Top 10 Posts of Understand Globalization

Putin, Russia, Ukraine, and the Globalized World

When ordering the Russian Army to take control of key points of Ukraine’s Crimean Peninsula on the first weekend of March, it is highly unlikely that Vladimir Putin had appropriately contemplated the full financial and economic implications of such a decision. Read More

Globalization and The Olympics (Part I)

Every four years, during two weeks and a half, the entire world –figuratively speaking– takes a breather to see and learn about high-performance athletes competing with the best-of-the best, in search of  new olympic –and world– records setting and all sort of sports feats. Read More

From Hydra to Phoenix. The Transformation of Developing Nations

Indeed, occasionally it is both amazing and truly ironic how the global socio-economic cycle evolves. Not so many years ago, during the late 80s and early 90s, most of the underdeveloped world was in shambles, overburdened with debt, high levels of inflation, and frequent recessions and currency crises. Developing nations were, at that time, a basket-case. Read More

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Globalization and Capitalism

Both, capitalism and globalization have often been vilified –sometimes even paired up as a super villain duo. They have been charged with pretty much everything going wrong in our lives. Granted, sometimes, poorly implemented versions of both phenomena are to be blamed (The Cyprus debacle being one of the most recent manifestations). However, a careful and more detailed analysis will reveal that things are not as simple as they are often believed to be. In other words, let’s not shoot the messenger. Read More

Outsourcing: Opportunities, Myths and Realities

Outsourcing is a very widespread practice, with unknown boundaries.  In that respect, the US is a leading nation, as in many other areas. A constructive and realistic way to visualize jobs displacement by outsourcing is as an opportunity to upgrade skills and remuneration. History and experience unmistakably show that, in the long run, excessive emotional attachment to personal working habits does not pay well. An open, flexible mind, with a strong desire to learn new skills, is the best preparation of them all, for the hyper-competitive global economy. Read More.

Adam Smith: The Wealth of Nations and Globalization

An Inquiry into the Nature and Causes of the Wealth of Nations (1776) was the original title of the seminal book that lay down the conceptual framework for modern Economics. The book is commonly known as The Wealth of Nations; it was written by the Scottish Adam Smith (1723–1790). The impact of his brilliant work in the following generations has been such that Adam Smith is indisputably considered the father of economics. Read More.

David Ricardo: Comparative Advantages and Globalization

In the previous post we boarded a similar line of thought, regarding Adam Smith and The Wealth of Nations. It is only natural, almost a reflex, to do the same thing with another pillar of economics, the  British, David Ricardo (1772-1823). Read More.

Five Positive Effects of Globalization You Might Have Missed

There’s much that’s happening around the world and in your own backyard as world leaders, academics and everyday people like you and me push toward a more unified global existence. These people are asking and finding answers to some of the toughest questions we face. These are five really good articles we found that you might like. Read More. 

Joseph Schumpeter and Creative Destruction

The original concept of creative destruction was introduced by the German economist and sociologist Werner Sombart (1863–1941) and developed and popularized by the brilliant Austrian-American economist Joseph Schumpeter (1883–1950) in his book Capitalism, Socialism and Democracy (1942). Read More.

The New World Order: G7 and E7 Nations

There has been a profound change in the world’s progress as we have known it up to recently; capitalism’s geography is changing. In recent years, the average economic growth rates gap between the big emerging countries versus the big developed ones has been both substantial and consistent; that has already been going on for a considerable number of years, overwhelmingly favoring the largest emerging nations. The relative economic and political weight of the E7 economies has been the net result, said weight has been progressively increasing compared to the G7 countries’ weight. Read More.

Italy’s Perennially Troubled Political Status

 

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With Mario Monti’s resignation as Prime Minister, effective as soon as the 2013 budget is approved (expected this week), Italy may be beginning a new chapter in socio-economic mismanagement and despair. Most regrettably, that has essentially been the norm in recent decades.

During 2011, Italy was the eleventh largest economy on Earth, right between France and Mexico (CIA World Factbook), as well as the fourth largest economy in Europe. Italy is also a founding member and a pillar of the European Union. So, the fate of such a country is of great importance to the rest of the planet.

In many respects, the extremely sad and worrisome present condition of Italy can happen (and it does) to almost anyone, to different degrees. Hence, its troublesome situation is much closer to us than what we might think.

Mario Monti is the latest victim of a decrepit, worn-out, highly ineffective political system. Unfortunately, highly ineffective political systems are in abundant supply, almost everywhere we look.

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The entire so-called democratic world has been abducted by their own political parties. Virtually, there are no exceptions to this rule. Those political parties, in turn, are essentially run by a relatively small team of individuals, with strong vested interests behind them. To complicate things further, those relatively small groups are not as powerful as common perception lets on… those small groups are entangled within their own conflict of interest web. The end result is endless dithering and bickering in a fundamentally ineffective political system in which, for practical purposes, strong and virtuous leadership is utterly absent. What the world needs are Global Society Strategists.

Perverse incentives are at the bottom of this most regrettable situation. Over 150 years ago, the illustrious Alexis de Tocqueville very wisely warned: “The American Republic will endure, until politicians realize they can bribe the people with their own money”. Understandably, that maxim is applicable to any country, anywhere, anytime. For more on this subject, read our article: Contemporary Political Systems and their Multiple Limitations.

The world’s contemporary political system has not experienced any significant improvement since the dawn of the US, over 235 years ago. What used to be, at that time, a truly innovative and avant garde sociopolitical system has been essentially stagnant during this period, while the rest of society has made substantial strides towards a new world order. Corporations, institutions and many professionals have been effectively preparing themselves for new challenges and opportunities.

The world’s socio-political system still insists in trying to solve new global challenges with old recipes and domestic ways of facing problems. No wonder the relatively high dysfunctionality is facing both the European debt crisis and the US fiscal cliff, for example. In the EU’s case, old and dysfunctional notions of nationality, among other things, stand heavily in the way of proper, lasting solutions. All over the world, with virtually no exceptions, political parties have abducted the control of nations. Even worse, not even those political parties have full control of things, since along the decades, they have basically abdicated leadership in trying to keep an impossible balance among so many vested and conflicting interests. The end result is ineffectiveness and disarray. More detail in our World Debt Bomb article for Business Excellence Magazine.

From this perspective, Italy is only a conspicuous example, an extreme one, of how things can deteriorate and become a big farce, within a so-called democratic system. Legality has been honored in Italy, yet results are deplorable. The rest of the world, although not in such an extreme situation (with relatively few exceptions, like Syria, and Venezuela, among others) is not significantly better off. The relatively few bright spots that still fortunately exist (like Singapore, the Nordic states, among others) owe more of their virtuous exceptional status to a favorable set of circumstances and spontaneous honorable management of their leaders than to a deliberate constitutional design with appropriate incentives and checks and balances.

There are plenty of signals around us pointing to the need of a substantial upgrade to our socio-economic systems. The task is so formidable, however, that most unfortunately, there is not much room for well founded optimism in the short and medium term.

 

To be, or not to be? The Lula Conundrum

 

A few days ago, Lula Da Silva –the former president of Brazil, the 8th largest economy on earth, between Russia and the UK–  inexplicably, openly, and unmistakably endorsed Hugo Chávez’s nth campaign for the presidency of Venezuela.

Lula declared:

“Chávez can count on me, can count on the PT (Partido dos Trabalhadores – Brazilian Workers Party, Lula’s party), can count on the left’s solidarity, and of every Latin American: your victory will be our victory.”

“… under Chávez leadership the Venezuelan people have achieved extraordinary accomplishments … that need to be preserved and consolidated”.

His endorsement is truly incomprehensible for five reasons:

1. Lula ended a bright 8-year term (including one reelection) in December 2010 as president of Brazil.

2. Lula’s astonishing success as president of Brazil was based on a highly pragmatic approach to politics and a very commendable evolution to what seemed to be a true statesman (analysis of Lula’s profile and transformation story in my recently released book, Globalization).

3. Although Lula’s beginnings –in fact most of his career before becoming president– were decisively on the left –even extreme left–, as president he was wise enough to reconcile Brazilians’ conflicting interests across the whole political spectrum.

4. Chávez’s track record as president of Venezuela has been deplorable. Indeed, it is very difficult to achieve a worse performance than Chávez’s presidency:

a) The standard of living has deteriorated in an alarming way.
b) Population liberties have been increasingly lost.
c) Chávez has been reforming the Venezuelan constitution to allow him a virtual dictatorship.
d) The government is full of cronies.
e) PDVSA –the old oil state monopoly– has been consistently decreasing its production.
f) Chávez unsuccessfully tried a coup d’état against the Democratic Action government of President Carlos Andrés Pérez’s government in 1992.

5. And finally, Lula had no need whatsoever to do so.

By all means, is Lula trying to reposition himself politically? And if so, towards what end?

It is indeed very sorrowful to see a man of the former political stature of Lula’s, fall from grace in such a sad and puzzling manner.

The New World Order: G7 and E7 Nations.

There has been a profound change in the world’s progress as we have known it up to recently; capitalism’s geography is changing. In recent years, the average economic growth rates gap between the big emerging countries versus the big developed ones has been both substantial and consistent; that has already been going on for a considerable number of years, overwhelmingly favoring the largest emerging nations. The relative economic and political weight of the E7 economies has been the net result, said weight has been progressively increasing compared to the G7 countries’ weight.

Source: Computations based on GLOBALIZATION, Opportunities and Implications, The ABCs to a Global Social Revolution, Martin Marmolejo, Section 5, page 567-575.

The previous table shows a most interesting comparison between those two groups of nations: the G7 and the E7. The figures shown in the table are 2010 statistics. There are several outstanding points which are very important to bear in mind:

  • The G7 nations’ total output was approximately 33% larger than the E7’s during 2010. That gap was 44% the year before. During 2011, that gap was still reduced further, to less than 30%; we’ll know that for sure later in the year when official 2011 figures are released.

  • During 2011, there also must have occurred a couple of momentous displacements among the top-eight nations of the world in economic output: a) India overtook Japan as the world’s third-largest economy. b) Likewise, Brazil and the UK traded places. Brazil started the year as #8, ending up as #7.

  • During the previous year, 2010, a couple of displacements took place among the top-eight nations: a) Russia displaced the UK from 6th standing. b) Brazil displaced France from the 8th position.

Most of the G7 countries have yet to successfully overcome major long-term structural issues: debt, deficits, deleveraging and the accompanying slow-growth. The E7 nations, in contrast, are  growing at a very healthy and substantially higher rate of growth than the E7’s countries, they currently have very low debt levels, and also low and manageable budget deficits. As a result, to different degrees, the E7 nations are very much on a speedy and consistent catching-up trail with their developed brethren. There still remains a gigantic per capita output gap to be filled, before the E7 countries can be close enough to a developed nation status; it will take a few decades for that gap to be completely filled. On a volume basis, however, that gap is not substantial, and is getting smaller by the day, as we have already seen.

We are living in a very dynamic world. What we have witnessed in the past few years is a harbinger of things to come. It does not have to be a traumatic repositioning of economic and political power. It is of utmost importance, however, to understand what is going on and why in order to be better prepared for new opportunities and risks, as they emerge.

Austria, Netherlands and UK offer the world a great and very constructive testimonial of former world-leading-nations that have transitioned with class and dignity from that status to a new one of highly respected developed nations of a second tier nature. Indeed, they are three role model nations that can teach the world a lot in that particular aspect so critical for the world’s well-being.

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