#3 Best of Globalization Blog 2013

Did poor economic policy create the development of the largest financial crises in the history of the United States and the European Union? And , how does the juxtapose with developing nations and their crises in the lat 1980s through the 1990s?

In our post “From Hydra to Phoenix: The Transformation of Developing Nations,” published on May 27, 2013 is another of our most read posts and the most “Like” on Facebook.

We think this post it important for a number of reasons. Chief among this is how they are “outperforming the developed nations’ growth rate in a significant way.” We argue:

Contemporary political systems are highly dysfunctional, trapped within their worn-out way of doing business.

From this launching point, we brought you the following posts, which examine the political structures of first-world governments:

While these will give our “#3 Best of Globalization Blog 2013” post more context, we didn’t want you to miss this pivotal content.

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.

globalization and economic development

The typical –understandable– reaction of most of the developed countries to those frequent and severe crisis was to admonish the troubled and disorganized countries to put their affairs in order, learn to behave prudently and to live within their means.

What a difference a few years can make!

Around two decades later, both the EU and the US are now the ones experiencing the aftershocks of highly uncontrolled public finances which have resulted in incredibly high levels of debt. As a group, most western economies are still struggling to overcome unusually sluggish growth combined with persistent high levels of unemployment.

The irony resides in the fact that fortunes have made a 180 degree turn and the two largest economic blocks on earth, the EU and the US, are in a situation (in many respects) very similar to the one the developing nations were in during the late 80s and early 90s.

globalization and economic developmentConversely, most of the developing nations currently hold an enviable fiscal and debt position. Nowadays, most of the developing world has a relatively low (and very low in some cases) debt level, manageable fiscal deficits and are growing at rates normal for their nature, consistently outperforming the developed nations’ growth rate in a significant way. In the past two decades, most of the developing nations have managed to behead the mythical multi-headed hydra that held them captive, and have been transforming themselves into a phoenix that is rising from the ashes.

How can such a dramatic turn of events have occurred in such a relatively short time?

globalization and economic development

There are several reasons for it.

First, contrary to a common belief, the level of political development of the developed nations, in many respects, is an unfinished business. To the contrary, it is safe to state that contemporary political systems are highly dysfunctional, trapped within their worn-out way of doing business. Hence, in many respects, the current dire situation of the two largest economic blocks on Earth is a patent manifestation of the insufficiencies and limitations of contemporary political systems. That is the major reason behind the “new normal” of unusually sluggish growth and persistently high unemployment in most Western, developed economies.

Second, parallel to the previous point, on a relative basis, during the last couple of decades most of the developing world has made a substantial catching-up effort. Developing nations have been rapidly closing the political gap versus the developed world. Granted, without disregarding the merit this progress implies, it has to be acknowledged that what has been done to date, in many ways, is the easy part. So, the misalignment in political systems between both groups of nations has been substantially diminished. It is fair to state that the day-to-day functioning of most developing nations’ political systems are highly comparable, in essence, to their developed brethren.

A superficial reasoning would lead us to conclude that the developing world now seems to be a role model for developed nations. Not so! Most of the progress achieved during the last decade of the XX century and the first decade of the present one, as substantial as it is, is not necessarily irreversible. Not at all.

To a great degree the substantial progress accomplished to date is a hard-earned dividend for the great pain and suffering the late 80s and early 90s crises inflicted upon them. A great deal of fiscal adjustments were made, their central banks became independent, their currencies were finally left to float like major currencies do, a good deal of markets liberalization and deregulations flooded these countries. In short, the ongoing stability and prosperity of most of the developing world seems to be a one-in-a-lifetime phenomena.

Once the temporary part of those virtuous changes runs its course, developing nations will have to face the harsh realities of the many limitations and insufficiencies of contemporary political systems.

The breadth and depth of the challenges ahead require a profound transformation of contemporary political systems. The incentives structure has to experience deep changes. Statesmanship and the common good should be rewarded. Winning elections should not stand on the way of the two major objectives just pinpointed, as it currently does. The current status quo of political dysfunctionality should not be tolerated any longer.

The world has been increasingly moving further away from its long/term potential economic growth rate. The opportunity cost of the current state of stagnation and mediocre growth is immeasurable –in the trillions of dollars a year. Imaginative solutions have to be implemented ASAP to rectify this monumental misalignment. Click here to read more.

Profound, lasting transformations in contemporary political systems are required, to avoid falling into the otherwise inevitable case of beheading the hydra, only to realize than shortly thereafter a new one, as pernicious as the one cut, has grown.

 

 

 

Happy Holidays!

New Year 2013-2014

#4 Best of Globalization Blog 2013

“Globalization and capitalism are like twin siblings, both with their own unique capabilities and flaws, not always walking or running at the same speed; but in the long run, they always end up walking hand in hand.” This the heart of our post, Globalization and Capitalism, published on March 27, 2013.

We like this post, as did our readers, because we took a closer look at the ideas of globalization and capitalism. Under the microscope, you will find, as we argue, these two notions are as old as mankind. Here’s our point:

 Globalization’s genesis is knowledge and what we choose and don’t choose to do with it.

If you missed this gem, we are bringing it to the top for another read. We believe as you take time to read this post and others, you’ll find that neither globalization or capitalism are bad for our future, but a natural progression of mankind.

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.

globalization and capitalism

In reality globalization and capitalism are like twin siblings, both with their own unique capabilities and flaws, not always walking or running at the same speed, but in the long run, they always end up walking hand in hand.

First things first. By definition, globalization and capitalism have existed since the very beginning of mankind. They are both an inherent component of human nature. Both globalization and capitalism have been dubbed different origins in time, depending on the reasoning applied. Something beyond any reasonable questioning, is that both age-old processes have evolved into different stages throughout the centuries.

We have been trained to think that globalization has to do exclusively with global matters. And generally speaking, that is true. Globalization’s genesis is knowledge and what we choose and don’t choose to do with it. This involves taking in something that comes from the outside and making it one’s own –expanding the base of knowledge. Therefore every time we expand our knowledge we are increasing our level of interaction with the world, and therefore globalizing. In this regard, you might enjoy reading our analysis on The Multiplying Effect of Knowledge.

This means that even a single person is capable of expanding his or her own horizons and mind. This act in itself is an act of globalization. Like Albert Einstein so brilliantly said, “The mind that opens to a new idea never returns to its original size.”

In short, globalization can be defined as the process of putting together building blocks of knowledge throughout time.

Like every human process, globalization and capitalism can spin out of control if not handled adequately. Some thoughts from Gandhi come to mind: “The world is big enough to satisfy everyone’s needs, but will always be too small to satisfy everyone’s greed”.

Since the dawn of mankind, capitalism has become a driving force of globalization and vice-versa. If we were to visualize global society as an F1 car, capitalism and globalization would be two of its most powerful engine boosters. Like every high-speed booster, they are a double-edged sword that have the power to win the race if adequately used, or crash the car if used improperly.

Contrary to common belief, globalization isn’t the big bad wolf that some people pose it to be; neither is capitalism; turns out that the big bad wolf is ourselves. Our inability to understand globalization and capitalism, and rise up to the occasion is what is keeping us from riding the wave, rather than wiping out (mainly due to a lack of skills, narrow-mindedness, ignorance, lack of a true competitive attitude –the latter being the most important).

The many limitations capitalism has proved to have are invariably related to perverse incentives and a typically untempered greedy attitudes. Those same limitations also apply to globalization.

“The Roots of Violence: Wealth without work, Pleasure without conscience, Knowledge without character, Commerce without morality, Science without humanity, Worship without sacrifice, Politics without principles.”

–Mahatma Gandhi

The above statement is a very simple, yet a profound way to visualize that there is nothing inherently wrong and/or perverse about globalization. It all depends on how the actors react to it.

Constructive, successful, globalization can be summed up in one concept: high competition spirit/action based in each individual’s unique comparative advantages. This, of course, also fully applies to all levels of society  (organizations, countries, etc.).

Hence, the solution does not reside in throwing away both, globalization and capitalism, but in learning how to  handle them appropriately. In fact, globalization and capitalism seem to be with us forever. They are not expendable. We all must constantly strive to substantially improve these dual pillars of contemporary and future society.

#5 Best of Globalization Blog 2013

It’s interesting that our post from July 26, 2012 entitled, “Globalization and The Olympics (Part I)” was the most read post of 2013. But, in fact, it was. My guess is that we tried to frame the Olympics in the context of globalization. We tried to illustrate with this point:

High-performance sports, by nature, must be global in order to make meaningful comparisons. Every athlete’s dream is to stand out around the world. Hence, the global nature of sports in general and particularly of the olympics is beyond any doubt.

As 2014 is at our door set, if you missed our commentary on sports, the Olympics and globalization, here’s your chance to catch up.

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.

High-performance sports, by nature, must be global in order to make meaningful comparisons. Every athlete’s dream is to stand out around the world. Hence, the global nature of sports in general and particularly of the olympics is beyond any doubt.

globalization and the olympics

Sports are a near perfect example of human social activity at its best. Very few human endeavors are as universally extended as sports. Global sports is one of the few human activities where virtually everybody agrees on; that is, in the fundamental spirit behind it: open competition, open benchmarking, with widely communicated instantaneous results.

To a great degree, sports exemplify much of the best of the human spirit: teamwork, management by objectives, persistence, emotional equanimity, discipline, and so on. Very few human endeavors, if any other at all, personifies so well the noble spirit behind well understood competition. Naturally, among contenders, it is very pleasant to result a winner, particularly if that is in the top spot in any sports discipline. However, it is of great importance to also learn how to be a dignified loser, like in life in general. The top spots are just a handle. Not everybody is going to win; in fact, the majority will end up losing.

There is another rarely analyzed angle about global sports: the legal structure behind the sponsor organizations, be it the olympics (the International Olympic Committee –IOC) or soccer’s World Cup (the FIFA). For practical purposes, the nature of the sponsoring organizations in global sports are those of a private foundation, where there are no owners behind it. The amount of economic resources managed and deployed is enormous; revenues for tickets, advertising and transmission rights are in the billions, with a lot of entrepreneurship behind sports’ global competition. Hence, the paramount importance of observing the highest moral standards, and adhering to the best corporate governance practices. Yet, this is a relatively unexplored territory, that deserves deep research and some punctual lucid suggestions for improvement. To whom are the top decision makers of global sports organizations like the IOC and FIFA accountable to?

It is evident that there cannot be profit sharing among the non-existent shareholders; despite it, when dishonesty shows up, there are multiple –immoral– ways to gain enormous personal benefit if some top official is willing to. Full transparency and accountability to the worldwide society that finance those extraordinary endeavors must be sought after. The inevitable conflicts of interest can result in horrible situations -as have already occurred in the past– which cloud the otherwise one of the finest endeavors of mankind.

How the Olympics helps (or even hinders) globalization efforts? From my standpoint, the Olympics are a near-perfect example of globalization at its best.

  • First, globalization in sports is an uncontroversial multicentury-old reality, with increased visibility due to contemporary instantaneous and virtually omnipresent communication means.
  • Second, as in any other human effort, not exempt with occasional controversies, the rules of the game are understood to near perfection by everybody.
  • Third, global sports are so embedded in the human mindset, that they are considered an indispensable part of human activity; nobody would ever think otherwise.
  • Fourth, given the three previous points, global sports is an excellent equalizer –at the very least from the equal opportunities perspective–, an excellent role model for globalization, in its wider conception. Global sports are a bright spot in human activity and thus an appropriate reminder to people all over the planet about the multiple benefits that well conducted globalization represents for mankind. Like everything else in life, if not appropriately done, any human endeavor can lead to conflict and even worse outcomes.
Part II of this post elaborates on the Olympics under the light of competitiveness and knowledge, two of the basic pillars of successful globalization.

In my book, GLOBALIZATION, there is a subsection (in Section One) devoted to Globalization in sports.

Las Vegas Sands Corp., Singapore, and Spain. If Only…

Eurovegas-spain

Last Friday, Sheldon Adelson, Chairman and CEO of Las Vegas Sands Corp. [LVS], announced the company’s abandonment of the project to build a more than US $20 billion gambling complex in Alcorcon, a suburb of Madrid. The project, announced earlier in February —the so-called Eurovegas—, would have been Europe’s largest resort, and the first Las Vegas-style operation on European soil.

The cancellation of the Eurovegas project was a major blow for both Madrid and Spain. Madrid had already suffered an earlier blow this year when its bid to host the Olympic Games failed for the third time in a row.

The reason cited by LVS for dropping the project was the lack of clarity in the regulatory environment. Las Vegas Sands Corp. was looking for an increased level of certainty in tax and regulations. Unfortunately, the political atmosphere in Spain is far from inspiring enough confidence about the most likely future scenario. Sheldon Abelson and his team, being very savvy hotel and casino developers and operators, seem to have reached a logical conclusion  after about a year of analysis and interactions with top local and federal Spanish government officers.

According to information provided by LVS, the job creation projected by this development was in the range of 164,000 direct jobs, plus around 97,000 indirect ones. The proposed first phase would have included four casino-resorts with 12,000 rooms. The Eurovegas project was to be developed in phases during a 10 to 12 year period, and would have totaled 12 casino resorts with 36,000 rooms.

After dropping the project in Madrid, the gaming group stated that it will continue aggressive pursuit of opportunities in Asia.

LVS (US $13,191 million in sales in the 12-month period ended September 2013) is the largest operator of casinos, entertainment, hotel, retail, food and beverage, and convention center operations in the world, and has been extremely successful in its Asian operations, in Macau and Singapore. In fact, over 85% of its income is derived from Asia. Thus, LVS global credentials are very well established.

Nobody knows for sure how Eurovegas would have exactly fared. However, given the stellar track record of LVS, in most likelihood it would have been very successful for investors, and in employment creation for the Madrid region. Yes, it is true that the type of jobs that hotel/casinos generate are not the most enviable ones from the social standpoint, not to mention the understandable negative connotation that gaming operations entail. It is precisely because of all these factors that it is relevant to contrast the Spanish case with Singapore’s.

The Marina Bay Sands in Singapore

The Marina Bay Sands in Singapore

Singapore’s society is very well known for its conservatism, and despite being one of the most affluent nations in the world, Singapore went ahead and approved in 2006 the construction of the world’s most expensive casino standalone property, at about US $5.7 billion, including the cost of the land. Up to now, it seems like it was a good decision for both sides, Singapore society and LVS shareholders.

It is very difficult  to reconcile the Singaporean case with the Spanish one —Spain is one of the less affluent among developed nations— particularly given Spain’s current dire social and economic conditions, with unbearable high levels of unemployment, 26%.

Within Spain, Madrid has fared worse than Barcelona, the second largest city. A recent example is that visitors to the Madrid region fell by 20% during August, while visitors to Catalonia —home to Barcelona— rose by 12%, during the same period.

To really know what is best for society in such a complex social issue as hotel/casino operations is extremely challenging, given that there are many conflicting sides and angles at play.

Alternatively, it is safe to assume that the comparative level of cohesiveness and discipline of these two societies is miles apart, which in turn is reflected in how their respective political systems are run, and reach decisions. In Singapore, in the midst of affluence and conservatism gaming operations were given the green light, and the gorgeous Marina Bay Sands is a thriving reality; in Spain, despite being in the midst of a horrendous economic crisis, and of being an essentially more liberal society, it wasn’t able to take off.

Of course, there is also the possibility that the concessions LVS was trying to extract from the Spanish government —both levels, local and federal— to go ahead with the project were beyond logical limits, and, if that were the case, Eurovegas was inevitably doomed for cancellation. There is simply not enough public information for a deeper analysis and for a proper understanding of the whole affair.

Beyond all previous considerations, the would-be Eurovegas is unquestionably an excellent case for reflection about the huge contrasts the global society constantly presents us with.

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