Globalization and Its Discontents

Just finished reading "Globalization and its Discontents" by Joseph Stiglitz. One thing is for sure: you will never read any news about IMF, bailouts, austerity packages and other related things in the same way as before after reading this book. Whether you are a die-hard capitalist or communist, you will find something to love or hate in this book. The book does not mince words to squarely lay blame at IMF's door for some of the biggest economic declines in the last 30 years or so, including Russia, East Asia and Latin America. Even if you do not have a very good idea about Macroeconomics, quite a few things would make sense. And if you do, this book would give you a lot of things to think about and chew on. Very nicely written book. Nevertheless, even though I recommend reading this book, there are some things in the book which I understand but don't agree with in terms of its feasibility in the real world.

Goodness and fairness are good to have. Unfortunately, goodness and fairness can permeate only from the strong. And nobody can teach that to the unwilling strong or moral-lecture the strong into being good. Such is the nature of power. And, as much as one may not like it, the world operates on principles of power and self-interest, which in turn derive their strength from how we are brought up. The question of making the world a better place is not simply the question of having the right policy: it is always possible to game a system. The question is about the basic human learning and understanding. If the values of humanity and universal brotherhood are not imbibed at an early stage, it is virtually impossible to get it later in life. The definitions of right and wrong, acceptable and unacceptable vary so wildly that it is nigh impossible to reach any kind of common standards. Further, it is fiendishly easy to use, abuse and mislead an economically deprived crowd. So, it is in the interest of most political leaders to keep things that way. There are simply too powerful vested interests that do not understand the meaning of fair or good. For them might is right, and so the world moves on. This problem will not be solved with intellectual discussions.

The book also comes down to some veiled rich-bashing, blaming the rich for all ills, and poor are generally exonerated by virtue of their suffering or their mistakes are generally toned down. Nobody forces anybody to take a loan. To live within one's means and getting the house in order is one's own responsibility. Fairness is good to preach, but as far as the eyes of history go, it has never-ever been successful. Is it desirable? Definitely. Is it possible? No. Yes, we can try. But it is good to know the odds you face. It may be good to build consensus and avoid hubris, but avoiding hubris and working with a committee are two different things. Making the collective wiser than the individual is a skill that very few have.

Overall, I find the book's position centrist, leaning a little towards left. The writer is also either naive or idealistic to assume that the world should operate on principles of fairness on its own account. The truth remains that in this world powerful rule over the weak. As somebody said, the meek shall inherit the earth but not the mineral rights! The writer is right to point out the imbalances and unfairness, but his approach is solve the problem is somewhat idealistic.

Who Can Overhaul China?

I find Arvind Subramanian's article "India’s weak state will not overhaul China" (August 16, 2010) pretty amusing. It seems that the writer is not happy with India's 8.5% growth as he is not able to truly explain it within the framework of his understanding.

It is true that India is not progressing as fast as China. But then who is? Nevertheless, it is the second fastest growing economy and the fastest growing democratic nation. It is one of the few countries that can make supercomputers, lauch satellites, and build nuclear reactors. It has some truly international corporations and a vibrant capital market. As far as market friendliness is concerned, I would recommend the writer to read Joseph Stiglitz's "Globalization and its Discontent" so as he gets a more balanced view about the "benefits" of textbook liberalization that destroyed economies of Russia, Czech Republic and Argentina, to name a few. India is perfectly justified in taking it nice and easy. Post 1990 it has been wise to avoid the mistakes of star IMF pupils, and the results speak for themselves.

India is a relatively young nation and has its shares of problems, including corruption, terrorism, naxalites and poverty, to name a few. However, to term a nation with the third largest standing army weak smacks of intellectual arrogance. Perhaps India will not overhaul China. But in its current form I doubt if any nation, including US or UK, is capable of overhauling China. What is that supposed to mean?

Co-evolution of Firms

Was thinking of "Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions" by Johann Peter Murmann again.

I was thinking of what makes the approach of the writer different. That environment affects business is increasingly understood. In strategic planning, SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis uses frameworks like PESTEL (Political, Economic, Social, Technological, Environmental and Legal) factors to evaluate impact of external environment on a firm. Then what is new in co-evolution? Co-evolution attempts to show that as external forces affect a firm, the vice-versa is true as well. Moreover, all the players in the game affect each other. I like it as I feel that it is something very close to what I believe about the world in general (Masterplan and Gaming the World). I think a good understanding of probability and vectors (Mathematics) along with relativity (Physics) would help to model the proposed economic theory. Due to the inherent complexity, it will also acquire an intellectual and philosophical dimension. The theory will also help to dispense away with the idea of a corporation as a helpless victim or lucky benefactor of its environment. Lobby groups are a hard-truth, and the level of their success can have a positive or negative impact on the industry's growth or decline. This does not do away with firm specific advantages (management, marketing, R&D), but adds additional influencing factors and uses the paradigm of co-evolution to explain how an entrepreneurial culture and a pro-active corporate organisation (that is all companies in the industry finding a platform to work collectively and affect the external environment) play an important role. A good example is that the failure rate of dye firms was similar in UK, US and Germany: around 75% of the dyes failed. However, in Germany the number of dye firms that tried starting a business was significantly higher than either UK or US. It, hence, had more successful and unsuccessful dye firms than them. This higher level of trials, experimentation and growth was facilitated by the education system and the legal framework. In turn, a stronger dye industry fostered and lobbied successfully for better educational institutions and favourable legal framework, hence creating a virtuous circle. The opposite was true for US and UK: other industries were more powerful in these countries and dye firms were simply sidelined.

Concluding, I love business history books as they present rich, factual data about real-events. Very much a case study. This book does not disappoint on this front. Additionally, it collates the events in a pretty practical and useful fashion. I agree that co-evolution in business context needs more research and that it has the potential to become a powerful theory. On the other hand, it also points to the fact that common sense, love for work and long-term perspective on events is very important. It also reaffirms that basic principles espoused in "Good to Great" and "In Search for Excellence" are pretty much accurate. A nice book overall.