The Globalization Imperative

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The Globalization Imperative

Globalization is a fact of life, as it will be for the foreseeable future. This is an inevitable result of advancing technologies, especially those devoted to transportation and communication. In order to address the consequences of shrinking populations in the European Union and aging populations in North America, we will have to deal with this fact of life and make the most of globalization.

The last thing the world needs is xenophobia and protectionism. Many of the same people who advocated population control in earlier times have encouraged socialism and have more or less panicked over so-called "limits to growth." They are now irrationally united in opposition to globalization. But this anti-globalization posture is actually the most immediate threat to the quality of human life, not just in the West, but across the entire world.

As has been proven by the great capitalist experiment of the United States, competition is the key to the creation of wealth. It is a well-known rule of capitalism is that there are winners and losers. The losers will, quite naturally, complain that the system — rather than their own actions within it — is to blame for their fate. That's how protectionism or anti-globalization can creep into the national debate.

At the same time, companies that operate freely across the global economy tend to advocate free trade, while companies that are dependent on a local economy will argue for protectionism.

In that atmosphere, the global financial system has suffered periodic crises, such at those in Latin America in the 1980s, in Mexico in 1994, in Asia in 1997, in Russia in 1998, and in the U.S. in 2001 and again today. Those crises were all characterized by speculators who underestimated the risks they were taking. The trouble with such speculators is their lack of diversity.

In a healthy market, there are people with all sorts of opinions about what a given investment will do. Without that diversity of opinion, everyone will move in the same direction. In a speculative market, for example, everyone may want Internet stocks at the same moment, running up prices to unrealistic levels. When trouble comes, everyone heads for the door at the same time, causing the bubble to burst.

Globalization encourages diversity in markets, while protectionism promotes a uniformity of opinion and a less healthy and more vulnerable marketplace.

As A. Michael Spence, winner of the 2001 Nobel Prize in economics and a Stanford professor emeritus, recently pointed out in Foreign Policy,

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