reasons for such a directed transition consist mostly in fears of the blunders of excessive individualism and the desire to preserve traditional family values.

Whether a directed development will even be possible in the future is doubtful. The world-wide revolution in communication strengthens the wish for a new society, which is based on individual achievement. The effects of China's one-child policy on its future social structure are difficult to predict, but a strengthening of the traditional family values is rather no to be expected. The increased emergence of high-technology enclaves in otherwise underdeveloped regions points to a social change that can not be stopped. Accordingly, the general ability to direct the whole process through governmental institutions has to be questioned even in Asia. Pointing to Singapore, whose three million people are comparably easy to govern, is of no help. For states like Indonesia and China, a more complex framework of conditions has to be considered.

In the emerging new world economy the importance of work will have to be newly defined. It would be fatal to play off the haves against the have-nots. With or without university education, workers can no longer be expect to proceed their entire careers at a single employer. To change careers ten to twelve times should be considered normal today. This does not have to be a disadvantage. However, personal mobility, life-long learning and essentially private provisions for retirement must be seen as necessary preconditions. Of course, this affords a new way of thinking and again supports the already well-off and top-performing. This sharpens the question for social security mechanisms for those who are not equipped to go along at such a high-performance pace.

Presumably, the position of women will further be strengthened, too. This not only applies to equal rights in rich countries. In poor countries, women will have to get more powers of self-assertion and more hearing for their vested interests, too. That is a good idea and possibly saves us one or the other conflict, but requires a new kind of partnership between the genders. Especially traditional societies will have deal with this for decades.

New technologies will furthermore, and even more rapidly than before, transform the globe. The discussion about biotechnology, most of all in Germany, is absurd. Progress can not be reversed. The attempt at political demarcations is bound to fail from the very beginning. The only remedy here would be to focus on basic research in order to be able to appraise the risks of new technology. In addition, as with any other new technology, a new sense of responsibility has to be enforced. In that respect, new technologies are not different from already established ones. If in doubt, the well-being of human beings should always be valued higher than economic return. It is true, that new important questions are raised by the opportunity to change our genetic make-up through the use of biotechnology in the future. However, these are not economic, but rather ethical in nature. In any case, we are at the threshold of a new chapter of human development.

Not only because of this development humanity needs a new notion of humanism. It must not be that in the age of the Internet human beings are increasingly often subordinated to computers and their functioning. We need more education about ourselves and our inducements. In order to foster the self-fulfillment and social responsibility of individuals we need a modern rather than a backwards oriented education. And we need the security of and an enhanced consciousness about our individual basic rights. This is not supposed to advocate a Pax Americana, but rather to appeal to the individual not to subject oneself to the institutions entirely. Most of all we need mature citizens, not only in rich regions, but also in developing countries.

However, we have a long way to go. The USA is already several years ahead of the general development, and many a one is dreaded of the possible excesses of this future society. Nevertheless, America's cultural dynamics also appeal to more and more people. Europe can be a fair mediator between the interests of the Third World to grab a growing share of world GDP, and the restless dynamics of the USA. Maybe Europe's colonial past will even help to build the bridges. Bridges through common language, familiar institutions and the opportunity to share common education not only for a privileged elite.

Europe's cultural diversity and the autonomy of its states will remain despite progressive integration. It offers a model for other regional economic communities, whose member countries do not want to sacrifice their specific cultural, religious and social traditions to an anonymous world economy. That is true especially for Asia with its thousands of years old culture, but also for South America and Africa, as soon as the basic requirements of a stable social environment are in place there.

However, precondition for an active role as mediator is Europe's independence of the USA and the willingness to take the interests of the Third World into consideration. If we succeed in discussing global issues like the preservation of nature, the control of financial flows and a minimum of basic human rights under conditions of mutual trust, we could at least improve the efficiency of the mammoth international conferences. If we additionally succeed at least occasionally in giving the common good more weight than the national self-interest, we would come one step closer to a functioning world society. When we look at the lives of our children and their friends, we can already see the outlines of a global society. Irrespective of their country of origin they study at the same universities. Their courses deal with global topics. They marry or live together without the family having substantial influence on their decisions. They will earn their living where they can contribute their varied interests and talents. Given the growing flows of global tourism, the emergence of huge global conglomerates and international financial interdependence, we inevitably are on the path to a world society, whatever the result may look like.

We forget too easily that only a few decades ago China was in the midst of a suicidal cultural revolution, Eastern Europe was behind the iron curtain and the Asian Tigers were closer to poverty than to the wealth they enjoy today. Great efforts are still necessary to prevent the past from repeating itself. In order to master the future, the willingness to cooperate is essential. The USA and Europe are accelerating their development into multicultural societies. Not because that is so much fun, the burden on the individuals is enormous, but because there is no alternative. Those who have to uphold the future society have no other choice than to address the growing complexity. The force to change does not affect only rich countries. Because of these changes, great social upheavals are to be expected. In order to master these, the idea of some kind of world government does not seem too absurd. For the first time in history, we are all sitting closely together in one rocking boat.


Mr. Eckhard Polzer

Mr. Eckhard Polzer is the former Chief Executive Officer of Dornier Medizintechnik GmbH. He started his career at Dornier in 1977, after leaving Siemens AG, where he worked as a program manager in Ghana, Zaire and Nigeria from 1973 to 1977. Previous assignments at Dornier include: President and CEO of Dornier Medical Systems Inc. - Atlanta, GA (1984-1991), Department Head Medical at Dornier Systems GmbH in USA and Germany (1983-1984), and Executive Assistant to the Chairman of the Board of Management at Dornier GmbH (1982-1983).

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