Globalization of free trade has been active for several centuries. Columbus accidentally found America when in fact he was heading for India in search of spices. Vasco de Gama came to India for precious stones, pearls and spices. Free trade flourished well into the early twentieth century but it took a beating after the First World War when the Smoot Hawley Act brought it to a halt and protectionism ruled the day. That brought on, in 1929, the biggest depression the world has seen, and soon after the Second World War.

Global companies conducted business in far corners of the globe as early as the 17th century. The East India Company was the precursor of British rule in India. Queen Victoria nationalized its properties in Calcutta thereby giving the British a beachhead from which to expand its control throughout India. Similarly the Dutch company Hudson Bay dominated international trade with the Americas and East Asia.

Neither free-trade, nor global companies, are a new phenomenon.

With the rise of Communism and its dramatic successes in industry and defense systems, countries in South Asia and Africa which had gained their freedoms from their European rulers, adopted the so-called socialist economic system. This system was a mixed economy that included private enterprise but with a heavy dose of state control and state-owned enterprises in what was considered to be essential industries.

With the fall of Communism in the late 1980s in the Soviet Union and Eastern Europe, countries everywhere have acknowledged, some grudgingly, that a socialist economic system is extremely inefficient and that it just does not work. Therefore China, India, and several countries in Asia and South America have gone on a so-called liberalization mantra. They are now amongst the foremost cheerleaders for global free trade.

It is quite ironic that countries in the Western Hemisphere, including the United States, which in the ‘50s and ‘60s were ardent promoters of free trade, are now complaining about the effects of free trade. The mantra most often heard is “We want free trade but it should be fair.” Some opinion makers on the left as well on the right (like Pat Buchanan) are openly calling for closing the borders of the United States to trade and immigration.

So what is so different about globalization and free trade in the 21st century that is causing so much commotion? One, the world has become smaller. Two, distance is no longer measured in miles or kilometers but in the time it takes to connect with one another. And three, countries, regions and economies are becoming increasingly interdependent. For instance, wage rates in India and China determine the welfare of workers in this country in certain sectors. High demand in China for oil is raising the prices at the gas pumps in this country. Terrorism is a global threat that is no longer confined to any one country. The value of the Chinese currency determines the volume of our imports from China and our trade deficit. We are no longer a self-contained island. The world has become globalized.

This newer version of globalization is quite different from that which existed up until the early part of the 20th century. Six principal drivers of this new model come to mind:

1) Speed of transportation – Supersonic jets and high speed ocean liners can transport people and goods in hours – trips that used to take days.
2) Communications access - Telecommunications and the Internet give us instantaneous connection with someone at the other side of the globe -- without a trip to the post office.
3) The World Trade Organization – the apex body that negotiates and monitors bilateral and multilateral trade agreements.
4) Increased migration of people seeking jobs. The oil industry in the Middle-East would come to a screeching halt but for the presence of foreign workers. Same can be said for the British Health System which is staffed mostly by Indian, Pakistani, and Chinese doctors from Hong Kong. It would fall apart without them.
5) Globalization of entertainment – CNN, BBC, STAR TV, Hollywood and Bollywood. The American rap music phenomenon has penetrated the music industry.
6) Cultural diffusion in style impacts how we dress, what we eat, and the cars we drive.

The multinational corporation (MNC) has captured the advantages drawn from these developments to create a global network of interconnected companies. Some have called the MNCs the “F-16s” or “B-52s” of capitalism and the free enterprise system. The six forces driving globalization allow MNCs to easily access and use the best attributes of nation states such as cheap labor in China, highly skilled but inexpensive programmers in India, product designers in Italy, and so on.

The critiques of MNCs should realize two basic realities that (1) in a market based economy, capitalism is all about efficiency and innovation with the reward of higher profits; and (2) and in a world of global competition, in which survival of the fittest is the rule, survival depends on becoming the most efficient and most innovative. Therefore, strategic decisions by managers are made with an objective analysis of the following issues:

Where in the world…
· Must we get our raw materials? Where is the cheapest and best combination? At home or abroad?
· Shall we produce the components most efficiently? At home or abroad? Where in the world ….Shall we assemble the final product? At home or abroad?
· Do we market the final product? At home or abroad?
· Do we raise capital? Where can we raise it at the cheapest rate? At home or abroad?
· Do we get people to do the work or perform the service? At home or abroad? Note that jobs can now go to where the people are in certain industries as is evident in the current hot button issue of outsourcing.

These decisions result in the establishment of operations in different regions and countries of the world in manufacturing, R&D, distribution, etc. Such investments are the principal carrier of technology, new skills, capital, and most importantly, of jobs.

So what can we do regionally and locally to attract foreign direct investment?

Experience of cities and regions in other parts of the USA and the world has identified the following factors that influence a company’s location choices:

1) Infrastructure for transfer of physical items such as easy access to major highways out of the city for inbound and outbound traffic, a world class airport, and access to a world class seaport

2) State-of-the-art infrastructure for transmission of information to retain global connectivity.

3) Safety and security of people and physical plant.

4) A competitive tax structure vis-à-vis alternative cities and regions.

5) Site advantages for the business including close proximity to clusters of competitors, buyers, suppliers, knowledge centers, and educational institutions.

Our region should benchmark its strengths and weaknesses against these criteria, and measure how we stack up against our competitor locations on these criteria.

To conclude, while there are numerous organizations in this region that are addressing these issues, what is required is an umbrella organization to coordinate and integrate these efforts into a unified whole.

What Philadelphia and the region needs is a coherent and consistent public policy on how to make the region competitive and vibrant in the globalized economy.

For more information about Arvind Phatak, visit www.fox.temple.edu/faculty/aphatak