Update on Globalization’s Flows: Part 4, Knowledge and Ideas

Stephen DeAngelis

May 06, 2011

This is the final post in my 4-part series about the current state of the flows that help define globalization, namely: people, resources, capital, and knowledge/ideas. Knowledge and ideas have always been free to flow; but, historically, they could only move as fast as knowledgeable people traveled or corresponded. Since knowledge and ideas moved primarily with people, they weren’t considered separate flows. In the age of information, however, ideas can move around the globe almost instantaneously. Anyone connected to the World Wide Web can have access to more knowledge than generations past thought possible. Over a decade ago, Michael Storper, a professor from the School of Public Policy and Social Research at UCLA, described why the flow of knowledge and ideas is important [“Globalization and Knowledge Flows,” in J.H. Dunning, ed, Regions, Globalization, and the Knowledge-Based Economy, Oxford: Oxford University Press, 2000]. He wrote:

“Geographers and economists view globalization through the mirror images of location and trade. The analysis of trade asks to what extent the trade flows of goods or money are becoming more international than they are national or regional, and it assumes that such changes are due to changing location patterns of production or investment. We often try to derive changes in the patterns of location of economic activities from the analysis of trade and investment flows, and then to ask what this might means about the degree of specialization of national or regional economies. In concert with information about ownership or foreign direct investment patterns, others try to determine whether the locus of control over competition or investment is changing. This focus on direct exchanges (in the sense of hard flows of goods and money) may miss the most important aspects of the process, however. The geographical origins, destinations, and mastery of economically-useful knowledge have more profound impacts on the changing shape of development than do standard issues of location and specialization. Moreover, with an analysis of such knowledge flows, some of the predictions of location and trade theories about physical location, specialization and the economic performance of regions and nations, can be called into question.”

One interesting point made by Storper is that the flow of knowledge affects both manufacturers and consumers. He writes:

“In certain industries the knowledge exchanges from trade are not only between producers, but are embedded in consumer behavior, while in sectors with little trade, the diffusion of consumer knowledge and practices probably comes about through media, travel and other such means. Consumer expectations with respect to prices and qualities, a new set of conventions that links consumers and producers, have made it much more difficult, if not impossible, for a given country to use its local institutional structure (especially its labor market structure) to enforce local technical norms, especially those that would involve greater labor-intensity, less product differentiation, lower quality or higher prices.”

Storper recognizes that globalization’s traditional flows are important; but he concludes, “Knowledge flows may be just as important.” Several years ago, the University of California Berkeley, hosted a lecture by AnnaLee Saxenian and Steven Weber entitled “Globalization and the Flow of Knowledge.” The focus of the discussion was the connection between the international flow of people and the global flow of knowledge. The teaser for her lecture stated:

“The mobility of skilled labor is transforming the flow of knowledge around the world. As U.S.-educated engineers and professionals return to their home countries, they are turning what once was a brain drain into a two-way process of brain circulation. These professionals are transferring to developing regions the technology and managerial know-how that once resided exclusively in advanced economies like the U.S. This process is fueling the emergence of new centers of technology entrepreneurship and creating new competitors for Silicon Valley and foreshadows persistent global skill shortages in coming decades.”

If you have an hour and a half to spare, you can watch the lecture in its entirety below.

As I noted at the beginning of this post, knowledge has always moved across borders as enlightened individuals have either traveled or corresponded. One particular group that has always seemed to have corresponded is scientists. Caroline S. Wagner and Loet Leydesdorff assert that the reward structure in scientific community makes it ripe for collaboration. In the information age, where networks thrive, the scientific community is a significant part of the global transfer of knowledge. [“Measuring the Globalization of Knowledge Networks,” September 2006] They conclude:

“In contrast to the operations of science at the national level — where agencies manage and policy directs investment — no global ministry of science connects people at the international level. The network at the global level self-organizes into a complex knowledge system. This suggests that the spectacular growth in international collaboration may be due more to the dynamics created by the self-interest of individual scientists (agents in network terms) seeking creativity and rewards than it is to any policies made at the national level. The many individual choices of scientists to collaborate may be motivated by the reward structure within science where co-authorships, citations and other forms of professional recognition lead to reputation and access to additional resources.”

Three scholars from the Naval Postgraduate School in Monterey, CA, assert, “Knowledge is key to sustainable competitive advantage. Knowledge enables effective action; effective action drives superior performance; and superior performance supports competitive advantage.” [“Tacit Knowledge Flows and Institutional Theory: Accelerating Acculturation,” by Alicemary Aspell Adams, June G Chin Yi Lee, and Mark E. Nissen, Proceedings of the 43rd Hawaii International Conference on System Sciences – 2010]. They conclude, however, that culture can interfere with the free flow of knowledge in subtle ways. They conclude:

“Knowledge is key to sustainable competitive advantage, but different kinds of knowledge affect competitive advantage differently. This applies especially to the environment of increasing globalization. Because cultural knowledge is deeply rooted and highly tacit, its flows are critical to global enterprise performance, but tacit knowledge clumps noticeably and is known well to flow both slowly and narrowly. Such clumping and flowing are exacerbated when knowledge is required to flow across cultures. Unfortunately, knowledge management theory on intercultural knowledge flows remains limited.”

In his book entitled The role of multinational enterprises in globalization, Jörn Kleinert, asserts that multinational enterprises (MNEs) also play a large role in the international flow of knowledge. He notes that around 80 percent of international trade involves MNEs and that nearly a third of that trade takes place within the MNEs. He continues:

“FDI and trade are concentrated on a few industries. Concentration in developed countries is most pronounced in technology flows. Their increase, driven by intra-MNE knowledge flows which account for 80 percent of all flows of technology, points to the internationalization of knowledge and technology use.”

Although the spread of knowledge and ideas is generally a good thing, theft of so-called “intellectual property” has become a much bigger issue than it was in centuries past. Although the late mathematician Howard Aiken once wrote, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” Kim Nayyer writes, “The globalization of information, facilitated by the Internet, has significant implications for intellectual property regimes domestically and internationally.” [“Globalization of Information: Intellectual Property Law Implications,” First Monday, January 2002]. She continues:

“For some, globalization is a means toward strong national and international economies; for others, it represents ever greater influence of developed nations and transnational entities, along with significant changes in understandings of sovereignty. Some commentators hail the Internet and the digital environment as freeing information and promoting productivity; others decry the commodification of information seen to be occurring as a result of digital information and the ease of its transborder flow. Some view intellectual property rights as the necessary appurtenants to products of individual creativity; others consider that intellectual property rights have developed into a tool to serve economic and monopolistic interests of corporations and information-rich states; still others view them as an outmoded concept having no relevance in a digital age. The field of international intellectual property law is itself complex. By definition, this subject is a web of innumerable domestic legal systems, as well as regional and international regimes and bilateral and multilateral treaties and agreements. As international or regional treaties or agreements are adopted or ratified, responsive or agreed changes to domestic law take place. Some argue that such domestic changes further drive changes to international or regional systems and, in turn, to domestic laws of other nations, as nations attempt to keep pace with each other. Assuming a satisfactory understanding of the central components of the issue, further complexity is encountered in an analysis of the issue itself. Assessment of the implications of globalization and digitalization of information on intellectual property systems is also a value-laden exercise, partly driven by ideology, and not entirely free of prognostication.”

It’s not surprising that people want to protect their ideas. The late Napoleon Hill once wrote, “Ideas are the beginning points of all fortunes.” Since the generation of wealth is not a zero-sum game, Hill’s assertion also underscores why it is important that knowledge and ideas be globalized. The more wealth that can be generated, the more quickly those in poverty can join the emerging global middle class. Stuart C. Carr and Malcolm MacLachlan assert, “The advent of the knowledge economy, or knowledge society, has placed a new value on the creation and distribution of ideas, and the provision of information. Knowledge is power, and increasingly so.” [“Knowledge Flow and Capacity Development,” Higher Education Policy, 2005] They claim, “There has perhaps never been a more exciting time for those who produce and present ‘knowledge’ — and this activity reaches far beyond the confines of academia.” I agree with that assessment. The flow of knowledge — like the other flows associated with globalization — is important. In light of a recent update by the UN of its population forecast, helping people emerge from poverty is becoming an even more urgent task. In 2008, the UN predicted that the world’s population would stabilize in mid-century at just over 9 billion people and then start dropping. The latest forecast is for the population to continue climbing through the end of the century to just over 10 billion people [“U.N. Forecasts 10.1 Billion People by Century’s End,” by Justin Gillis and Cecelia W. Dugger, The New York Times, 3 May 2011]. Gillis and Dugger report:

“Growth in Africa remains so high that the population there could more than triple in this century, rising from today’s one billion to 3.6 billion, the report said — a sobering forecast for a continent already struggling to provide food and water for its people. … Among the factors behind the upward revisions is that fertility is not declining as rapidly as expected in some poor countries, and has shown a slight increase in many wealthier countries, including the United States, Britain and Denmark.”

Many analysts believe that globalization is the only hope that many poor people have of breaking poverty’s grasp. If true, then Professor Pankaj Ghemawat of IESE Business School in Spain has sobering news for those hoping for a better life — globalization’s reach is shorter than many believe. [“The case against globaloney,” The Economist, 26 April 2011] The article discusses Professor Ghemawat’s new book entitled World 3.0. It continues:

“‘World 3.0’ … should be read by anyone who wants to understand the most important economic development of our time. Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP. Some of the most vital arteries of globalisation are badly clogged: air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels. Far from ‘ripping through people’s lives’, as Arundhati Roy, an Indian writer, claims, globalisation is shaped by familiar things, such as distance and cultural ties. Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past.”

When Ghemawat examines globalization’s flows, he still finds that its veneer doesn’t go very deep. The article continues:

“What about the ‘new economy’ of free-flowing capital and borderless information? Here Mr Ghemawat’s figures are even more striking. Foreign direct investment (FDI) accounts for only 9% of all fixed investment. Less than 20% of venture capital is deployed outside the fund’s home country. Only 20% of shares traded on stockmarkets are owned by foreign investors. Less than 20% of internet traffic crosses national borders. And what about the direction rather than the extent of globalisation? Surely Mr Friedman (author of “The World is Flat”) and company are right about where we are headed even if they exaggerate how far we have got? In fact, today’s levels of emigration pale beside those of a century ago, when 14% of Irish-born people and 10% of native Norwegians had emigrated. Back then you did not need visas. Today the world spends $88 billion a year on processing travel documents and in a tenth of the world’s countries a passport costs more than a tenth of the average annual income. That FDI fell from nearly $2 trillion in 2007 to $1 trillion in 2009 can be put down to the global financial crisis.”

Ghemawat’s data supports my assertion that regionalization within the larger framework globalization is likely to increase. The article explains:

“Nearly a quarter of North American and European companies shortened their supply chains in 2008 (the effect of Japan’s disaster on its partsmakers will surely prompt further shortening). It takes three times as long to process a lorry-load of goods crossing the Canadian-American border as it did before September 11th 2001. Even the internet is succumbing to this pattern of regionalisation, as governments impose a patchwork of local restrictions on content.”

The biggest myths concerning globalization the Professor Ghemawat explodes are that a handful of companies dominate the economy (“the level of concentration in many vital industries has fallen dramatically since 1950”) and the globalization is wiping out local culture (“McDonald’s serves vegetarian burgers in India and spicy ones in Mexico”). The article concludes:

“This sober view of globalisation deserves a wide audience. But whether it will get it is another matter. This is partly because ‘World 3.0’ is a much less exciting title than ‘The World is Flat’ or ‘Jihad vs. McWorld’.”

I don’t believe that Professor Ghemawat would argue that globalization is going to be reversed. The fact that an African living in a remote village can buy a phone built in Finland and use it to conduct local business should be enough evidence that even the veneer of globalization can have a powerful impact. Ghemawat helps us keep globalization in perspective but he doesn’t undermine its potential to change the world.