Blog: Dave LeggettGlobalisation: rough with the smooth

Dave Leggett | 26 May 2011

I'm off to the SMMT's annual media test day at Millbrook today. I didn't make it last year because I was busy being a desk jockey, but I figure you have to make time for some things and do a 'work around'. So today, I'm up unusually early. And thoughts have turned to conversations I have had recently on the subject of 'globalisation' and how sustainable – or not – it is.

While on one level it's marvellous that we can trade all manner of goods and services across the world (and goodness knows, the auto industry is a prime example of an industry that has embraced globalisation in a big way), it's not all positives when you look at what the resultant economic change can do over time. To put it in perspective though, the huge growth to world trade over the decades has brought considerable economic benefits, especially to us in the West. And the development of big consumer markets in the BRICs and beyond is still at an early stage. It could underpin another long period of further international trade and higher economic growth for the world over the next twenty years - with the benefits spread around the world a bit more evenly. Great. But there are some losers and it's a huge subject on so many levels.

Two examples today from a cursory review of the main business media (how I start every day). First, the problems of national debt in Europe and especially across a single currency euro zone. A lot of people have been saying that this crisis will result – in some way – in a two-speed Europe. The financially wobbly peripheral countries – the argument goes – have economic situations way out of kilter with the core countries (especially booming Germany). A one-size-fits-all monetary policy – eg an interest rate set by the ECB for the whole euro area – does not, therefore, work. In the old days, the likes of Greece and Ireland would have been able to devalue their currencies, operate independent monetary policies to get out of their hole, but now they cannot. That divergence of economic performance is not necessarily in itself a critical issue – for example, the US is a large single currency issue and some States have stronger economies than others. But we are seeing in Europe the problem of having monetary union without fiscal harmonisation. It's a club of countries that have looked to get the best out of a single currency without doing the 'tough' reforms that might need to go with it to promote financial stability. Convergence to everyone being rich like Germany sounds nice doesn't it? But reforming your public sector spending and tax system? Let's please put that to one side...

The problem now is becoming heavily political. First, German voters and others in the high performing 'core' will start to get disillusioned with bailing out the peripheral countries who are in a financial mess and seem 'undeserving' of help because they have bloated public sectors, generous pensions and so on. Who pays for that? But actually, they are also good customers for, say, German goods and services, there are myriad banking/financial links and so on, so the lines of cross-national interdependency are perhaps a bit more complex than they may seem (but the average voter obviously isn't performing a full cost-benefit analysis on the euro). And secondly, the countries receiving bail-outs are having a lot of trouble selling the austerity programmes that come with them to the voters. We didn't sign up for this, the voters say. And the politicians have to listen, naturally.

Anyway, it's a knotty one. Muddle through or fissure? My money is on some sort of continued muddle through, though I wouldn't rule out things getting serious enough to bring about a euro break-up. This article is an interesting and perhaps provocative summary; some of the comments underneath are worth a quick browse.

It's ever more obvious, Greece must leave the euro

Second article I have seen that has got me thinking touches on the 'wild west' element of some of the BRIC countries. Yep, they're high growth and you need to get in there and into emerging markets. But doing business in these countries comes with risks that reflect their cultures, national institutions and legal frameworks. 'When in Rome' means, at least, being aware of these things. I have heard plenty of stories about unsavoury business practices that companies in the auto business have had to contend with. The approaches that companies adopt when faced with such things differ in their degree of creativity, but there is some truth to the old adage that if you simply stick to your principles you will get through it. If you're a multi-national giant offering investment and jobs, you have some serious leverage if you simply go about things the right way and make it clear from the outset that that is how you conduct business. It's perhaps tougher for smaller firms.

What about a local business that someone 'important' has decided needs to make way for something else? The way a dispute like that gets handled in Russia or China may look crude. Thinking about it, the same end result probably happens in the UK or US, but the means to that end are different, though not necessarily whiter than white either...

Got to feel for the poor bloke who is proprietor of this diary.

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