One of my favourite City restaurants is Boisdale in Bishopsgate. Apart from excellent food and wine, Ranald Macdonald has created one of the few places in the Square Mile to remain true to the buccaneering spirit of the old City before the bottled-water brigade took over. He’s decorated the walls with magnificent old stock certificates, mementos of the pre-World War I glory days, when merchant bankers would bet the farm on giant infrastructure projects in countries they’d never visited, like Argentina and Russia.
No one believed this first flush of globalisation would end. In 1911, economist Norman Angell wrote that “international finance has become so interdependent and so interwoven with trade and industry that… political and military power can in reality do nothing”. The City’s faith in capitalism and free trade was boundless. Yet within a few years, the markets had closed, and thousands of stock certificates became useful only as decoration.
Could it happen again? The ties of trade and finance are once more so tightly woven it seems impossible. Yet support for globalisation is shaky across much of the world. In Italy, the Prodi government is in trouble over attempts to halt the Telecom Italia break-up. The French parliament is debating 130,000 amendments to a bill that would allow the privatisation of Gaz de France. Spain and Poland are in trouble with the EU over efforts to block foreign bidders.
Globalisation: who are its opponents?
Opposition to globalisation isn’t limited to “Old Europe”. The US last year blocked the sale of an oil group to China’s CNOOC and Dubai Port Worlds was barred from running US ports. Russia seems to be trying to tear up legally binding contracts with Shell and BP.
Even in Britain, there is anxiety over globalisation. The issue cuts across party lines. As Tony Blair noted recently: “Around the world, a division is opening up that I would characterise as ‘open versus closed’. The response to globalisation can be free trade, open markets, investment in the means of competition: education, science, technology. Or it can be protectionism, tariffs, tight labour market regulation, and resistance to foreign takeovers.”
Globalisation: some win, some lose
But globalisation creates winners as well as losers, as David Cameron pointed out in India this month. Those in business, finance, entertainment and sport have been able to reap the economies of scale of a global market. Globalisation has also been good for the growing middle classes in developing countries. The losers so far have largely been limited to unskilled and semi-skilled staff in developed markets whose jobs have disappeared overseas.
But globalisation is becoming far trickier. It’s no longer just unskilled and semi-skilled workers feeling the pinch. The growing middle classes in developing countries are now competing for professional jobs. They are often harder working, better educated and more disciplined than their European peers. I’m told just three of the 140 MBA students at London Business School are British. And of that 140, 70% plan to stay and work in London on graduating.
Globalisation: how are business practices changing?
Developing world business practices are also transforming corporate culture. Europe’s bureaucratic, consensual style of management looks outdated. InBev and SABMiller, run by Brazilians and South Africans respectively, have shaken up the beer industry. Indian steel magnate Lakshmi Mittal has turned the industry on its head. Blue-chip European groups like Unilever are replacing senior stalwarts with younger recruits schooled in emerging markets. For Europe’s professionals, life is getting much tougher.
Britain can no longer bury its head in the sand. The cost of globalisation has been obscured by cheap debt and Government spending. The average UK household now owes £8,500 in unsecured debt. In parts of northern England, the Government accounts for nearly 60% of the local economy. But personal and government borrowing are at their limits. The Government is cutting spending growth from 2008. Consumer borrowing is being hit by higher interest rates.
Globalisation: turning our backs is not an option
As we learned in 1914, turning our backs on globalisation is not an option – the impact on living standards of heavily indebted Britons, many of whose jobs depend on global markets, don’t bear thinking about. All we can do is try to compete. But are we up to it? Of our children, 20% leave primary school unable to read properly. The CBI complains British graduates often lack basic business skills.
Blair’s recent utterances suggest a man who realises he failed to take the tough decisions during the good years (“I wish I had been bolder”). Now he doubts his party will do the necessary in the years ahead. Cameron has shown he grasps the challenges, but has yet to translate words into action. In the City, traders go about their business as if globalisation was inevitable. The certificates on Boisdale’s walls suggest otherwise.
Simon Nixon is executive editor of Breaking views.com