Does Protectionism Protect?

ProtectionismA couple of recent events have made evident that the cause/effect relationship between protectionism and its ominous consequences is still often painfully misunderstood, or what’s even worse, forgotten. The cumulative, collective knowledge process is the universally known pattern of how we humans advance our knowledge through time. However universal and unequivocal this concept is, there are no shortage of examples showing a relatively frequent utter lack of an understanding of basic, fundamental historical lessons as to merit comment and analysis.

After the US markets’ closing bell on February 19, Facebook announced its agreement with WhatsApp to acquire it for a staggering US $19 billion. The price tag will be the largest-ever paid for a venture-backed startup company (WhatsApp was founded in 2009, still an unlisted company). The transaction is subject to regulatory approval.

By far, WhatsApp is the leading instant messaging system on earth, recently boasting 450 million subscribers worldwide, with new subscribers piling up at about one million per day. WhatsApp is also the world leader in transmitting images between users, above Facebook and Instagram combined.

Beyond the merits of the transaction, it is both appropriate and timely to make a quick recap of the evolution of the text message industry in recent years, in order to remind us of a great historical lesson that should have been fully in command of key players, but wasn’t.  

In addition to the typical service provided by all mobile carriers throughout the world (known as SMS), up to now there have been only a couple of memorable experiences of specialized companies in this utmost important market. Up until about late 2011 the Blackberry Messenger (bbm) was comfortably the clear market leader. A combination of becoming a lagging brand in innovation plus the fact that back then bbm was a service provided exclusively to blackberry users, caused the loss of leadership of Blackberry’s bbm, in favor of the then emerging WhatsApp. The precipitous loss of market leadership in favor of WhatsApp eventually forced Blackberry to rectify, opening up its service to all mobile platforms. Recent statistics place WhatsApp in the #1 spot with the 450 million registered users previously mentioned; Blackberry is a distant second with about 80 million users.


It is evident that Blackberry’s top management did not have an adequate idea about the great value of its leadership —namely opportunities and risks inherent to that leadership— in the short messages market, when they had it. Or, to put it in another way, Blackberry’s management naively thought that the best way to preserve their market leadership was by going solo, keeping the exclusivity of their service to blackberry users. Otherwise, Blackberry would have opened its service to all mobile platforms early in its extraordinary success, a few years ago. Unfortunately, Blackberry didn’t realize it in time. When Blackberry  finally reacted to correct its major blunder it was too late, since WhatsApp was already the worldwide leader, miles ahead of Blackberry.

WhatsApp was born out of an evident desire to replicate the great success bbm had had within the blackberry ecosystem, targeting the immense market vacuum left by Blackberry’s closed system. WhatsApp originally targeted the iPhone market with great success. Immediately after that, WhatsApp went after the Android market. The rest is history.

Nature abhors vacuums. Hence, the marked propensity for vacuums to be filled. This is more so, when dealing with a market vacuum with great appeal, a potential market worth millions —or in this case, billions— of dollars.

In retrospect, it is very easy to perceive the great fault of Blackberry’s management: blindness in regard to the rest of the market. So, the million dollar question —or in this case $19 billion— to ask is… If Blackberry had such a great product and sat on the throne as market leader, why in the world didn’t they open bbm to the rest of the mobile operating systems in time? It is a classic case of not learning from others. With the benefit of hindsight, that mistake has an approximate present value of US $19 billions.

Going back in history, Blackberry’s management committed the same mistake that Apple made in the early 80s by not licensing its operating system to other platforms, before Microsoft took off. The WhatsApp/Blackberry case is a virtual carbon copy of the Apple/Microsoft experience —with the difference that Apple was not only able to bounce back after that, but by 2012 it became the company with the largest market cap in the world. A few years earlier, Sony had made exactly the same mistake with Betamax, in favor of the VHS video-home system format.

Anyway we approach the previous failed business strategy cases, the major objective behind it is to protect a very valuable asset with the intention to preserve leadership in the long-run. Thus, the main intention is protection. The key element here is a functional definition of protection within this context.

Ironically, quite often the best way to protect a valuable product, or a nation’s wellbeing, is by opening up, not by closing down.

Although, in principle a traditional protectionist strategy —closing up the market to other formats— makes intuitive sense, that  strategy has proved to be deeply flawed, since it ironically yields exactly the opposite results. History shows it in an unmistakable way, case after case, with no exceptions, be it at the individual, organizational, or national level. The lessons are there  to be learned, as a cumulative, collective knowledge of mankind.

Unsurprisingly, the same cause/effect relationship also applies to nations. In fact, the protectionism cases are amply documented regarding nations. A case in point is the recent result of the Swiss referendum of February 9th on immigration policy (The Limitations of Democracy).

As previously stated, the cause/effect relationship between protectionism and its ominous consequences is still often painfully misunderstood, and sometimes even forgotten. The examples cited from the business world are an unobjectable evidence in this direction.

In summary, there is no way to overstate the importance of truly learning from others as an indispensable way of avoiding making monumental mistakes, as the corporate cases mentioned clearly demonstrate.

History shows that national —or regional— protectionism yield exactly the same results for similar reasons. Logically, this isn’t a coincidence, but the manifestation of the same nature of things at different levels of the human experience —individual, organizational, national.

China & Taiwan: Two Nations With A Working Relationship

China and Taiwan

Very encouraging talks between mainland China and Taiwan were held in Nanjing, in mainland China on February 11. The talks were presided by Wang Yu-chi head of Taiwan’s Mainland Affairs Council, and by Zhang Zhijun head of mainland China’s Taiwan Affairs Office.

These were the first high-level meetings of their kind held officially by ministers of both nations since the end of the Chinese civil war in 1949. No official agenda was released for the talks.

Kudos for the People’s Republic of China (PROC)! This attitude of dialogue is very constructive. In fact, this is the only reasonable way to reach agreements and move forward in a harmonic way. Although the conversations were abundant in symbolisms and short in substance, they were an excellent and a very auspicious beginning.

The cross-strait business and social ties have improved since Taiwan’s pro-Beijing President Ma Ying-jeou was elected in 2008. Cross-strait flights began that year, with tourists from the mainland  boosting Taiwan’s economy. During 2013 almost 3 million mainland Chinese visited Taiwan, up from just 300,000 during 2008; currently, there are over 400 weekly flights between China and Taiwan.

Taiwan has invested over US$200 billion in mainland China during the past three decades. Hundreds of companies from Taiwan have been established in mainland China during the same period. Cross-strait trade was US$197 billion during 2013. Thus, the business ties among both jurisdictions are thriving, in excellent health. To the extent of their capacities, both economies complement each other very well.

Beijing has the great opportunity to realize that territorial ambitions are passé. They should never have existed in the first place; and this can be proven strictly on pragmatic grounds, not even having to resort to moral standards. Historically, territorial ambitions are one of the major mistakes of mankind. Territorial ambitions have caused humankind unnecessary costs, like  death, misery and suffering. There have been no long-term winners. Potential gains have been a mirage, a short-lived upside. Losses have been vast and permanent for all sides involved.

Nowadays, territorial domination in the old-fashioned way does not make much sense given that the traditional nationality concept is becoming more dysfunctional by the day. In GLOBALIZATION, my book, I dive into how in many ways, the traditional citizenship concept is outdated and obsolete due to the instantaneousness of modern communications and the globalization of products and services markets.

Mainland China’s aspirations to world prominence are quite legitimate. In many ways, history is on its side, since China has already been a very prosperous and successful nation throughout  many past centuries, except for the most part of the XIX and all XX centuries.  Moreover, China can even aspire to overcome past glories. The new paradigm, however, calls for that winning spirit to be constrained essentially to competitiveness in trade, science, technology, arts, and education. It isn’t a military confrontation. Military hostility is not an acceptable way to behave anymore in the developed world. It never was, alas it regrettably was a tolerated practice. The real contemporary change resides in the fact that military aggression now is openly repudiated by the whole world, and more so by developed countries. In that regard, the developed world has changed a lot, for the better, since the end of WWII.

The past few decades have manifested a new paradigm, with unequivocal results: how great success has been achieved by small nations —from the territorial and population standpoint— that were able to transit from being laggards to leaders in just a couple of decades or so. Relatively newcomer nations like Singapore, New Zealand, Israel, and the Czech Republic, just to name a few, have shown the world the huge importance of effective government management —on a comparative basis— with the rest of the world.

Along the same lines of effective governments are Switzerland, Netherlands, and the Scandinavian countries, among others; these nations have been able to maintain themselves at the top of world’s standards for over a century. Thus, although having big landmass and a large population can be a plus, all nations previously cited have shown the world that the real key to progress lies elsewhere: in well-structured, efficient societies with an effective government, regardless of the size of the country.

Along similar lines, powerful global brands, in a way, increasingly rule the world, with little regard to national borders. Powerful global brands like Apple, Samsung, Bloomberg, Reuters, Nestle, BMW, Boeing, Airbus, just to name a few. China has been very active trying to build powerful global brands. Lenovo is a good example of a promising work in progress. However, China still has a long way to go before it can successfully achieve this demanding objective.

China stands to gain much more with a well-executed cooperation program with Taiwan than through confrontation and hostility. Beijing should overcome primitive temptations and rise to the occasion. China already has a lot going for it with Taiwan. The links and interconnections between them are too powerful, numerous, and deeply rooted. Both nations share a common heritage in history, culture and language.

China has a lot going for it with the rest of the world too. China’s integration to the global trade system has been very rapid and reasonably comprehensive, a true smashing success. Both, China and its counterparts —the rest of the world— have reaped handsome benefits in the process. The integration of China to the global trade system has been a truly Win/Win situation for all parties involved. Nonetheless, despite that smashing success, it’s still a work in progress, an unfinished endeavor. Let’s carry it to new heights of prosperity! Let’s have the wisdom and pragmatism to keep it moving forward, striving for more, for the benefit of China and the rest of the world!

Taiwan presents a golden opportunity for China, to defy its critics, becoming a leader and a highly respected practitioner of the new paradigm of peace and cooperation. Mainland China has the unquestionable leadership of the enormous Chinese world. If China proves its detractors wrong by having an increasingly peaceful and harmonic interaction with Taiwan, China will make substantial progress towards becoming a highly respected and admired global leader. China should aim to be admired and respected, not to be feared. This is the wise path, according to Confucius’s teachings.

Hong Kong and Taiwan, to different degrees but basically for the same reasons, provide Beijing with an unsurpassable opportunity to transit from an autocratic system to a functional, democratic one, more harmonic with the developed world, with the World China is striving to become a part of.

Both, Hong Kong and Taiwan should be perceived as a formidable duo of strengths, not of weaknesses, of mainland China. The opportunity to learn from a couple of societies next door with essentially the same original DNA, yet that have evolved in a far more successful way than mainland China itself is truly a golden one, a true blessing that must be seized, and fully taken advantage of. Furthermore, if the assimilation process of the best socio-economic practices of Hong Kong and Taiwan to mainland China is done appropriately, Beijing can extract humongous gains from that virtuous transition, even possibly contribute with some interesting improvements along the way over the worn-out Western society’s socio-economic model (Read more on: Limitations of Democracy;  Contemporary Political Systems and their Multiple Limitations;  From Hydra to Phoenix: The Transformation of Developing Nations).

Notwithstanding the impressive economic and even social development that China has achieved in the past three decades, China is still very far from being a fully developed country. As previously stated the road to full development from the present stage is in no way guaranteed (State Capitalism and Western Society Series).

What China does —or omits to do— is very important for global harmony and wellbeing. China is already the second largest economy on earth, and in most likelihood in a few years it will be the largest, volume wise.

If Beijing does not behave constructively in its relationship with Taiwan, with a well-orchestrated reconciliation program, it will surely lose a great deal of the excellent socio-economic momentum achieved during the past three decades. In other words, the cost/benefit relationship of not behaving constructively in relation to Taiwan is very onerous for China. Conversely, if the right attitude prevails, as previously stated, there is a myriad of disproportionate benefits that China will continue receive for years to come.

The Limitations of Democracy

“It has been said that arguing against globalization is like arguing against the laws of gravity.”    

 ——Kofi Annan


The world is opening up every day, yet the Swiss voters decided to go the other way in a crucial aspect of globalization. Although with a marginal difference (50.4% supported the proposal), the Swiss referendum of February 9th on immigration policy was clear in its outcome: the (slight) majority of the Swiss citizens will feel more comfortable with significantly less foreign nationals living and working in Switzerland. At present, around 25 percent of the Swiss population (8 million) is made up of foreigners, the second largest in Europe, after Luxembourg.

We all are well aware that protectionist policies are nothing new. The ideas behind them have already been around for quite a few centuries. Time and time again experience has shown, with no memorable exception, their futileness. Protectionist policies are value destroyers, not value creators.

From the legal and constitutional standpoint, the referendum outcome is impeccable and crystal clear. Thus, the legal and constitutional aspects of this process are not debatable. The Swiss law is very clear on referendums, and it was observed at all times throughout this process. And above all, the voice of the people in a democracy cannot and should not be disregarded, particularly so in a democracy with such strong credentials and tradition as Switzerland’s.

Thus, legal aspects aside, what about the practical implications of such an outcome?

History and experience show that, on the average and in the long-run, the more open borders are in investments, transit of goods, services, and labor,  the better off the citizens will be. Being fully aware of this, the Swiss government was logically behind the open markets campaign, which finally lost. So, the referendum outcome is a blow for the Swiss government.

The referendum outcome is problematic in several fronts:

  • For the Swiss government which, in most likelihood, will have to renegotiate a lengthy number of clauses in its multiple treaties with the EU. Although Switzerland is not formally part of the EU, for practical purposes it can be assumed that it is. In addition, there is also the unfortunate precedent that this referendum establishes. Notwithstanding Switzerland’s small size in population and economic mass, it is a very prosperous leader nation, an exemplary one in several aspects and one of the wealthiest nations per capita in the world. Switzerland’s stability, civility and neutrality have made it a favorite hub for global businesses and international organizations. So, potential repercussions can be big, unfavorable, and linger with us for years to come.

  • For the EU the referendum outcome is also a headache. Swiss is a member of the Schengen Agreement, and as such, Swiss citizens have had essentially all the rights of any EU citizen, except the right to vote in EU matters. According to the spirit of the Schengen agreement, reciprocity must be observed at all times; otherwise, the EU will have the right to retaliate and likewise be more stringent in accepting Swiss nationals living and working inside its borders.

Any position the EU assumes as a reaction to the referendum outcome —between being a hardliner on one extreme, or being understanding and flexible in the other extreme—  also poses a complex set of risks and opportunities. There are no easy answers to this quagmire. The referendum outcome added a significant amount of unnecessary tensions between Switzerland and the EU.

  • It is also problematic for multinational organizations, which may find it difficult and costly to adjust in order to fully comply with the new Swiss immigration and labor laws. The new immigration and labor landscape may very easily cause severe disruptions and force costly reallocations of key personnel among multinational corporations headquartered in Switzerland. It is very likely that these corporations will end up losing competitiveness as a result of the referendum outcome.


The otherwise admirable Swiss political system has shown a big flaw. It’s as if Switzerland were shooting itself in the foot.

Why the population’s disconnect with reality?

There is no easy answer to this misconnection, other than stating that even in a developed nation of Switzerland’s caliber, there are some highly specialized and rather complex topics like immigration policy that are well above the average knowledge of the population. Voters can be a relatively easy prey for populist movements and propaganda.

So, however laudable a democratic system is —the Swiss case is one of the most advanced—  there are some very clear limitations inherent to it. The average voter is more often than not  insufficiently informed, and therefore unaware about some significant (unintended) consequences —both of voting in one direction or another.

Will the Swiss population persist in being foolishly independent, assuming the lower living standards associated with it? Or, will they eventually come to senses and rectify once they realize the very onerous consequences of the decision they made and accept the diminishing sovereign rights associated with an intense and prosperous exchange with the EU and even the rest of the world?

Sovereignty is one of the least understood concepts in a globalized world. By necessity, a well-globalized world is a world where significant concessions are made by nations in pursuit of the higher good.

On the positive side, this outcome will not necessarily determine Switzerland’s long-term future. In the past, the Swiss population has shown a fairly pragmatic approach to changing the direction of a referendum once they’ve realized they have made a big mistake. In addition, albeit not very likely, it is possible that the outcome can be watered down by the Swiss government, once the regulations to enact it are drawn.

The Swiss recently also approved an initiative to limit the excessive remuneration of top management. The spirit behind it is truly commendable, but is also a thorny issue. Yet, reaching a functional regulation concerning excessive executive remuneration, minimizing unintended consequences —like an exodus of multinationals headquartered there— can be a completely different story.

At the very end of all these types of challenges, however, lies a most fundamental question.  How to improve a political system once its obvious flaws have surfaced? The outcome of the multi-referred referendum is a case in point. Personally, I do not advocate any specific solution in that regard for developed countries, given the many sides and inherent complexities of this issue. See my proposal for failed nations: the Turbo-charged Global Project  (TGP).

It is painfully obvious that democracy, like any other human structure, is not a panacea. As Sir Winston Churchill famously admonished in a  House of Commons speech on Nov. 11, 1947:

“Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”

The world truly has a gigantic set of challenges to overcome before reaching the stage of a highly meritocratic society.


Will the Rising Dragon of the East Dominate the West Too?

China is no doubt on a stampede to over come the west, perhaps the world. It’s economy will, by some studies, surpass the United State’s in 10 years. It will become the largest on earth, volume wise, surpassing the US. According to recent statistics, the US $16.24 trillion dollar economy is currently only about one third larger than China’s, at $12.26 trillion. Thus, China’s economy is at a relatively striking distance to match and eventually overtake the US economy in size.

And it’s already beat Russia. Now what? In this compendium of four posts, we dive into the deeper story of state capitalism, which China has embraced, and look at how that might affect economies worldwide.

superpower-showdown-shareState Capitalism and Western Society (Part One): Putting China Into Perspective…

The increasing importance in recent years of China as a world power, and to a much lesser degree Russia’s emergence, have arisen some logical unease and questioning about how Western societies will fare in the new world order over the coming decades, given the inevitable interconnectedness among nations.

China vs RussiaState Capitalism and Western Society (Part Two): China vs Russia, and Then Some…

Both Russia and China shared a roughly similar past during the last century, given that in both instances despotic regimes (Imperial China and Russia) were overthrown through military revolutions by Communist insurgencies, which in the process became authoritarian regimes. However, there are four major differences between these nations.

State-CapitalismState Capitalism and Western Society (Part Three): What Lies Ahead for China and Western Capitalism?

The Chinese economic success has been beyond what the most optimistic projections originally foresaw. How to reconcile the traditional Western capitalistic economic model with the Chinese version? There are three fundamental points to consider.


China-economy-infographicState Capitalism and Western Society (Part Four): Does China Have What it Takes to Continue its Growth Spurt?

A mostly inward looking political system has difficulty in attracting and retaining talent from abroad —like in present day China. The attraction/retention of talent is an indispensable element in achieving technological parity and leadership relative to other countries.

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Globalization & Institutions

United Nations

A fundamental pillar in the appropriate evolution of the globalization process is the existence of solid and reliable institutions behind it. Of particular importance is a functional global judiciary system.

The International Court of Justice (ICJ-also known as the World Court), the UN’s tribunal headquartered in the Hague, plays a paramount and irreplaceable role in world affairs. Its fifteen judges are elected for a nine-year term by the General Assembly and the Security Council, voting simultaneously but independently. In order to ensure continuity within the Court, five judges are elected every three years.

The ICJ settles disputes between countries that voluntarily resort to it, which are obligated to comply with the Court’s decision. In addition to impeccable professional credentials, diversity and balance are objectives sought after in all selected judges. In the words of the ICJ: “The Court may not include more than one national of the same State.  Moreover, the Court as a whole must represent the main forms of civilization and the principal legal systems of the world … the Court is not composed of representatives of governments.  Members of the Court are independent judges whose first task, before taking up their duties, is to make a solemn declaration in open court that they will exercise their powers impartially and conscientiously.”

Peter Tomka, a Slovak, is the current president of the ICJ, and Bernardo Sepúlveda-Amor, a Mexican national, is the current vice president. The countries of origin of the remaining thirteen magistrates is as follows: Brazil, China, France, India, Italy, Japan, Morocco, New Zealand, Russia, Somalia, Uganda, UK, and the USA.

LChile and Peru border disputeast week we learned about the decision of the Court to settle an old territorial dispute between Peru and Chile. The disciplined attitude of both countries should be lauded, before, during, and after the verdict was released. Peru and Chile have a growing trade and generally smooth relationship, and have been an example of good neighborly conduct during the recent decades.

In April of 2013 Bolivia took another territorial dispute with Chile, looking for seashore territory. This claim is expected to be resolved sometime during 2014.

The world should aim to be a global village governed by international law, with a solid judiciary system. Nothing else will do. Despite all limitations and human deficiencies that the judiciary system might have, by far it is a better option than any other alternative. Naturally, constant efforts must be addressed towards continuously perfecting all legal systems.

In short, in our globalized world there is no appropriate substitute for the ICJ. Hence, the logical path of evolution is to strengthen, support, and use it.

Ideally, all controversies among countries should be settled in a peaceful, orderly, and civilized manner. Once the diplomatic dialogue between or among nations has reached a dead-end, and all other possibilities —like mediation by a third party— have been exhausted, there is no better way of settling international disputes than through the ICJ.

Indeed, the world as a whole is very fortunate to have a functioning and active institution like the ICJ, with a growing number of cases settled throughout the years. Since May of 1947, when the first process was filed, there have been 156 processes dealt with by the ICJ.

All major nations, like the US, China, and Japan should make a consistent effort to utilize the ICJ to settle international disputes. This is particularly relevant given the frequent reticence that the largest economies usually have towards settling disputes through this medium. That reticence is a significant obstacle in the normal and healthy development of the global judiciary system.

Ted Turner, a distinguished businessman from the US, made an unprecedented $1 billion dollar donation to the UN in 1997, spread throughout ten years. As a means to exert a better control and improve accountability over that donation, Turner demanded the creation of the UN Foundation. Turner’s case is an outstanding example of highly commendable global citizenship, handsomely contributing with his own money, yet simultaneously, to the degree possible, also conducting the global institution into better governance practices.

The UN is the only global forum of its kind. The birth of the UN was not accidental, it was a direct consequence of WWII, in hopes of providing the world with an impartial global forum to deal with international affairs.

In essence, there are only three truly global indispensable supranational institutions: the UN, the IMF, and the World Bank. The human and financial costs incurred to establish and keep them running has been vast, spread throughout many decades. Despite the multiple limitations and failures —inherent to any human endeavor— the world is far better off with them than without them. Hence the importance of fortifying and consistently improving them.

Due to political fighting, Washington, as well as other advanced countries have shown a frequent propensity to be in arrears of payments to this kind of institutions. This is highly regrettable and shameful. We all should aim towards a more responsible and mature attitude in these critical aspects of the political life. What is at stake is all too serious and consequential.

Martin Wolf from the Financial Times has very aptly stated: “Co-operation and communication should be the order of the day” (in world affairs).

Nowadays we are facing a truly unprecedented opportunity for growth and overall well-being for the world at large. If the two conditions just mentioned are effectively applied on a global basis, the humongous opportunities in front of us will bear very substantial fruits, in the form of new massive employment and a significant improvement in the standard of living, particularly among the billions of human beings living below the poverty line.

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