Investigations

Acting globally, thinking locally

Gone are the giddy days of globalization. Domino-effect market failures like 1998’s “Asian flu” and the September 11, 2001, terrorist attacks emphasize that rather than one happy village busily churning out prosperity, the globalized world is a network of sometimes painful connections. As Marvin Zonis, Dan Lefkovitz, and Sam Wilkin put it in The Kimchi Matters: Global Business and Local Politics in a Crisis-Driven World, (Agate, 2003), by the time those crises hit, the “party had gone on too long. Globalization’s heightened intimacies became increasingly uncomfortable, as many of the guests turned out to be angry, unpredictable, duplicitous, or violent.”

For the most part, such a turn of events went unheralded by global forecasters even as the 1990s international trade boom brought distant countries and their idiosyncratic governments into closer contact. Though globalization amplified and exported the regional problems of dysfunctional states, Western policy makers, investors, and corporate leaders were blinded by a vision of “peace through commerce” and failed to pay heed to the local politics that eventually triggered global catastrophes. So say Zonis, a GSB international political-economy professor and head of political-risk consultancy Marvin Zonis & Associates; Lefkovitz, AM’98, a freelance country analyzer at Zonis; and Wilkin, AM’97, a country risk adviser at Aon Trade Credit.

According to Kimchi Matters, the international community is contingent on the behavior of individual nations. As evidence the authors present a smorgasbord of regional processes and problems from countries around the world. They call these vital, often overlooked local conditions “kimchi,” after a spicy pickled-cabbage dish popular in (and, for the most part, only in) Korea. “Today,” they explain, “almost everyone eats Big Macs,” evidence of the global-village side of globalization. “But kimchi matters more than ever before.”

To illustrate how local obstacles can sideswipe international Goliaths, the authors offer Bill Gates’s initial foray into the Korean market. In 1998 Microsoft planned to invest $20 million in Hangul & Computer, and in exchange the South Korean software company would stop producing its Korean-language word-processing program, surrendering its near monopoly to Microsoft. But news of the deal brought a national backlash—fueled by antiforeign sentiment and national reverence for the Korean alphabet—and Hangul & Computer was forced to abandon the deal. “In short,” the book explains, “Microsoft’s expansion strategy had inadvertently triggered a political opposition movement.”

Investors and policy makers can avoid such missteps, the authors argue, by asking not only whether a country is stable but also how its stability is produced. They provide a simple model for local political dynamics: A demand by the public requires the government to react. Although a competent response satisfies the populace, an incompetent reaction engenders more extreme demands, which, in turn, generate another government response. This cycle can eventually trigger a political crisis.

In the Philippines, for example, President Ferdinand Marcos’s 1969 reelection coincided with a bad monsoon season and a violent Communist guerrilla uprising. “Though none of this was really the president’s fault,” the authors note, opposition grew. Marcos reacted by faking assassination attempts and terror attacks and then declaring martial law, crushing dissent and granting himself sweeping authority. To maintain power, he built a regime of corruption and patronage, which inhibited legitimate business, angered the middle class, and strengthened the opposition. When rival politicians were killed, discontent mounted, and Marcos was forced from office, leaving foreign businesses with Philippine investments tangled in criminal misconduct allegations.

But things might have turned out differently. Popular dissatisfaction of any source can be channeled in many ways, the writers argue, offering several examples. Zimbabwe’s Robert Mugabe managed national discontent by blaming his country’s problems on South Africa and England. India, though plagued by poverty, has dozens of political parties and holds relatively free and fair elections. And Singapore, while curtailing free speech and civil rights, heads off discontent with economic growth and stability.

Each of those governmental responses is intimately related to what Kimchi Matters terms “the ruling bargain.” Submitting to authority, the authors argue, is onerous: taxes must be paid, laws obeyed, and other intrusions (in an extreme case, conscription into a national army) accepted. In exchange governments earn the public’s support by promoting economic prosperity, physical security, and common defense. But each country formulates a unique bargain and justifies its authority—creating legitimacy—through different techniques. Autocratic nations rely on charismatic leaders to charm or terrorize the populace; democratic governments earn authority by representing the people; and in “developmental states” such as Singapore authority is earned by “delivering the goods—usually stability and prosperity.”

While a government’s structure may dictate its success in abating popular discontent, in some cases that structure is so attenuated that the task is assumed solely by a country’s leader. In Uganda policies depend almost entirely on the president, now Yoweri Museveni, who has reduced poverty and AIDS but also has banned political parties and activities. The authors stress, however, that “leadership is only part of the story.” Some countries have strong enough institutions that they can essentially run themselves. During “Monicagate,” for instance, crime fell, the economy grew, and “the American government continued to function effectively regardless of its rather distracted leadership.” Governments that have developed a self-perpetuating, responsive system are the most stable, the most likely to avert potential crises, and the best equipped to generate prosperity.

Even with a strong system, however, individual policies make or break stability, and political pressures can sometimes push policy makers in the wrong direction. When a leader faces reelection, for example, he or she often abandons policies that call for short-term sacrifices but create long-term benefits in favor of ones that create short-term economic booms, though they may ultimately cause a crash. This pattern clearly has emerged in Mexico, which has seen economic turmoil every six years—the length of the election cycle—since 1976. Likewise, entrenched interests can hinder development. Brazil’s constitution specifies rights for nearly every special-interest group, preserving privileges, such as government pension programs that cost tens of billions of dollars, at the expense of the larger good. Thus particular political circumstances can inadvertently reduce a nation’s economic potential.

The authors concede, however, that not everything is a local matter: “No country is an island, even when it comes to its own stability.” Of course, that is globalization’s lesson: a country’s particular politics and economics will inevitably influence and be influenced by world events. But, the authors admonish, “‘One size fits all’ solutions do not work.” Each country still harbors its own kimchi beneath globalization’s golden arches, so for the sake of peace and profit, the world’s businesses, investors, and politicians must be ever more sensible to local flavors.—A.L.M.