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  • A Brief History of International Banking

    At Liberty Street Economics , New York Federal Reserve economist Linda Goldberg provides the most succinct history of international banking we've seen. Here it is: Actually, she has a series of charts and explanations of key changes in banking since the 1800s. The above chart gives the broad overview. Goldberg calls the rise from 1860 to 1914 "the First Age of Globalization," in which increasing connectivity between nations brought about "large-scale capital investments (such as in railways), a deepening of global finance, and expanded prosperity." The start of the First World War brought that all to a halt. Goldberg: World War I marks the onset of the second period—what economists Raghu Rajan and Luigi Zingales call “The Great Reversal of 1914 through 1939.” This period is characterized by financial collapse and the Great Depression. They forcefully argue that this episode shows that globalization is not an immutable economic force, and a backlash against it can be disastrous. Indeed, as the previous chart shows, after restarting briefly, financial integration again collapsed with World War II and recovered slowly thereafter. Recognizing the importance of avoiding the mistakes of the interwar period, the Allies met in Bretton Woods, New Hampshire, in 1944 to create institutions to oversee the repair of the international financial system and to ensure trade and recovery among nations. This effort gave rise to the International Monetary Fund and the World Bank, and in 1947 to the General Agreement on Tariffs and Trade (in Geneva), which evolved into the World Trade Organization. The policy focus of these organizations was institution-building, recovery, and the financing of at least temporary balance-of-payment difficulties that arose at the sovereign level. The last period—the “Second Age of Globalization”—spans roughly 1960 through the end of the twentieth century. The era is characterized by intense financial integration. One of the most frequently used metrics of international financial integration, depicted in the chart below, demonstrates this point. Constructed using data on international assets plus international liabilities relative to GDP, the metric shows a number of periods of accelerating financial integration. How would you define the era from 2000 to 2008, and then the period we are in now? Read How Has the Business of International Banking Changed? here .

  • The Economist's Wooldridge on State Capitalism

    For Adrian Wooldridge , management editor at The Economist , the top economic story of the early 21st Century is that of liberal capitalism "in crisis," and the emergence of a new model of capitalism in emerging economies. Wooldridge calls this new model "state capitalism." This is not, he points out, a return to the "bureaucratic" capitalism common in developed economies before the 1970s. Rather, today's state capitalism is more of a hybrid model, where there are strong state controls but also great appreciation for market forces. Wooldridge, better known to some of us as The Economist 's Schumpeter columnist, discusses state capitalism here: Read The Economist's special report on "state capitalism's global reach" here .

  • A Dropoff in US IPOs Relative to Global IPO Activity

    Dunkin Donuts caught a lot of attention last week with the company's initial public offering, and MarketWatch reports that we are in the midst of the busiest round of IPOs in the US since the start of the recession . The long term trend, however, shows that IPO activity among US businesses has been in decline relative to other markets. Take a look at this chart: That is from a paper by Craig Doidge, G Andrew Karolyi, and René M Stulz . In a recent post at VOX , Doidge, Karolyi, and Stulz summarize their work analyzing IPOs from around the world since 1990. They argue that as financial markets became more globalised in the 2000s, IPO activity shifted, and the US dominance waned: Our analysis shows that countries with better institutions have more domestic IPO activity, measured as either the annual number of domestic IPOs scaled by the lagged number of domestic listed firms or as the annual proceeds raised in domestic IPOs scaled by lagged GDP. The results are both statistically and economically significant, even after controlling for local growth opportunities, worldwide domestic IPO activity, and financial and economic development. We expect the effect of globalisation to be more powerful in the second half of our sample period. When we compare the impact of institutions on IPO activity in the 1990s and the 2000s, we find that the institutions of the country in which a firm is located are much less important for explaining domestic IPO activity in the 2000s compared to the 1990s. Much of the growth in IPO activity around the world is through global IPOs. With globalisation, firms can use global markets to go public to avoid being constrained by their home country. We use a measure of global IPO activity that evaluates how intensively the firms in a country pursue global opportunities. We find that firms from countries with weaker institutions have more global IPO activity, after controlling for the overall level of domestic IPO activity, local and global growth opportunities, worldwide domestic and global IPO activity, and financial and economic development. We also find some evidence that the negative relationship between global IPO activity and countries’ institutions is stronger in the 1990s compared to the 2000s. Read The US left behind: The rise of IPO activity around the world here .

  • McKinsey Researchers Explore Potential 'Globalization Penalty'

    Top global businesses appear to be less healthy than their locally focused counterparts. That's the finding of McKinsey researchers Martin Dewhurst , Jonathan Harris , and Suzanne Heywood , who matched organizational health scores--from McKinsey's own organizational-health index database--with top performing multinationals and top local companies. And they found this: The authors write, in the McKinsey Quarterly : To understand what lies beneath these findings, we interviewed executives at 50 global companies. Those interviews, while hardly dispositive, suggested a relationship between organizational health and a familiar challenge: balancing local adaption against global scale, scope, and coordination. Almost everyone we interviewed seemed to struggle with this tension, which often plays out in heated internal debates. Which organizational elements should be standardized? To what extent does managing high-potential emerging markets on a country-by-country basis make sense? When is it better, in those markets, to leverage scale and synergies across business units in managing governments, regulators, partners, and talent? One global company, hoping to realize the benefits of scale and, simultaneously, of focusing intently on India and China, recently started deploying business unit “CEOs,” whose responsibilities cut across both of those high-growth markets. Complicating matters further, our interviews suggested that, for most companies, about 30 to 40 percent of existing internal networks and linkages are ineffective for managing global–local trade-offs and instead just add costs and complexity. Many companies, for example, can’t identify transferable lessons about low-income consumers in one high-growth emerging market and apply them in another. Some struggle to coalesce rapidly around market-specific responses when local entrants undermine traditional business models and disrupt previously successful strategies. Read Understanding your ‘globalization penalty’ here .

  • Leadership in the Age of Global Business

    The business world is always changing, but it may be changing more rapidly in the digital age. More and more businesses operating in a global marketplace, and more organizational charts shifting, and in some cases becoming flatter. As a result, the role of business leaders is changing. Harvard Business Publishin g asked "management thought leaders" to weigh in on what leadership will require in the business world of tomorrow:

  • A Multi-Power Future for Global Business

    As emerging markets rise in global influence, Edward Tse , Booz & Company 's Chairman for Greater China, envisions a world where multiple powers will all influence global business rather than one or two "superpowers." He also believes that, because of the way business works in likely powers the U.S., China, Japan, and India, businesses will have to "combine the globalness of companies as well as to become very local." Here is Tse discussing the multi-power future: You can watch the full interview at Big Think, here .

  • Joseph Stiglitz on the State of the Economy, and the Progress of Recovery

    Joseph Stiglitz says the federal government needs to spend more money (on infrastructure, schools, and elsewhere). And if he were president, he would work to restructure "large parts of the economy," and bring them up-to-date with the economics of the Twenty-First Century, rather than allowing them to keep following "Nineteenth Century economic principles." Those are among the ideas he shares with The New Yorker's James Surowiecki in this interview:

  • G-8 Supplanted by G-20

    It looks as though the G-8 is largely a thing of the past, and the G-20 is here to stay. Without China, India, and Brazil, the old Group of Eight nations no longer represented a large enough chunk of the global economic powers. The Wall Street Journal 's Jonathan Weisma n explains:

  • Urban Growth in age of Globalization

    In 2008, the world's urban population passed its rural population for the first time in history. And, according to a United Nations study , there is no turning back: Between 2007 and 2050, the world population is expected to increase by 2.5 billion, passing from 6.7 billion to 9.2 billion (United Nations, 2008). At the same time, the population living in urban areas is projected to gain 3.1 billion, passing from 3.3 billion in 2007 to 6.4 billion 2050 (see figure at right). Thus, the urban areas of the world are expected to absorb all the population growth expected over the next four decades while at the same time drawing in some of the rural population. As a result, the world rural population is projected to start decreasing in about a decade and 0.6 billion fewer rural inhabitants are expected in 2050 than today. Furthermore, most of the population growth expected in urban areas will be concentrated in the cities and towns of the less developed regions. Asia, in particular, is projected to see its urban population increase by 1.8 billion, Africa by 0.9 billion, and Latin America and the Caribbean by 0.2 billion. Population growth is therefore becoming largely an urban phenomenon concentrated in the developing world. Just a quarter century ago, the world's urban population was just 40.9 percent of the total global population. And these last 25 years were the height of globalization--so what happened? Or, as Harvard economist Edward Glaeser writes on the New York Times Economix blog puts it, "If the world is so flat, then why are cities growing so quickly, especially in the third world?" Glaeser--answering his own question--points to the nature of the global economy as one that is built on technology. While new technology makes it possible in the information economy to work from anywhere, humans thrive on interaction, and we place great value on proximity: Globalization and technological change have increased the returns to being smart; human beings are a social species that get smart by hanging around smart people. A programmer could work in the foothills of the Himalayas, but that programmer wouldn’t learn much. If she came to Bangalore, then she would figure out what skills were more valuable, and what companies were growing, and which venture capitalists were open to new ideas in her field. The information flows that come from proximity might also help to build the relationships that would enable her to create her own start-up. A remarkable number of information-technology start-ups in India were formed by partners who connected in Bangalore. Read Glaeser's post here . (Hat tip to the either early-rising or late-to-bed Mark Thoma for highlighting Glaeser's piece while we were asleep).

  • Globalization and African Economies

    Critics who argue globalization does not lift all boats, often point to the African continent for examples of economies left behind…or worse. In this interview, Paul Collier , director of the Centre for the Study of African Economies and professor of economics at Oxford, discusses the factors—internal and external—that have prevented nations in Africa from economic growth. Collier says the treatment of Africa as one entity is a common mistake. He divides the continent up into three large groups—the nations with resources; the nations without resources but on a coast; and the landlocked nations without resources. The coastal nations would seem poised to first take advantage of globalization, and Mauritius serves as THE example of an African country that built itself up in the global economy. Other nations have not been able to copy the success (Madagascar was close, but recent political strife blocked progress). The big opportunity for African nations to break into global markets, Collier says, was back in the 1980s. Now, after the growth of China in the manufacturing sector, and India in the service sector, developing nations are not facing a level playing field. So trade pacts with Europe and the US are vital at this point. As are the contributions of NGOs—the work of which Collier praises as one of the ways globalization has aided struggling African economies.

  • End of Globalization? Yeah or Nay

    The McKinsey Quarterly is hosting an online debate over globalization. The question: "Will globalization be derailed by the world financial crisis?" Harold James , professor of history and international affairs at Princeton University, and author of The End of Globalization: Lessons from the Great Depression , says the end of globalization is inevitable: The reactions against globalization are as much driven by a new psychology as by economic reality or a precise weighing of the costs and benefits of globalization. Crises give rise to conspiracy theories, often directed against foreigners or foreign countries. Many people in the United States argue that the blame can be placed on Chinese surpluses. Likewise, many people in other countries claim that they are being hit by an American crisis made in America. We will see not just little measures of trade protectionism, but massive and powerful xenophobic sentiment. It may also be that many former so-called “globalization critics” will see just how good integration was when it starts to fall apart. Moisés Naím , editor in chief of Foreign Policy , disagrees. He says that globalization is not only about international trade and investment: As destabilizing as the ongoing financial crisis is, it is likely to spur new connections among nations. Globalization has multiplied the number of problems that cannot be solved by a single country: not just economic crises, but also climate change, nuclear proliferation, illegal migration, transnational crime, pandemics, and more. While the world’s multilateral institutions are more often described as dysfunctional than indispensable, these institutions are indispensable—and with the world in crisis mode, demands to shore up global governance will only increase. Would the world be as interested in the economic stability of India, Brazil, or Indonesia without the financial crisis? The G20’s newfound relevance is a direct consequence of both globalization and the financial crisis. Read the full article, and get involved in the discussion here .

  • Stiglitz: Global Crisis Demands 'Coordinated Efforts'

    Joseph Stiglitz , Nobel Prize winning economist at Columbia University, former CEA chair under Clinton, and author of Globalization and its Discontents , says that the current global economic crisis requires that developing nations and developed nations need to work together more than ever. Here he is in a short video clip for the organizers of London Summit 2009 .