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.

 

Globalization and Capitalism

GlobalizationBoth, capitalism and globalization have often been vilified –sometimes even paired up as a supervillain 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.

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 has existed since the very beginning of mankind. It is an inherent component of human nature. For a more in depth explanation, read our article: What is globalization?

Capitalism, as we know it today, was born when the credit system was incorporated into the monetary economy. More on this in Robinson Crusoe and The Monetary Economy. And as monetary systems grew more complex with the growing interconnectivity between countries, it has become clear that capitalism is one of the many manifestations of globalization.

capitalism-crash

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 frequent and 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 interact with it.

Constructive, successful, globalization can be summed up in one concept: high competitive 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.

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.

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.

 

 

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