About midway through Jeffrey D. Sachs’s brilliant manifesto, The End of Poverty: Economic Possibilities for Our Time (Penguin Press, 2005), the author, the director of Columbia University’s Earth Institute and noted economic advisor to developing countries, recalls an epiphany he had in 1994 while lecturing academics in India about the benefits of globalization. Having just steered Bolivia and Poland through financial crises and having helped them devise and implement successful economic liberalization reforms, Professor Sachs had every right to extol the virtues of foreign investment and lower tariffs. Yet as he waxed eloquent about open borders, he noticed a dour look in the eyes of his audience. It was then that he recalled a central fact of Indian history: India was once owned by a private company, the East India Company, which later transferred the country, in its entirety, to the British Crown.
Although Professor Sachs tells the story to stress the importance of historical context in economic development, it also puts the history of globalization in context. Globalization is not a modern technological phenomenon ordained by the Internet or cheaper airfares. Globalization — or, more precisely, long-distance and cross-border trade and commerce — has waxed and waned through the ages, manifesting itself in different ways at different times, and creating “winners” and “losers” each time. In contrast to many past books about globalization, which exalt the process or warn of its pitfalls, this year’s crop is less doctrinaire. For the authors of the five books discussed here — four academics and one consultant — there are both devils and angels in the details of increasing global business and in its consequences for developing and developed countries. Their concern is how to encourage the angels and diminish the impact of the devils. Or, to ask the question more explicitly: How can global capitalism be made more fair?
Few people have more experience trying to create optimal conditions for economic growth than Jeffrey Sachs. He spent the 1980s advising governments that were undergoing major economic transitions, helping them handle macroeconomic challenges such as price stabilization. In Bolivia, he won renown for eliminating hyperinflation. In Poland, he designed a plan to reintegrate Poland’s economy with Europe’s and led efforts to cancel some of Poland’s debt. His less successful experience in Russia led to a widely publicized battle with the International Monetary Fund (IMF). More recently, he has been working on country-specific microeconomic challenges with the World Bank, local authorities, and nongovernmental organizations — and helping to spearhead the United Nations’ Millennium Project to eradicate extreme poverty (defined as an earned income of less than US$1 a day) by 2025.
In The End of Poverty — my choice as the year’s best book on globalization — Professor Sachs presents an unusually comprehensive and satisfying portrait of the global economy, and a convincing argument that good policies can go a long way toward bringing about the end of poverty on earth. His subject has been a vexing problem since the world first turned its attention to the plight of impoverished nations after World War II. As chronicled by many authors, countless billions of dollars in development assistance over the last 50 years have produced mixed results. Early postwar development efforts focused on such capital-intensive projects as building dams, roads, and factories on the theory that poor countries were rich in labor but starved for capital. Foreign aid was expected to fill a “financing gap.” When these efforts failed to produce the hoped-for results, policymakers, inspired by new models for economic growth in the 1970s and 1980s, turned toward building human capital through training and education, again with mixed effect. A third front in the war on poverty took the form of the “green revolution” championed by Normal Borlaug of the Rockefeller Foundation, who won the Nobel Peace Prize for his work in 1970. Improved agricultural techniques promoted by Mr. Borlaug and others helped end famine in many countries, notably India. Despite the success stories of East Asia, China, and now India, however, the problems of poverty — hunger, health epidemics, war — have grown worse in many countries, compounded by bad loans and corruption.
Professor Sachs compares modern development policies and practices to 18th-century quack medicine. What is urgently needed, he suggests, is the economic equivalent of clinical medicine, with its five key assumptions: the human body is a complex system (causality is never simple), complexity requires a differential diagnosis (similar symptoms may have many different causes), all medicine is family medicine (there are no magic bullets), monitoring and evaluation are essential to successful treatment, and medicine is a profession requiring strong norms, ethics, and codes of conduct.
Early on in his work in Bolivia, the author describes his revelation upon reading, in a colleague’s paper, that many of Bolivia’s problems stemmed from its mountainous, landlocked location and resulting high transportation costs — factors wholly ignored in IMF-style analysis. Contrasting the one-size-fits-all policies of the IMF with the diagnostic approach employed in medicine, Professor Sachs argues that on-the-ground knowledge and keen attention to localized symptoms and systems are essential to successful development.
His grasp of the issues of development — honed through years of fieldwork — is authoritative. He is able to describe firsthand change in countries like Poland, Russia, China, and India, before he turns to Africa and outlines the dynamics of the world’s worst poverty traps. Whereas many might write off the business potential of regions that seem hopelessly mired in poverty and corruption, Professor Sachs reminds us that Europe faced what appeared to be insoluble problems as recently as 60 years ago. When Adam Smith and John Maynard Keynes wrote their famous economics works, poverty was endemic to Europe. The key to success in Europe, as in the Americas and Asia, has been sensible economic and political policies together with the cancellation of unpayable debt. Professor Sachs makes a convincing case that these measures can bring similar results today in even the most poverty-stricken regions.
The private sector has an essential role to play in lifting the developing world out of poverty, but it must be provided with the tools to do so. Two business professors take up the theme of sustainable capitalism in books that are strong complements to The End of Poverty.
Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World’s Most Difficult Problems, by Cornell University Johnson School of Management professor Stuart L. Hart (Wharton School Publishing, 2005), and The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, by University of Michigan professor C.K. Prahalad (Wharton School Publishing, 2005), both show how multinational corporations can develop new growth markets while elevating living standards among the poor. The professors first presented their ideas about “the bottom of the pyramid” — a reference to the 4 billion people, living mostly in Africa, Asia, and Latin America, with per capita incomes of less than US$1,400 a year — in strategy+business. (See “The Fortune at the Bottom of the Pyramid,” by C.K. Prahalad and Stuart L. Hart, s+b, First Quarter 2002.) They present this concept as an approach to corporate strategy. (See “Sailing Beyond Luck,” by Chuck Lucier and Jan Dyer, s+b, Winter 2005.)
Professor Hart is a leading scholar and innovator in strategy and corporate environmentalism. He was the founder of the University of Michigan’s first program in corporate environmental management, and later started the Center for Sustainable Enterprise at the Flagler School of Management at the University of North Carolina. In 2003, he assumed his current position at Cornell as the S.C. Johnson Professor of Sustainable Global Enterprise.
Capitalism at the Crossroads is a generally well-written and well-argued collection of ideas developed over several decades of research on the promise of what Professor Hart calls the sustainable global enterprise — “a new private sector–based approach to development that creates profitable businesses that simultaneously raise the quality of life for the world’s poor, respect cultural diversity, and conserve the ecological integrity of the planet for future generations.”
The book provides many valuable examples of the experiments, innovations, and market success stories of companies that are building businesses to address the specific needs and desires of people living in the poorest nations. His stories and insights are especially strong when he explains what multinational companies do to become effective in these markets. For example, Unilever’s Indian subsidiary, Hindustan Lever Limited — which increased its revenues and profits by 20 and 25 percent per year, respectively, between 1995 and 2000 — requires all employees in India to spend six weeks living in rural villages to get information directly from consumers, while the company develops new products for them and works with local producers to source local materials. Unilever also built an R&D center in rural India. These efforts he describes as part of a strategy to become “indigenous.”
Even more valuable to the strategy+business reader is the void this book fills in leveraging familiar management concepts, frameworks, and language to connect business strategy to sustainability strategies. Professor Hart devotes an entire chapter to the subject, citing Clayton Christensen’s work on disruptive innovation several times, and presenting a useful diagnostic approach for managing today’s businesses and creating tomorrow’s opportunities. One chapter, “The Great Leap Downward,” shows why the poorest nations can be viewed as potentially lucrative markets in which to incubate “clean” technologies. For instance, Professor Hart cites the development of fuel-efficient cars for use in heavily polluted countries such as China and India as a prime opportunity that auto manufacturers have so far missed.
Professor Hart’s erstwhile writing partner and kindred spirit, C.K. Prahalad, has likewise written a book filled with examples that show how multinational corporations and domestic businesses can successfully develop product for, and market to, the world’s poor, and thus profit from contributing to the eradication of poverty. While acknowledging that the individual purchasing power of one poor person is minuscule, Professor Prahalad points out that in aggregate the world’s 4 billion poorest people control trillions in annual expenditures.
An important message in The Fortune at the Bottom of the Pyramid is that low-income markets are highly diverse, echoing Professor Sachs’s essential insight. The days of one-size-fits-all marketing of branded products such as Coca-Cola or Wrigley’s gum are almost entirely gone. Like Stuart Hart, C.K. Prahalad argues that it is necessary to perform in-depth marketing research in poor nations, and to design products specially suited to the unique demands of each local market. Also using the Unilever example, he shows how the company has succeeded in India with a unique village-by-village marketing campaign demonstrating the use of soap to combat disease. Unilever and a variety of other companies employ similar multilevel marketing techniques and novel distribution networks, led by village women who sell everything from savings plans to cell phone service to iodized salt.
Trysts and Teahouses
John Perkins’s surprise bestseller, Confessions of an Economic Hit Man (Berrett-Koehler, 2004), provides an offbeat look at globalization through a personal narrative. Mr. Perkins chronicles his experience in the 1970s and 1980s as chief economist for the engineering firm Charles T. Main. Along with two other U.S.-based companies, Bechtel and Fluor, Main brought dams, electricity, and roads to the developing world. Mr. Perkins lived a high-flying life as an international executive, jetting from country to country, meeting with presidents of emerging nations, and staying in exclusive, gated hotels. This book was inspired, he says, by the death under mysterious circumstances of two friends, Panamanian president Omar Torrijos and Ecuadorian president Jaime Roldos Aguilera. It argues that the U.S. government, working sympathetically with U.S. firms, promoted capital projects that generated business for American companies while encumbering developing countries with crushing debt. A benefit for the U.S. government, he says, was that the resulting debt bound these countries to the West.
While Mr. Perkins has written as much of a page-turner as the subject allows, complete with beautiful spies, afternoon trysts, and midnight visits to smoke-filled teahouses, his critique ultimately seems more evocative of colonialism as practiced by Europeans through World War II and of cold-war politics than the kind of globalization we are experiencing today. Still, one does not have to accept the author’s imputation of imperial intent to acknowledge that globalization as promoted by the U.S., the IMF, and the World Bank has often fallen short of the mark.
A New Era
Mr. Perkins’s prescription for a sustainable approach to development, like the other authors’, encourages enterprises to work with nongovernmental organizations and indigenous peoples rather than through large capital projects financed with debt. In recent years, Mr. Perkins himself has worked among many indigenous peoples to preserve their culture. In one instance, he helped negotiate a settlement in an obscure conflict between the Ecuadorian government and local tribes over the drilling of oil. Mr. Perkins’s journey, though extreme, echoes the transition multinational corporations have undergone in their approach to the developing world. The era of simply taking wealth out of the ground is over. A new era of working cooperatively has taken its place.
Another entertaining narrative of globalization in action across multiple borders and continents is Pietra Rivoli’s The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade (John Wiley & Sons, 2005). An associate professor of business at Georgetown University, Professor Rivoli tracks the life of a T-shirt from the picking of cotton in Texas to the sewing of fabric in China to its import into the United States to its eventual resale as a used garment in Africa.
She decided to write her book after hearing protestors denounce globalization at a student rally. A believer in the benefits of free trade, she set out to prove the students wrong. What she found, however, was that while the benefits of globalization are quite real, free trade and free markets are rarer than one might suppose. From the cotton farms of Texas to the factory floors of China to the corridors of power in Washington, the author found that the T-shirt business is less an example of free trade than one of successful companies avoiding free markets wherever possible.
The Travels of a T-Shirt describes the Byzantine world of international tariffs on clothing codified in successive international trade agreements. Not until she follows her T-shirt into the market for the export of American secondhand clothing to Africa does Professor Rivoli find a truly free market. In addition to proving the point that profits often result from government protection, this book provides an idiosyncratic but vivid view of the global economy in action, particularly her accounts of manufacturing in China and the aftermarket for the export of secondhand clothing.
Operating successfully in the global economy, particularly in the poorly charted reaches of the developing world, requires optimism — optimism tempered by accurate, unbiased information. Each of the five books reviewed here provides such information, and contributes a valuable perspective on the critical role that businesspeople play in globalization. How multinational corporations champion capitalism in emerging markets will determine to a large extent whether today’s globalization continues as a force for fairness and growth, or whether it ends up malicious and maligned, entangled in a thicket of trepidation, tariffs, and taxes.
Michael Moynihan ([email protected]) is a professor of economics at New York University’s Real Estate Institute. Formerly senior advisor for electronic commerce in the U.S. Department of the Treasury and a senior fellow at the Center for Strategic and International Studies, Professor Moynihan is the author of The Coming American Renaissance (Simon & Schuster, 1996).