Sunday, August 23, 2009

Shifting Geography Of Globalization

As you can tell from the title, I'm not done with thinking about emerging geographic paradigms of globalization. The dominant map of the industrial era was the numerous, small fiefdoms that outlined the jurisdiction of one mill or one part of the production chain. I'm watching this landscape legacy play out between the Ohio cities of Youngstown and Girard. The former wealth-producing parochialism is now strangling the Rust Belt.

“We had the perfect little cul-de-sac back here, our own little world,” said Eloisa Sanchez, the woman on the porch. “We’re afraid of what’s coming.”

Since January, The New York Times has made regular visits to the fraying neighborhood to chronicle — in print, photographs and video — how, in one small place, the foreclosure crisis has reshaped the view of homeownership as a cornerstone of the American dream. The continuing economic fallout has brought a reckoning for those who believed that home equity would always rise, financing lives beyond their means, while also creating unexpected opportunities for people previously on the sidelines of homeownership.

Over the last two years, half of Beth Court has been in foreclosure, and homes whose owners took out thousands of dollars in equity during the bonanza years are now worth less than half the price paid for them.

What's coming won't favor Joel Kotkin's suburban sprawl or Richard Florida's urban center of innovation. Both Kotkin and Florida are describing the same landscape, the world of Reagan-Thatcher globalization. These were the dominant patterns of living and working, perfectly aligned with the economics of the time.

What will be the new geography of globalization? The primary concerns will be talent shortages and aging demographics. I've found workforce development strategies to be useful for understanding a particular era of globalization. Just for convenience, I'll term the industrial era as "Globalization I". Arguably, there are epochs of globalization before it. But I haven't looked at those geographies. "Globalization II" was born in the 1980s, the decade of the Rust Belt. And we are now entering "Globalization III".

Cultivating talent locally is characteristic of Globalization I. Attracting talent from elsewhere is the hallmark of Globalization II. As for Globalization III:

It goes without saying that no matter how much talent a company might have, there are many more talented people working outside its boundaries. Yet all too many companies focus solely on acquiring talent, on bringing talent inside the firm. Why not access talent wherever it resides?

Replace the word "company" with "region" and I think you get the point. As we figure out the logistics of network innovation, more geographic arbitrage opportunities will emerge. Proximity will still matter, but not in a 20-minute rule kind of way. The winners of Globalization III will be the places that have done the best job of talent export. If Chicago rose with Globalization II, then so will Pittsburgh with Globalization III.


Stephen Gross said...

Can you explain in more detail some examples of how a company (or region) can leverage outside talent without actually attracting it to the company/region?

I work in software, and I've seen companies try to use off-sites teams to assist in development. Anecdotally, anyway, it hasn't been a great strategy--there's no substitute for having your team in the same room together.

Thanks for your thoughts,

Jim Russell said...

I'll start by saying that close proximity and face-to-face interaction is still the ideal environment for innovation. But given the costs, it is a barrier to overcome. I frame this problem as one of socialization. Most of our learning is done face-to-face. I don't think we have to accept that face-to-face is better. We could dramatically improve distance communications. A good example of how to do so is mathematics. I don't want to delve too deeply into social technologies, at least at this point.

An existing model of how Globalization III will work is how venture capital breaks the proximity rule in Silicon Valley. In this case, we are talking about financial capital instead of human capital. The money, typically locked up in the region, can and does follow entrepreneurs back to their home countries (e.g. India and Israel). Silicon Valley is exporting a culture that dramatically expands the landscape of opportunity. Through these Argonauts (to invoke AnnaLee Saxenian), face-to-face becomes unnecessary.

The idea is that social capital flows (i.e. migration) pave the way for financial flows (i.e. investment). This is the brain drain dividend, workforce development for Globalization III.

Tom Mc said...

Jim --

If I am understanding you correctly, this is forming a Service Oriented Architecture for society.

China seems to have built this into their model. Each region is focused on one specialty. Other regions focus on their specialty while using specific specialty services of another region. Similarly focused people in an area will create innovation and new services.

By doing this you will reduce the costs of infrastructure to more specific needs. These cost can then be defrayed amongst a growing populous understanding of the direction of their tax dollars. If kept in check decrease tax burden on the people which will attract more people and in turn more capital.

As with any service, its success if based on the simplicity and or easy of use of its interface. A region needs to gather its resources, physical and mental and export these is a consumable fashion. Once consumed the exported services bring in more capital to build better services. Thus attracting more talent and sometimes better to region.

One thing that is usually left out of the equation is cost of business. I think this is a flaw in R. Florida economic model. Yes capital will flow to talent. But when given the choice between to reasonable equal ideas or concepts, cost of doing business comes into play.


Jim Russell said...


I don't know enough about SOA to comment on your analogy. But it reminds me of the distinction between information exchange and knowledge exchange.

Information exchange used to be limited by the same proximity rule. For example, weights and measures used to be parochial. National and international standards changed all that. This would pave the way for global markets (a form of long distance knowledge exchange). This last economic crisis is the collapse of trust in markets to usefully model risk. There is a need for a new architecture for knowledge exchange, which will drive Globalization III.

I think Richard Florida understands the costs of density. In fact, it is rising real estate prices that brings the Flat World thesis into question.

Why does it cost $10,000 for Chinese resident to illegally immigrate to NYC? Why do young adults cram into closet-like apartments in Manhattan? Why do global HQs continue to cram into the same small group of crowded cities?

If I'm Memphis, then I don't hire Richard Florida to help with talent deficits. His framework of understanding essentially says Memphis is screwed no matter what it does.

Tom Mc said...

Jim –
Maybe I am missing the point or I need to read up or explore more on the idea of globalization III.
I was in Memphis with RF. I think your right. I think he is selling towns/cities a bill of goods, just as if putting up a casino will make you the next Vegas. From my interpretation of RF and his followers chatter about new needs for dog parks to attract talent, he misses the point about capital. Very few people flock to an area because there are underfunded cultural venues and dog parks for interaction. This is why people flock to certain areas. Capital is readily available to them. Where there is capital there is influence.
The multinational corp. and the flow of its capital is a part of the equation that many folks miss. The multinational has the need for growth. The current movement of off shoring work is only partly due to scrape out additional profits in low growth areas (US and W. Europe). The other part and I think main part, it to create new growth markets. Pay people 3 times what they are currently making and they will create demand for products, which will create demand for your product. These newly prosperous people will then unleash their creativity to create new products and create new demand for products of multi nationals. Their governments will need to modernize and build infrastructure. This will create more revenue and more profits for large multi nationals.
Is this Globalization III?
The basis for SOA is standards based easily consumable services. The back-end service implementation does not matter as long as it meets a service level agreement.
I think a region needs to find its strengths, as Pittsburgh has a few times with Glass, Oil and gas and Steel. Focus the effort on this strength and build an eco system of service providers that will attract out of region capital. Work as a region to advertise or market the uses of the regions service providers. I think Charlotte banking service was going in this direction, but they started eating their own, rather than eating up other regions banks. This will be its own downfall.

Jim Russell said...

These newly prosperous people will then unleash their creativity to create new products and create new demand for products of multi nationals. Their governments will need to modernize and build infrastructure. This will create more revenue and more profits for large multi nationals.

Is this Globalization III?

I think you are describing Globalization II: Global supply chains and new markets. The collapse of Globalization II has produced certain kind of risk aversion that needs to be overcome in order to unleash Globalization III.

Keep in mind that I'm associating the worldviews of Richard Florida and Joel Kotkin with Globalization II, the world system that just hit the wall. I'm trying to imagine what the geography of Globalization III will look like.

Tom Mc said...

Jim -- I think GIII will be that capital follows ambition. Unfortunately the US seems to be losing this to other nations. The ambition level has dropped greatly with US born. The need for immigrants in the US that really know what poverty is and see that 100 hours per week of work is worth it. This is the ambition that I see lacking in Pittsburgh and I think Pittsburgh is a leading indicator for the US. -- Tom