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Torschlusspanik: Noun. “The fear that time is running out to act, specifically in regards to a border closing. Literally, “gate-shut panic” — the feeling that medieval peasants had when the castle gates were closing for an upcoming onslaught by enemies.”
In economics this German term is most closely associated with financial crises. Charles Kindleberger used it to describe the situation when investors (or speculators as the case may be) realize that there isn’t enough liquidity to cover all the assets that they hold and all rush for the door (to cash out) at once. I don’t have to tell you that the result can be pretty gruesome when everyone tries to squeeze out at once.
The current issue of The Economist features a cover story about the possible collapse of the Euro and it made me think about Torschlusspanik. The Euro was designed to make Torschlusspanik impossible by simply having no gate. There are requirements to get into the Euro zone, but no procedure to exit. No way out. Hence no gate shut panic. Simply unthinkable.
But now it is thinkable. In a recent poll of top economics bloggers, my answer to the question of whether the Euro would exist in five years (in some form) was still “Yes,” but I said that there was a 40% chance that one of more countries would drop out. Forty percent may be a bit high (I wonder what odds The Economist would give?) but it indicates that I am now willing to think the unthinkable.
So what happens if Greece or another country leaves the Euro zone? I am starting to think that it will be a Torschlusspanik as every country with any doubts at all about the future rushes for the door. Weak countries that stay behind will certainly be subject to intense pressures both economic and political. And I am not sure that the terms and conditions to leave will become any better. Better find the door … quick.
Where would a Euro Torschlusspanik lead? I wonder.
Apparently Torschlusspanik has an anthem!
The World Economic Forum always meets this time of year in Davos, Switzerland. The WEF is basically the board of directors of globalization — a fluid collection of leaders from the .com, .gov and .org worlds, with a few .edu types like me to provide intellectual weight (or comic relief?), I suppose.
The list of formal sessions of the WEF always make it look like the coolest conference ever, whether you want to debate key global issues, rub shoulders with high government officials, get face time with corporate giants, hang out with rock stars and Nobel laureates or … well I suppose you could go skiing if you wanted to (and I guess some of the attendees actually do that!)
Once again this year I am not in Davos at the end of January. Usually my excuse is that I don’t want to take time away from classes, but I admit the real reason is that I have never been asked. But now I have a new and better reason — I can’t afford to go!
Andrew Ross Sorkin, writing in the New York Times, has been investigating the WEF’s finances and his research makes it clear that getting in the door would bankrupt me.
Just to have the opportunity to be invited to Davos, you must be invited to be a member of the World Economic Forum, a Swiss nonprofit that was founded by Klaus Schwab, a German-born academic who managed to build a global conference in the snow.
There are several levels of membership: the basic level, which will get you one invitation to Davos, costs 50,000 Swiss francs, or about $52,000. The ticket itself is another 18,000 Swiss francs ($19,000), plus tax, bringing the total cost of membership and entrance fee to $71,000.
But that fee just gets you in the door with the masses at Davos, with entry to all the general sessions. If you want to be invited behind the velvet rope to participate in private sessions among your industry’s peers, you need to step up to the “Industry Associate” level. That costs $137,000, plus the price of the ticket, bringing the total to about $156,000.
Of course, most chief executives don’t like going anywhere alone, so they might ask a colleague along. Well, the World Economic Forum doesn’t just let you buy an additional ticket for $19,000. Instead, you need to upgrade your annual membership to the “Industry Partner” level. That will set you back about $263,000, plus the cost of two tickets, bringing the total to $301,000.
Click here to read the whole story. It seems that the conference is organized on the pizza principle — the toppings you want all cost extra. So the total expense can get pretty high. I wonder how many $10 malaria nets the WEF’s total extended budget would buy?
All these embedded costs have helped make the World Economic Forum a big business — perhaps the biggest conference organizer in the world. According to its annual report, it brings in about $185 million in revenue and spends nearly all of it, with almost half of its costs going toward events and the other half on personnel.
Quite a few! At $10 per net, you could potentially save 18.5 million lives a year. So the meetings have to be awesome to justify their human cost. No wonder they are so cool.
And yet, we are told, Davos Man is left unfulfilled.
But all this spending may soon be going out of vogue. As one attendee, the author David Rothkopf, recently wrote on his blog, “The entire endeavor is fading for several reasons, all associated with the inadequacy of Davos as a networking forum.”
He explained, “As Steve Case, founder of AOL, once told me while standing at the bar in the middle of the hubbub of the main conference center: ‘You always feel like you are in the wrong place in Davos, like there is some better meeting going on somewhere in one of the hotels that you really ought to be at. Like the real Davos is happening in secret somewhere.’ “
Wow! That’s just how I feel now. So I guess I’m better off where I am, don’t you think? [Memo to Bob Dylan: here's an idea for a new song -- Stuck inside of Mobile with the Davos blues again!]
The op-ed page of the Financial Times was devoted to a single question in the January 4, 2011 U.S. edition — is globalization is retreat in 2011? (Search for “globalisation” on the FT web page to find the articles discussed here.)
That’s the most important question of the year, according to the FT gurus and one that I address in Globaloney 2.0.
A Zero-Sum Year? Yes and No.
Five points of view are presented in the FT. Gideon Rachman, author of a new book on the Zero–Sum World kicks off the discussion, warning that globalization (and the prosperity associated with it) is indeed threatened unless there is a “coordinated global recovery.” Positive-sum actions are needed to prevent a spiral of individually zero-sum (which collectively become negative-sum) responses to the global crisis and the uneven recovery.
Former EU trade minister Peter Mandelson takes a contrarian view. He finds three reasons for optimism. First, he thinks technology that increasingly links us into tight networks is a positive force leaning against protectionist policies. Second, he finds that global leaders have on net kept their commitments to avoid beggar-thy-neighbor policies — a good sign. Finally, he believes that this might be the year that the Doha round of trade talks is completed. Really! Well, I’m glad someone is optimistic about that!
Microchips and Metaphors
Google CEO Eric Schmidt picks up on the technology theme, arguing that open systems are the way forward, both in terms of information technology and more generally (open systems used here as both a techie term and a social metaphor). The focus should be on developing an open world to build the next economy.
Nandan Nilekani, former Infosys CEO, argues that if globalization does in fact retreat in 2011, it will be just a blip on the trend line. He argues that the rise of India and China will pull globalization forward. “Globalization might pause briefly in 2011, but it cannot be reversed when many billions of Indians and Chinese want it.”
More? Less? Or Better?
Finally, Nobel-winning economist Joseph Stiglitz sounds a cautious note. “2011 will be a hard year for globalization,” he says. The initial cooperative spirit of G-20 meetings in 2008 and 2009 have given way to more protectionist actions in 2010. He paints a fairly dark picture of currents trends, including the continuing currency wars. “In a moment of dreaming one can imagine a better year,” he says. There is hope for progress on trade, finance, the euro and so forth. “Some of this could happen, although I wouldn’t bet on it. But we should still strive to make sure as many of these dreams come true as possible in the not too distant future.”
My own viewpoint, as explained in Globaloney 2.0, is that perhaps we shouldn’t worry so much about whether we have more or less globalization, but rather what kind of globalization. Some policies, like limited capital controls, that are being cited today as attempts to roll back globalization might in fact be useful improvements to the world wide financial system.
Harold James, The Creation and Destruction of Value: The Globalization Cycle. Harvard University Press, 2009.
Princeton Professor Harold James is the author of one of my favorite globalization books, The End of Globalization: Lessons from the Great Depression (2001), so I was excited to learn about his new book on the economic crisis. James is unique in his deep understanding of how financial crisis pushed globalization over the edge in the 1930s and how the current crisis compares with that devastating experience.
I know of only one person who might be James’s equal in this regard: his name is Ben and he works for the Federal Reserve. Since Bernanke isn’t free to write books about the crisis just yet, James is my go-to-guy for deep insights.
And I am not disappointed. Each chapter provides key ideas and raises questions that will draw me back to re-read this book. James’s comparison between the Crash of 2008 and the crises of 1929 and 1931, for example, helped me understand both the recent past and the Great Depression much more clearly. His chapter on the chronology of the crisis is well crafted and broadly useful. I guess I am especially drawn to the last two chapters, however, which look at power and values.
Major financial crises really shake things up. In the penultimate chapter James considers how power will shift in the international system. Will the US retain its strong position or will China or the EU rise to fill the void. James’s wise analysis reminds me of Paul Kennedy’s writings of 20 years ago — informed and useful, raising many questions.
The final chapter on values is very thought-provoking. The collapse of values leaves people confused about whom and what to trust. This is true about market values, which is what the chapters mainly discusses, but also about values more generally, which is how James concludes the book.
Regaining trust is a long and arduous process. That is why when globalization is broken, it is not easy to put it back together again. We will look for communities of virtue, but inevitably we will not find them at once. And the globalization cycle will resume, but not immediately (page 277).
James is right about this, as I argue in Globaloney 2.0. Globalization will come back, but not in the same form. Market values will come back first (see the stock market’s recent surge) but faith in broader values will not be so easily restored.
An article in today’s New York Times makes good reading for anyone interested in the future of globalization: “Off the Charts: Hints of a Rebound in Global Trade” by Floyd Norris. Click on the link to read the story. Be sure to click on the graphic in the article to see the dramatic charts showing export trends.
In Globaloney 2.0 I argue that the deglobalization that we’ve seen as a result of the Crash of 2008 is a temporary phenomenon. The question isn’t “will globalization return?” it is “in what form?”
Norris’s article gives a sense of just how deep deglobalization has been in some sectors. He sees evidence that the bottom has been hit and that exports are starting to rebound, but it doesn’t look like “reglobalization” is actually happening just yet.
Globalization will return eventually, but have we learned the necessary lessons to recast globalization in a more feasible and sustainable form?