Is globalization enough carrot for staus qvo?

For those visiting contemporary Greece, it may become apparent that the height of a civilization is no guarantee in and of itself for how long that civilization lasts.

For some time now, more precisely since the collapse of the Soviet Union, we have been dealing with increased anxiety regarding the course of our society. For now, clustering economies and trading blocs seem to emerge as part of a first stage in the opposition to a "uni-polar" world. Military re-arrangements on the geo-strategic map do not seem to be too far off either. The public can now see in the EU arms-trading overtures to China what has probably been in the minds of military chiefs of staffs for some time.

Contrary to all this, it seems, runs globalization with its powerful advocates and mighty interests. It is commonplace observation to notice how the tide of globalization raises most nation-boats. The temptation is to say that there is too much interest in globalization and free trade for anybody to run contrary to it. Moreover, there is too much to be lost by all players would the current global system collapse or come under threat.

So, in such a world run by so many accumulating contradictions, where is one to find the equivalent to a visit to Greece? In Sinking Globalization, an article published with Foreign Affairs, March/April 2005, Niall Ferguson gives the reader a comparative reading of the history. This may help one realize that there were times in the past when players, well-informed of the cost of war/collapsing global systems, could not avoid the unimaginable losses of letting the hell break loose. So, history tells us, through the voice of Niall Ferguson, that bad things can happen despite our having either a huge vested interest in status qvo OR the potential for huge losses.

Here is Foreign Affairs' summary of Niall Ferguson's article:
"Could globalization collapse? It may seem unlikely today. Yet despite many warnings, people were shocked the last time globalization crumbled, with the onslaught of World War I. Like today, that period was marked by imperial overstretch, great-power rivalry, unstable alliances, rogue regimes, and terrorist organizations. And the world is no better prepared for calamity now."

5 comments:

fCh said...

I should probably add that I do not see as strong a connection, between the rogue revolutionaries in Russia and the rogue elements of today's war on terror, as Mr. Ferguson does.

fCh said...

For a reference to another view (more optimistic towards globalization,) check this out:

http://edgeperspectives.typepad.com/edge_perspectives/2005/04/wolf_on_china_a.html

Anonymous said...

...more on the German frustration with capitalism and its globalization trend:

Guenter Grass Sees Threat To Democracy in Free Markets

In a week when the capitalism debate reaches fever-pitch to the point where people start calling each other anti-Semitic, Germany also sees the 60th anniversary of the end of World War II. The writer Guenter Grass combines the two issues in a lead front-page article for the weekly paper Die Zeit and says he doesn't like the direction Germany is headed.

Guenter Grass: having overcome Nazism, and communism, Germany now has to deal with capitalism
Nobel Prize-winning author Guenter Grass is not only one of Germany's most important living writers, he is also the country's most political cultural figure. It is little wonder then that he is not going to hold his tongue when it comes to the capitalism debate, especially when far less sage commentators are refusing to hold theirs.

Born in 1927 in Gdansk, then the German city of Danzig, Grass, having himself experienced at first hand many of the major events of German 20th century history, has taken on a role as the country's national conscience.

He served in the German Luftwaffe and was 17 years old when the war came to an end on May 8, 1945. Until 1946, he was interned by American forces. It is with his memories of the end of the war 60 years ago, describing himself as a "17 year-old idiot, who right up to the finish of the war, believed in the Endsieg(Nazi Victory)" that Grass opens his essay.

He goes on to chart the post-war period in Germany, saying that in retrospect Germans contributed very little to their own liberation. But he adds that the country can be proud of the way large proportions of the population where resettled. Grass charts Germany's road to recovery: from Stunde Null, or Hour Zero, when the whole country effectively started from scratch, through the gradual coming to terms with Nazi guilt, to reunification 15 years ago.

But it is the way the country has been managed since the Wall came down, that Grass criticizes most strongly. "It has been 15 years since the treaty of reunification was signed and it is no longer possible to gloss over or ignore the fact that we have completely failed to successfully unify Germany, despite all the financial contributions which have been made."

For Grass it is clear that this failure has resulted in economic disaster for the states that comprise the former East Germany. "Unemployment rates in the east are double those of the west. ... whole stretches of the countryside, villages and towns are being deserted." According to the writer, no amount of talking or debating amongst public figures will remedy the situation, and he questions whether even parliamentary democracy is capable of doing anything. "Parliament's legitimately elected representatives are constricted, influenced and pressurized by groups of lobbyists from various interest groups, even to the point where these lobbyists have a say in the wording and formulation of law."

Grass goes on to say that parliament is "dependent on powerful economic organizations, banks and companies, none of which bow down to democratic control. Legislators have become a joke, parliament has become a branch of the stock exchange and democracy is now subject to the whims of the flight of global capital." It is no wonder people are losing their faith in democracy, Grass writes and asks what has happened to the freedom which was granted to us 60 years ago.

The author goes on to say that Germany is in danger of becoming a class society, something believed to be long-since obsolete. "That which is being presented as neo-liberal is showing itself to be a step-back into the inhumane days of early-capitalism. And the social market economy ... is degenerating into a free market, which views social responsibility as a burden and the striving for profit as sacrosanct."

Grass concludes his essay by categorizing unbridled capitalism as a "new form of totalitarianism. ... As self-confident democrats we should resist the power of capital, which regards the individual as nothing more than matter which produces and consumes. Those who judge the freedom we have been granted in terms of profits on the stock exchange have clearly not grasped what all those years since May 8 have taught us."

Capitalism Debate

US Investor: Without Us, You'd Be in a Recession


In a SPIEGEL interview, American investor Guy Wyser-Pratte, 64, discusses lazy managers and Social Democratic Party leader Franz Müntefering's critique of capitalism. Germans, he says, should just be grateful foreign investers are breathing fresh air into the economy.




Corporate raider Guy Wyser-Pratte: "I don't get out until the job is done."
SPIEGEL: Mr. Wyser-Pratte, your profession isn't especially popular in Germany these days. SPD party leader Franz Müntefering has likened investors to locusts that attack a company, feed on them and then move on.

Wyser-Pratte: Mr. Müntefering should be happy to see international investors on his fields!

SPIEGEL: Does this mean that you feel accurately described as a plague from the Old Testament?

Wyser-Pratte: Do you know what Milton Friedman...

SPIEGEL: ...the liberal Nobel prize winner...

Wyser-Pratte: ...would call Mr. Müntefering's comparisons? Socialist nonsense. Let me tell you this: The Germans should consider themselves lucky that foreign investors are injecting some fresh air into their capital markets. If they had restricted their markets to domestic investors in recent years, German stocks would be worth only half as much as they are today.

SPIEGEL: I beg your pardon?

Wyser-Pratte: It's the same story all over Europe: If international investors didn't hold about 30, 40 percent of shares in European companies, you'd pretty much have a recession here.

SPIEGEL: Many Germans see it a little differently. They see speculators moving into their companies, letting people go, cashing in and then disappearing again. Higher stock values don't do them any good when they've lost their jobs.

Wyser-Pratte: Getting rid of people isn't the point. Again, that's just socialist nonsense. The problem lies in the calcified nature of German labor laws, which don't allow for any flexibility. These archaic structures represent a burden on those members of the population who want to work. That's the only reason you have 12 percent unemployment.

SPIEGEL: You can liberalize labor laws and collective bargaining rules until you're blue in the face -- but German workers will never be able to compete with Polish hourly wages.

Wyser-Pratte: It will even out over time. Wages won't stay that low, neither in Poland nor elsewhere in Eastern Europe. The price level is already increasing there.

SPIEGEL: Those are rather vague prospects for the millions of people who are worried about or have already lost their jobs.

Wyser-Pratte: I'm not saying that your entire industry should be outsourced to these countries. But businesses should at least be allowed to restructure.

SPIEGEL: Is this generally your strategy: relocate, streamline, cut jobs?

Wyser-Pratte: How do you reach that conclusion? We don't sit here in New York and spend the entire day trying to figure out how to get rid of as many employees and managers as possible in our German holdings. My objective is to find undervalued and poorly managed companies, transfer them to better owners and, in doing so, ultimately create more jobs.

SPIEGEL: Sounds nice. But then why are investors like you branded as corporate raiders who do nothing but ransack companies?

Wyser-Pratte: That's pure sensationalism. The truth of the matter is that we're simply very active investors. We don't lean back and let fate -- or rather, incompetent managers -- determine prices on the stock market. We push them into the direction in which they should go.

SPIEGEL: Your most recent victim is IWKA, a machinery and systems manufacturer from Karlsruhe, whose stock is 100 percent widely held. Why did you get involved with this company last year?

Wyser-Pratte: The company is completely undervalued. It's being traded at ridiculously low prices compared with the competition.

SPIEGEL: Is that why you had to instigate a small war against the board right away?

Wyser-Pratte: These people simply don't know how to correctly manage the values in their portfolio. They invest in the wrong places, and they're not prepared to focus on their core competencies.

SPIEGEL: Why should you know any better?

Wyser-Pratte: Look, the problems already began in the supervisory board. Although DaimlerChrysler and BMW, IWKA's biggest customers, are on the board, there are no shareholder representatives. But managers at car companies aren't interested in running the company efficiently - they just want to keep product prices low so that their companies can buy the products inexpensively. If this company were managed well, you wouldn't see these kinds of people on the supervisory board. There is no shareholder culture. Mr. Müntefering should look for his locusts in the german boards of directors.

SPIEGEL: What do you propose?

Wyser-Pratte: IWKA should focus completely on robot technology and sell off other divisions, like its packaging technology division. They've been destroying value for years with those divisions. And do you know why nothing happens in this regard? Because x Fahr, the CEO, put together this division himself and is unable to admit that it was a mistake. It's his baby. We'll help him get rid of it.

SPIEGEL: For a shareholder with only 6.5 percent of shares in the company, you certainly have a lot to say.

Wyser-Pratte: That's my business policy, if you will. We always buy smaller stock packages and then try to draw other shareholders and public opinion over to our side.

SPIEGEL: No shareholder culture, miserable management: Why don't you just invest in the United States then?

Wyser-Pratte: In the United States, poor companies have poor prices. It's a different situation in Germany. A company's stock can be floundering while real wealth is hidden somewhere in its books, sometimes even for decades. We're interested in that wealth.

SPIEGEL: Perhaps you're confusing the policies of these companies with a long-term business strategy that may not produce a fast buck, but pays off in the long run.

Wyser-Pratte: And perhaps you're confusing me with a gambler who gets out after two minutes. But that's not what I am. I don't get out until the job is done, which usually takes about two years.

SPIEGEL: Corporate families like the Quandts, Holtzbrincks and Mohns didn't build their empires in two years.

Wyser-Pratte: Those kinds of families are sitting on billions by now. They have all the time in the world. But this doesn't apply to normal shareholders and today's capital markets. They invest their savings in a company and expect, rightfully so, to see management working on their behalf.

SPIEGEL: How much money have you made with your deals?

Wyser-Pratte: Let me put it this way: Since my company was founded in 1991, my investments have contributed to the creation of about 40 billion dollars in additional market value.

SPIEGEL: And how many jobs have you destroyed in the process?

Wyser-Pratte: I've created jobs. The one who's responsible for destroying jobs in your country is your Chancellor Schröder - by keeping taxes high. You don't create growth by making sure that the only place where you have full employment is ultimately in public administration.

SPIEGEL: If US investors operate so efficiently and for the good of the economy, and aren't being prevented from doing so by a socialist government - then perhaps you could explain the dramatic decline of American industry compared with Germany.

Wyser-Pratte: OK, heavy industry is gone. So what! Instead, we're number one in service and technology. Europe has yet to face these concentration processes in most areas.

SPIEGEL: For example?

Wyser-Pratte: Look at the defense industry. We have four or five major manufacturers in the US. You've got 150 companies competing in the same industry. The entire industry looks like a plate of spaghetti Bolognese. Does that make any sense to you?

SPIEGEL: Wouldn't you call that competition?

Wyser-Pratte: No, it's just plain inefficient. The Europeans have simply divided up the market among themselves. It has nothing to do with competition. It's the same story in many other industries. There's a lack of will or even the possibility of consolidating fragmented industries and restructuring them as units capable of competing against China and the United States.

SPIEGEL: Now you're exaggerating again. Ever since the Mannesmann takeover by Vodafone -- which, incidentally, brought you plenty of profit in 1999 -- there have been all kinds of mergers. The German "fortress" you were talking about back then has been cut down to size for some time now.

Wyser-Pratte: Not at all. You still have too many crocodiles swimming around in your moats!

Interview conducted by Frank Hornig

An American in Frankfurt said...

The Germans can say what they want, especially when coming from SDP, the social-democrat rulling party. Schroeder won on a razor-thin margin built on his credentials to resist "W" and not on what he was entrusted to do, that is to revive the German economy. Interesting take on FT, read the following.

German business welcomes the private equity 'locusts'
By Ralph Atkins and Patrick Jenkins
Published: May 5 2005 03:00 | Last updated: May 5 2005 03:00

Hans-Joachim Ries, 55, is just 10 years younger than Franz Müntefering, veteran chairman of Germany's ruling Social Democratic party (SPD). But to foreign-backed private equity companies he might seem from a different generation.

Mr Müntefering, a close ally of Gerhard Schröder, the chancellor, recently denounced financial investors as "locusts" that "destroy everything and move on".

Mr Ries, the cheery, tanned production manager at Messer Cutting, which manufactures large-scale cutting machines in Gross-Umstadt, south of Frankfurt, says in contrast: "Even someone my age must always have the flexibility to see that things may have to be done differently."

There is a good reason for Mr Ries to be more open - he owes his job to private equity. Messer Cutting, previously part of the Hoechst industrial conglomerate, was rescued from near collapse in 2000 by Carlyle, the US private equity group.

The deal was part of a wave of investments that has made Germany the world's largest private equity market by value after the US and UK.

Private equity has accelerated Germany's corporate restructuring, compensating for the country's underdeveloped stock market and underperforming banking sector. In some cases jobs have been created - about 3,300 at Wincor Nixdorf, the cash machine maker, bought and floated by Kohlberg Kravis Roberts, for example.

In Gross-Umstadt, with its half-timbered houses and early 17th century town hall, 21 jobs went at Messer Cutting's plant on the town's outskirts. But the company is committed to production in high-cost Germany and has started recruiting.

Having restructured the business and merged it with Castolin Eutechtic of Switzerland, Carlyle sold its stake in MEC, the holding group that includes Messer Cutting, in January this year back to the Messer family that started the business in the 19th century.

Carlyle had doubled its €46m (£31m) investment and, far from being "destroyed", Messer Cutting systems is now financially healthy.

"I'd be lying if I didn't admit I was worried about Carlyle coming in," recalls Mr Ries. But there "could not have been a better investor", he adds.

Arvid von zur Mühlen, parachuted in by Carlyle and now Messer Cutting's managing director, is more categorical. "This talk of locusts and plagues is total nonsense. Private equity can only sell a company when it is profitable and growing."

Mr von zur Mühlen's anger is shared among many private equity executives, even though few are speaking out for fear of stirring a debate linked to elections in North Rhine Westphalia, Germany's most populous state, on May 22.

Private equity has been shocked at the hate nature of the campaign, fuelled by the leaking of a "locust list" of capitalists - including Carlyle and names such as Goldman Sachs, KKR and Deutsche Bank - but has found itself without an effective lobby in Berlin.

The fear is that Mr Müntefering's remarks will scare off private equity investors when fresh capital is raised, and increase the political difficulties facing foreigners doing business. Germany's system of "co-determination", giving employee representatives a role in strategic decision-making, already deters aggressive mergers and acquisitions, investment bankers say. The SPD chairman might now have added a "Müntefering poison pill".

One casualty could be attempts by KarstadtQuelle, the department store group, to raise funds by selling parts of its business.

Others are more sanguine, arguing that the political debate in Germany will move on after the May 22 poll. "No one will even raise the issue again," predicts Wilken von Hodenberg, chief executive of Deutsche Beteiligungs, one of Germany's few home-grown private equity firms.

Companies owned by private equity increased staff by 4.5 per cent a year in the five years to 2003 - twice as fast as companies with no private equity involvement, according to Mr von Hodenberg. The Berlin government has used private equity to take over housing portfolios.

For Mr Ries, a worry now is that, with Carlyle gone, "there is a danger that we go back to the old ways of doing business. That would be fatal".

Additional reporting by Patrick Jenkins .........................................................................

fCh said...

In a recent short interview with HBSWK, available at: http://hbswk.hbs.edu/item.jhtml?id=4812&t=globalization one gets a glimpse at Mr. Ferguson's comparative views on globalization.

Q: What are the five major points you identify as contributing to the impending decline in the globalization of our present-day economy?

A: I don't say it's impending. I just say it's possible. Like the outbreak of the First World War, a crisis of globalization today is a low-probability worst-case scenario. The key causes of the 1914 crisis were:

1. The overstretch of the hegemonic empire (Britain).
2. The escalation of rivalry between great powers (Britain and Germany in particular, but also Germany and Russia).
3. The destabilization of the alliance system (unreliability of Austria in German eyes, of Britain in French eyes).
4. The existence of a rogue regime sponsoring terror (Serbia).
5. The rise of a revolutionary organization hostile to global capitalism (Bolshevism).

To see my point, just change the words in parenthesis to:

1. (the United States)
2. (the United States and China)
3. (unreliability of the Europeans in American eyes, unreliability of the Americans in Japanese, South Korean, and Taiwanese eyes)
4. (Syria, Iran, etc.)
5. (Al Qaeda)

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