The Price of Information

The Price of Information

Mini Teaser: Many economists, business analysts and especially people in the communications industries are in a state of euphoria about globalization.

by Author(s): Eric Jones

Many economists, business analysts and especially people in the communications industries are in a state of euphoria about globalization. While this is obviously a feature of the times, parts of the business press give the impression that a single world market is a foregone conclusion, indeed virtually exists already. Analysts are urging that competition for capital will steer governments to provide the conditions that international business wants, like some giant, spontaneous traffic-calming device. The certain near-term victory of this process is too readily assumed, reflecting the fact that economists and business commentators tend to fix their attention on the more mobile factors. Political commentators, on the other hand--particularly those of a "realist" disposition--are more likely to emphasize the less mobile ones. While both perceptions pick up aspects of reality, it is not hard to see that the two must be brought together, since the tensions between them are what cause conflict and, so to speak, sell newspapers.

There are three profound systemic movements now working at the global level. The common element among them is the rapid cheapening of information. This, though speeding economic, political, and social changes of disparate kinds in societies throughout the world, is paradoxically exacting a price in many unexpected ways.

The first process is a speeded-up circulation of factors of production. Great uncertainty is being created by competition to attract and retain industries, especially those using advanced technology.

The second process, labeled for convenience "democratization," is the challenge to the non-Western world posed by rapidly spreading notions of political pluralism. As advanced communications link up across the world, waves of disturbance wash against cultures that lack the West's long preparation for them, in terms of individualism and gradual growth. In countries lacking even a free press, this "democratization" is seen not as a universal tendency that Western society happens long since to have absorbed into its bloodstream, but as a Western threat to traditional cultures and political leaderships.

The third process, summed up here, not without irony, as a "declining work ethic" or "tendency to self-actualization," so far affects only the West. Affluence, magnified by the ease of modern communications, has vastly extended personal choice. Constraints on individual aspirations have lifted, much as in earlier centuries the veils of isolation, ignorance, and hierarchy were peeled back to permit the emergence of Western democracy. In his compelling article, "The Real Clash" (The National Interest, Fall 1994), James Kurth urges the centrality of the struggle within the West for its own soul. I shall treat Kurth's "real clash" in the West as an aspect of my third process, self-actualization, and regard it as only the most recent of the three overmastering movements.

The fact that these three processes are occurring concurrently, yet are regionally out of phase, provokes much of the international disorder we see today. It is only by considering all three movements, and their relationship to each other, that we can hope to reassemble the global jigsaw.

Cheaper Information

Information has been getting cheaper for centuries, since at least the multiple copying of medieval manuscripts. Modern technologies mean that it is doing so faster than ever, producing a great asymmetry as its price plunges away from the prices of other factors of production. Cheaper information propels economic growth, speeds the movement of other factors of production, and reduces economies of scale in the running of industries and political units. It also renders the creation of brand images much dearer, spreads individualistic and pluralistic political ideas, and helps both protagonists and opponents of any given change to combine for or against it.

Reduced information costs have an effect, or take a toll, by eroding economies of scale in running the state. Recent studies suggest that micro-states have become more viable than they were. Electronic access to world markets has permitted them to find niches for their goods and services. A big internal market is no longer vital. Accordingly, and unexpectedly, it has become easier to establish breakaway states within an expanded world market. Insofar as this involves a retreat to units based on ethnicity or religion, it is more dangerous than political nationalism. Civil wars and wars of religion are the bitterest of all. They are scarcely negotiable. They evade such rational instruments of management as centuries of diplomacy have developed to manage political relationships.

The Grip of Sovereignty

With their intractable affection for local groupings, people (and peoples) will usually fight to the last against cosmopolitanism. Whether or not the world eventually merges into a benign whole, to believe that it will do so quickly, without hideous pain, defies all probability and every precedent. It disregards the disruptive power of the many who fear they may be the losers in global competition.

Statistics on globalization are hard to come by, as the Organization for Economic Cooperation and Development (OECD) admits, but in reality most multinationals are still regional rather than genuinely global in their reach. A recent study confirms that multinationals carry out research and development largely in their home countries. Local ownership and local content laws remain influential. Standardization is more limited than we are led to believe. Tradable goods may look much the same across the world but they cost very different amounts of labor to buy in different countries, and anyone who has worked or set up house in more than one country knows that as far as services are concerned standardization is a joke. Accompanying
the euphoria about the global firm, then, is selective inattention to variations among economies and a blindness to the forces that actively recreate local differences.

Nevertheless, a tectonic shift is taking place as relative economic strength relocates across the globe. Fresh voices are bound to be raised in international politics. This is not simply because of the retreat of the superpowers, as the viewpoint of strategic analysis might suggest; it reflects the market shift. The essential point about modern information systems is that they permit more volatile investment. Funds now gravitate fast to regions offering cheap labor
and other attractions. The costs of adjustment fall onto the relatively less mobile factors, which occasions political friction. Labor may be more mobile than ever before but cannot begin to match the speed of transactions in capital markets. Governments everywhere resent the power of businesses to leave when dissatisfied. They vacillate about offering multinational firms inducements to stay.

External competition need not be serious, or even real, to stir up anxieties. New combinations form; old class antagonists join to preserve the Fordist (or Stalinist) phase of industrialism based on the heavy manufactures, vast plants, huge unionized workforces, and above all economies of scale that decentralized, computer-aided, information-rich technologies are undermining. This is not merely the temporary alliance of those interested in one ailing industry or another. On the assumption that imports from countries with currently cheap labor are more to blame for current woes than are cyclic changes or new technology, one half of modern conservatism rides everywhere on a wave of protectionist sentiment. The other half--owners and investors who have successfully repositioned their assets in rising sectors, workers with the skills appropriate to these sectors--therefore no longer finds all "capitalists" or the entire bourgeoisie to be its allies.

Right-left politics concerned with the shares of income accruing to capital or labor is bifurcated anew, in country after country, on the question of opening or closing the national market. What cannot be guaranteed is that lines drawn up over income distribution or free trade will correspond to conservatism of a social or moral kind, the sort that finds itself embattled because of the flood of alien images transported by information technologies similar to those that circulate investment at the press of a key. Tension is exacerbated between desires for a free market and the comforts of the social order that it may undermine.

Eager globalizers urge that governments today not only should be but already are powerless to resist the threats of capital to leave their jurisdictions. Once firms find labor dearer, taxes higher, the regulatory environment tighter, or the national polity unstable, they may exit. The actual end of the nation-state is prophesied. Perhaps this will come about, but it will not come smoothly. Resistance to losses of sovereignty is expressed by legislators, trades unions, cultures, and (as unemployment continues to increase) a fearful middle class. Whatever the final outcome, this response, muddled in with local and particular considerations, must slow globalization. Ideologues of all kinds have other values than the dollar. This cannot exempt them from economic influences but it can desensitize them. To cite only one example, the fact that one hundred company head offices quit Montreal between 1976-1981 has hardly slowed the Quebec separatists.

The European Precedent

We can get some purchase on the likely course of events by examining historical precedent. A convenient experiment of economic integration has been run before, not on a global scale but on the still sizable canvas of nineteenth-century Europe. An historical analogy can never be exact, but this one reveals how ardently nation-states attempt to retain control when their sovereignty is threatened. It shows that the technological developments behind international integration may work equally to strengthen the nation-state, setting bounds to the coalescence of a unified market. We have already noticed that the reduction of costs, particularly information costs, which promotes globalization may work in the reverse direction, making it cheaper to run small political units.

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