It's Not As Flat As You Think...

Well, tell that to the French companies trying to do business in China recently or to Shell Oil and others trying to operate in Russia or indeed even to foreign companies trying to crack the Korean market.

The carrying of the Olympic torch through Paris sparked French protests against recent Chinese suppression of demonstrations in Tibet. This in turn generated a wave of nationalistic anti-French feeling in China that generated protests and calls to boycott French stores and goods.

More fundamental are the recent events in Russia and Korea. When the Soviet Union collapsed and Russia decided to take the capitalist road in the early 1990s, Shell Oil saw great opportunities in the potential for developing and revitalizing the Russian oil industry. But as things have developed the Russian government has favored a state controlled or guided capitalism with major industries like oil firmly in the hands of big government linked Russian companies. Shell and others have been forced to retreat from further investment and even from positions already held.

In Korea, the American high tech company FormFactor had another of its key patents annulled by a Korean district court. The inventor of the Probe Card devices used to test semiconductor wafers, FormFactor became the major supplied to a number of Korea’s large semiconductor producers. The company’s success sparked a joint move by Korean industry and the Korean government to create a Korean competitor. The new company promptly cloned FormFactor’s products by infringing its patents. When FormFactor protested, the Korean Patent Office reaffirmed the validity of the patents, giving FormFactor the grounds for obtaining injunctions against the infringement. However, these rulings were appealed to the Korean company to a higher court and the higher courts have systematically annulled the FormFactor patents in Korea even thought the patents have been held valid in all the rest of the major economies.

All of these examples point to an unexpected and perverse global economic trend. The conventional vision of the economic future popularized by Friedman and many other orthodox commentators was that globalization would make more and more countries rich and being rich they would tend to become democratic and being democratic they would be peaceful because, it was argued, democracies do not go to war with each other.

In actuality, however, what we are seeing is that the present form of globalization is strengthening the autocrats rather than the democrats. China, Russia, and the autocracies of the Persian Gulf are indeed becoming rich. But their capitalism is not entirely of the Adam Smith variety while their influence and power is increasingly far reaching and subtly powerful. What CEO of a major global company can ignore the wishes of the authoritarians in these new centers of wealth? Few if any.