In some ways this book is a continuation of Pankaj Ghemawat?s thesis that the world is not yet globalised enough to be described as all that flat. Earlier Ghemawat had sought to produce a lot of empirical evidence to challenge Thomas Friedman?s belief that the world has become flat following the high levels of globalisation achieved by economies in recent decades.
However, the former Harvard Business School professor (the youngest to have become so at Harvard) produces very interesting data and analyses to prove that we are still in a semi-globalised state where much of activity is domestically driven. Real globalisation, where economies truly optimise growth and productivity, is yet to happen. The title of the book World 3.0 is about how to reach the next level of global prosperity and all that it takes to get there.
According to the author we are currently living in World 2.0, a half-baked globalised economic system in which there is recognition that nations should look beyond narrow domestic gains and move to the next stage of promoting international welfare so that every country gains in the process. World 1.0, according to the author, represented an earlier era, perhaps early 19th century, when nations were only concerned with domestic well being with little thought given to international welfare.
After the 2008 global crises ?many of us have had to reexamine our beliefs about markets and globalisation?, says the author.
The author asserts that even today 90% of all fixed investment in the world is domestic. Only about 18% of all internet traffic is international, the rest occurring within national boundaries. Only about 20% of stock market equity is owned by foreign investors. Cross border ownership of bank deposits and government debt remains less than 25% and 35% respectively.
The author argues that despite all the hubbub about immigration, first generation immigrants account for only 3% of world population. Students studying overseas account only for 2% of all university students. About 90% of the world population has never left the country in which they are born. Is the world really flat?
In fact Ghemawat has even contended that there were as many immigrants as a ratio to total population in 1910 as there are today. Of course, Friedman has responded to Ghemawat?s criticism by saying the data sets produced by the latter were too narrow in their scope. The Harvard professor retorts by saying at least some empirical evidence is produced as against none by Friedman in his popular book, The World Is Flat! Therefore the actual levels of globalisation in World 2.0 is far lower than what many believe purely on the basis of anecdotal evidence.
Sometimes the nature of cross-border trade also creates an illusion that a lot of value is getting added across different geographical territories through extended value chains of various products. The reality is a bit different. For instance, consider Apple?s iPod. Although it is labeled as made in China, in actual fact China is just the final assembly platform for 400-plus components from East Asia and elsewhere. China therefore adds only 1 or 2% value in the retail selling price of $299. Most of the value add?about $163?goes to American companies and workers, with Apple alone pocketing almost half of that. Yet every iPod sold in the United States is recorded as contributing $150 to the US trade deficit with China. Since all components are shipped several times across national borders, the total trade recorded around the sale is a multiple of $150 number! This distorts and exaggerates the trade figures, too.
So the author raises the fundamental question as why so many intelligent and informed people around the world are so prone to ?globaloney?. So the first task he undertakes is to understand the actual level of globalisation today and then proceed to give prescriptions on how to raise the level of globalisation in order to maximise economic welfare and productivity across the world. So in World 3.0, one is to assume realistically that borders and distances are important and then proceed to find solutions in terms of greater integration of world economies in which interdependence is far more mutually beneficial.
The chapter titled Adding Value by Opening Up gives interesting ideas on how to take the world economy to the next level of growth and prosperity. This is particularly relevant today considering that there is utter gloom at multilateral trade platforms like WTO where nations are battling a fear psychosis over attempting freer trade and investment regimes against the backdrop of unprecedented unemployment and continuing demand slowdown in the West. There is massive political sentiment against further opening up of trade in the United States, Europe and so on.
Adopting the World 3.0 perspective, the author says standard estimates of the gains from the proposals on the table in the stalled Doha round of world trade talks are in the range of $50-$100 billion. The gains from complete liberalisation of merchandise trade is up to $300 billion.
Therefore the estimated gains from Doha proposals represent roughly 0.1% of a $60-trillion world economy and complete liberalisation would bring gains of 0.5% of world GDP.
The author argues that no politician around the world would take the risk of totally liberalising merchandise trade just for a 0.5 % gain to the GDP. And certainly not during periods of high unemployment. That is the bad news.
However, the good news is the world can generate much higher welfare gains by focusing less on merchandise trade and more on services. The author says services account for two-thirds of global GDP but only one-fifth of global trade, leaving trade in services only about an eighth as intense as trade in merchandise. Improvement in cross border service delivery through the medium of information technology has indeed increased potential gains from liberalising trade in services over time, unlike decreasing estimates of gains from merchandise trade.
The author has estimated that removal of all restrictions on cross border movement of labour could produce potential gains of the order of 100% of GDP. This means world GDP could double to over $120 trillion if all restrictions on labour movement are removed.
However, this is politically impossible as greater labour movement across borders will cause xenophobic political tendencies and could lead to the rise of old nationalisms and tend to take us back to the World 1.0 situation.
Equally, the crises in global capitalism can only be solved by progressively easing the labour mobility across borders to maximise welfare gains internationally. The OECD has estimated that without large scale immigration the US living standards could drop by 10%, the EU?s by 18% and Japan?s by 23%.The author has also emphasised greater cross border flow of knowledge which will produce increasing returns to scale.
The book also discusses the bad externalities afflicting World 3.0 in the form of high environmental costs associated with greater global prosperity. Globalisation?s most obvious direct environmental impact involves pollution caused by transporting goods and people across countries. Transportation accounted for 23% of all energy related carbon emissions in 2004.
Of course, the ultimate challenge to World 3.0 will be how societies would reconcile deep international economic integration with the core political imperatives of the nation-state and mass politics. Deep economic integration will constrain the policy choices of nation states and its ability to steer its specific mass politics. This can only be obviated if some mass politics emerges at the international level which softens the politics of the nation-state. For instance China successfully used its need to join the WTO and persuaded its people about a whole set of domestic reforms which would otherwise have been difficult to implement.
The author also raises the question of whether globalisation is bad for democracy. He argues that writers ?as different as Immanuel Kant, Joseph Schumpeter, Friedrich Hayek and Niels Bohr have identified a causal relationship between openness and democracy. Also economists Barry Eichengreen and David Lebang have done their own detailed and sophisticated analyses to conclude that positive relationships do exist between globalisation and democracy. What is happening in large parts of the Arab world may testify to this.