Pankaj Ghemawat: Actually, the world isn't flat

Translator: Joseph Geni Reviewer: Morton Bast

I'm here to talk to you about how globalized we are,

how globalized we aren't,

and why it's important to actually be accurate

in making those kinds of assessments.

And the leading point of view on this, whether measured

by number of books sold, mentions in media,

or surveys that I've run with groups ranging from

my students to delegates to the World Trade Organization,

is this view that national borders

really don't matter very much anymore,

cross-border integration is close to complete,

and we live in one world.

And what's interesting about this view

is, again, it's a view that's held by pro-globalizers

like Tom Friedman, from whose book this quote is obviously excerpted,

but it's also held by anti-globalizers, who see this giant

globalization tsunami that's about to wreck all our lives

if it hasn't already done so.

The other thing I would add is that this is not a new view.

I'm a little bit of an amateur historian, so I've spent

some time going back, trying to see the first mention

of this kind of thing. And the best, earliest quote

that I could find was one from David Livingstone,

writing in the 1850s about how the railroad, the steam ship,

and the telegraph were integrating East Africa perfectly

with the rest of the world.

Now clearly, David Livingstone

was a little bit ahead of his time,

but it does seem useful to ask ourselves,

"Just how global are we?"

before we think about where we go from here.

So the best way I've found of trying to get people

to take seriously the idea that the world may not be flat,

may not even be close to flat, is with some data.

So one of the things I've been doing over the last few years

is really compiling data on things that could either happen

within national borders or across national borders,

and I've looked at the cross-border component

as a percentage of the total.

I'm not going to present all the data that I have here today,

but let me just give you a few data points.

I'm going to talk a little bit about one kind of information flow,

one kind of flow of people, one kind of flow of capital,

and, of course, trade in products and services.

So let's start off with plain old telephone service.

Of all the voice-calling minutes in the world last year,

what percentage do you think were accounted for

by cross-border phone calls?

Pick a percentage in your own mind.

The answer turns out to be two percent.

If you include Internet telephony, you might be able

to push this number up to six or seven percent,

but it's nowhere near what people tend to estimate.

Or let's turn to people moving across borders.

One particular thing we might look at, in terms of

long-term flows of people, is what percentage

of the world's population is accounted for

by first-generation immigrants?

Again, please pick a percentage.

Turns out to be a little bit higher.

It's actually about three percent.

Or think of investment. Take all the real investment

that went on in the world in 2010.

What percentage of that was accounted for

by foreign direct investment?

Not quite ten percent.

And then finally, the one statistic

that I suspect many of the people in this room have seen:

the export-to-GDP ratio.

If you look at the official statistics, they typically indicate

a little bit above 30 percent.

However, there's a big problem with the official statistics,

in that if, for instance, a Japanese component supplier

ships something to China to be put into an iPod,

and then the iPod gets shipped to the U.S.,

that component ends up getting counted multiple times.

So nobody knows how bad this bias

with the official statistics actually is, so I thought I would

ask the person who's spearheading the effort

to generate data on this, Pascal Lamy,

the Director of the World Trade Organization,

what his best guess would be

of exports as a percentage of GDP,

without the double- and triple-counting,

and it's actually probably a bit under 20 percent, rather than

the 30 percent-plus numbers that we're talking about.

So it's very clear that if you look at these numbers

or all the other numbers that I talk about in my book,

"World 3.0," that we're very, very far from

the no-border effect benchmark, which would imply

internationalization levels of the order of 85, 90, 95 percent.

So clearly, apocalyptically-minded authors

have overstated the case.

But it's not just the apocalyptics, as I think of them,

who are prone to this kind of overstatement.

I've also spent some time surveying audiences

in different parts of the world

on what they actually guess these numbers to be.

Let me share with you the results of a survey

that Harvard Business Review was kind enough to run

of its readership as to what people's guesses

along these dimensions actually were.

So a couple of observations stand out for me from this slide.

First of all, there is a suggestion of some error.

Okay. (Laughter)

Second, these are pretty large errors. For four quantities

whose average value is less than 10 percent,

you have people guessing three, four times that level.

Even though I'm an economist, I find that

a pretty large error.

And third, this is not just confined to the readers

of the Harvard Business Review.

I've run several dozen such surveys in different parts

of the world, and in all cases except one,

where a group actually underestimated

the trade-to-GDP ratio, people have this tendency

towards overestimation, and so I thought it important

to give a name to this, and that's what I refer to

as globaloney, the difference between the dark blue bars

and the light gray bars.

Especially because, I suspect, some of you may still be

a little bit skeptical of the claims, I think it's important

to just spend a little bit of time thinking about

why we might be prone to globaloney.

A couple of different reasons come to mind.

First of all, there's a real dearth of data in the debate.

Let me give you an example. When I first published

some of these data a few years ago

in a magazine called Foreign Policy,

one of the people who wrote in, not entirely in agreement,

was Tom Friedman. And since my article was titled

"Why the World Isn't Flat," that wasn't too surprising. (Laughter)

What was very surprising to me was Tom's critique,

which was, "Ghemawat's data are narrow."

And this caused me to scratch my head, because

as I went back through his several-hundred-page book,

I couldn't find a single figure, chart, table,

reference or footnote.

So my point is, I haven't presented a lot of data here

to convince you that I'm right, but I would urge you

to go away and look for your own data

to try and actually assess whether some of these

hand-me-down insights that we've been bombarded with

actually are correct.

So dearth of data in the debate is one reason.

A second reason has to do with peer pressure.

I remember, I decided to write my

"Why the World Isn't Flat" article, because

I was being interviewed on TV in Mumbai,

and the interviewer's first question to me was,

"Professor Ghemawat, why do you still believe

that the world is round?" And I started laughing,

because I hadn't come across that formulation before. (Laughter)

And as I was laughing, I was thinking,

I really need a more coherent response, especially

on national TV. I'd better write something about this. (Laughter)

But what I can't quite capture for you

was the pity and disbelief

with which the interviewer asked her question.

The perspective was, here is this poor professor.

He's clearly been in a cave for the last 20,000 years.

He really has no idea

as to what's actually going on in the world.

So try this out with your friends and acquaintances,

if you like. You'll find that it's very cool

to talk about the world being one, etc.

If you raise questions about that formulation,

you really are considered a bit of an antique.

And then the final reason, which I mention,

especially to a TED audience, with some trepidation,

has to do with what I call "techno-trances."

If you listen to techno music for long periods of time,

it does things to your brainwave activity. (Laughter)

Something similar seems to happen

with exaggerated conceptions of how technology

is going to overpower in the very immediate run

all cultural barriers, all political barriers,

all geographic barriers, because at this point

I know you aren't allowed to ask me questions,

but when I get to this point in my lecture with my students,

hands go up, and people ask me,

"Yeah, but what about Facebook?"

And I got this question often enough that I thought

I'd better do some research on Facebook.

Because, in some sense, it's the ideal kind of technology

to think about. Theoretically, it makes it

as easy to form friendships halfway around the world

as opposed to right next door.

What percentage of people's friends on Facebook

are actually located in countries other than where

people we're analyzing are based?

The answer is probably somewhere between

10 to 15 percent.

Non-negligible, so we don't live in an entirely local

or national world, but very, very far from the 95 percent level

that you would expect, and the reason's very simple.

We don't, or I hope we don't, form friendships at random

on Facebook. The technology is overlaid

on a pre-existing matrix of relationships that we have,

and those relationships are what the technology

doesn't quite displace. Those relationships are why

we get far fewer than 95 percent of our friends

being located in countries other than where we are.

So does all this matter? Or is globaloney

just a harmless way of getting people to pay more attention

to globalization-related issues?

I want to suggest that actually,

globaloney can be very harmful to your health.

First of all, recognizing that the glass

is only 10 to 20 percent full is critical to seeing

that there might be potential for additional gains

from additional integration,

whereas if we thought we were already there,

there would be no particular point to pushing harder.

It's a little bit like, we wouldn't be having a conference

on radical openness if we already thought we were totally open

to all the kinds of influences that are being talked about

at this conference.

So being accurate about how limited globalization levels are

is critical to even being able to notice

that there might be room for something more,

something that would contribute further to global welfare.

Which brings me to my second point.

Avoiding overstatement is also very helpful

because it reduces and in some cases even reverses

some of the fears that people have about globalization.

So I actually spend most of my "World 3.0" book

working through a litany of market failures and fears

that people have that they worry globalization is going to exacerbate.

I'm obviously not going to be able to do that for you today,

so let me just present to you two headlines

as an illustration of what I have in mind.

Think of France and the current debate about immigration.

When you ask people in France what percentage

of the French population is immigrants,

the answer is about 24 percent. That's their guess.

Maybe realizing that the number is just eight percent

might help cool some of the superheated rhetoric

that we see around the immigration issue.

Or to take an even more striking example,

when the Chicago Council on Foreign Relations

did a survey of Americans, asking them to guess

what percentage of the federal budget went to foreign aid,

the guess was 30 percent, which is

slightly in excess of the actual level — ("actually about ... 1%") (Laughter) —

of U.S. governmental commitments to federal aid.

The reassuring thing about this particular survey was,

when it was pointed out to people how far

their estimates were from the actual data,

some of them — not all of them — seemed to become

more willing to consider increases in foreign aid.

So foreign aid is actually a great way

of sort of wrapping up here, because

if you think about it, what I've been talking about today

is this notion -- very uncontroversial amongst economists --

that most things are very home-biased.

"Foreign aid is the most aid to poor people,"

is about the most home-biased thing you can find.

If you look at the OECD countries and how much

they spend per domestic poor person,

and compare it with how much they spend

per poor person in poor countries,

the ratio — Branko Milanovic at the World Bank did the calculations —

turns out to be about 30,000 to one.

Now of course, some of us, if we truly are cosmopolitan,

would like to see that ratio being brought down

to one-is-to-one.

I'd like to make the suggestion that we don't need to aim

for that to make substantial progress from where we are.

If we simply brought that ratio down to 15,000 to one,

we would be meeting those aid targets that were agreed

at the Rio Summit 20 years ago that the summit

that ended last week made no further progress on.

So in summary, while radical openness is great,

given how closed we are,

even incremental openness could make things

dramatically better. Thank you very much. (Applause)

(Applause)