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 / Winter 2008 /Issue 53(originally published by Booz & Company)


Best Business Books 2008: Globalization

In short, where Harney thinks China is headed is quite similar to where Hexter and Woetzel think China is headed, which is pretty much in the same direction that Mahbubani thinks all of Asia is headed. All three books describe a rapidly modernizing part of the world that is on its way to dominating the world economy.

In these works, there is a certain inevitability to this trajectory. Asia is big. It’s growing fast. It is managed well, both politically and economically. As these books agree, nothing can hold it back.

Nothing Is Inevitable
William J. Bernstein’s A Splendid Exchange: How Trade Shaped the World is a useful corrective to this blind enthusiasm. Bernstein offers a lively and colorful account of world trade from 3000 BC to the end of the 19th century. Its particular virtue is that, unlike much writing on international economic history, it is not Eurocentric. People across much of Asia and parts of Africa figured out how to enjoy gains from trading with one another back when Europe was still a thinly settled wilderness. International trade was important long before Columbus and Vasco da Gama.

One of the lessons of Bernstein’s book is that trade patterns are anything but inevitable. In their day, Malabar, Aden, and Constantinople were all hubs of the world economy. Kaffa, now a Ukrainian city called Feodosiya, was one of the world’s preeminent ports, and the lonely island of Socotra, 300 miles off the coast of Yemen, was fiercely contested territory thanks to its commanding position at the entrance to the Red Sea.

All these important centers became backwaters. Wars closed some borders and opened others, complicating trade along the Silk Route through Asia. New products appeared, flourished, and foundered; Yemen, in the early 1700s, grew wealthy on the export of coffee, which had been introduced from Ethiopia, then withered as its European customers figured out how to cut costs by cultivating coffee elsewhere. Governments raised or lowered trade barriers and taxes, altering trade flows in the process; rulers in Japan and China removed their countries from the world economy for centuries. Transportation costs and technologies changed, making entirely new trade patterns economically feasible; half a century ago, no one imagined that the United States would obtain most of its apparel from Asia.

This historical perspective offers a useful counterpoint to the current giddiness about Asia. Just because China and India are enjoying trade-fueled booms does not mean they will boom forever. As Japan, South Korea, and Taiwan have demonstrated in recent decades, even well-managed economies confront obstacles, and in the face of obstacles societies tend to turn inward. Will China be so eager to project power globally as it deals with what may be massive overcapacity in manufacturing, office buildings, and high-end urban apartments?

It is unlikely that the conditions that have facili­tated the explosive growth of China, India, and other Asian economies will persist. The apparently bottomless supplies of cheap labor have turned out not to be so bottomless; India, by all accounts, is already running up against severe shortages of skilled workers fluent in English. Asia’s growth was also built on cheap transportation, which has allowed it to ship even the lowest-value products to wealthier markets in North America and Europe. But the days of cheap freight may be over, as higher energy prices, environmental and security concerns, and overburdened infrastructure have combined to make it much more costly to move goods around the world. As a result, Asian manufacturers will lose an important edge in export markets.

None of this denies Asia’s hugely impressive economic achievements. But it does suggest caution in projecting them into the future.

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