Measuring Globalization S

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Measuring Globalization:Who’s Up, Who’s Down?Two years ago, we created an index that measures a country’s global links,

from foreign direct investment to international travel, telephone traffic, and

Internet servers. For the last two years, Singapore and Ireland have topped

our ranking of political, economic, and technological integration in 62 coun-

tries. Find out who was the most global of all and how September 11 affected

global integration in the 2003 A.T. Kearney/ Foreign Policy

Magazine Globalization Index.

ast year’s A.T. Kearney/ Foreign PolicyMagazine Globalization Index offered a

“before” photo on a worldwidescale—a snapshot of global integration

prior to the September 11, 2001, attacks. This year’sindex, in turn, gives a glimpse of the developing

“after” image—an opportunity to assess the initialimpact of the attacks on a process that many analystssee as the driving force of our times.

Certainly the smoke over the World Trade Cen-ter had yet to clear before the attacks by al Qaedahad become a powerful symbol in the debate overglobalization. For the antiglobalization movement,September 11 was a gruesome vindication of itsargument that global integration had widened thegap between the haves and have-nots, and in doingso created resentment that exploded with thedestruction of one of the most famous icons of Western capitalism. For others, the message wasentirely opposite, and the solution was not lessglobalization but more. U.S. Federal Reserve BoardChairman Alan Greenspan, in a speech shortly after

the attacks, declared that “globalization is anendeavor that can spread worldwide the values of freedom and civil contact—the antithesis of ter-rorism.” But even as both sides of the politicalspectrum reached opposite conclusions, they agreedon one point: The collapse of the twin towers was

a body blow to what was seen, in some quarters, asan almost unstoppable force.

This year’s ranking of global integration among62 countries (representing 85 percent of the world’spopulation) offers a dissenting view. To be sure, 2001saw a dramatic downturn in some of globalization’smost visible drivers, from foreign direct investment(fdi) to international travel and tourism. In manycases, however, not only was a slowdown already intrain before the attacks, but prompt response by pol-icymakers to September 11 helped dissipate the neg-ative economic effects. Moreover, globalizationinvolves far more than the ebb and flow of econom-ic cycles. That’s why the A.T. Kearney/ Foreign Pol-icyMagazine Globalization Index makes use of sev-eral indicators spanning information technology (it),finance, trade, personal communication, politics, andtravel to determine a country’s ranking. And, in addi-tion to giving each nation an overall score, we pro-vide a multifaceted view of a country’s level of glob-al integration by combining these indicators into foursubcategories: economic integration, technology, per-

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[ Measuring Globalization ]

sonal contact, and political engagement.What emerges from a close look at this year’s

index is a much more nuanced portrayal than thatcaptured in the stagnation or decline of fdi, trade,and passenger arrivals and departures. For instance,globalization’s leading economic indicators lagged,

but levels of political integration shot up, spurred inpart by cooperation in the war on terrorism and thecontinuing integration of Russia and China into theinternational system. Even the much lamented glob-al economic slowdown had an uneven effect. West-ern Europe saw its level of economic integrationdecline dramatically, but Ireland remained, for thesecond year running, the world’s most globalizedcountry, and Eastern Europe bucked the continen-tal trend with expanded volumes of trade. Singaporeslipped from third to fourth in this year’s ranking,

but Southeast Asia remains the most economicallyintegrated region among the emerging markets. Andaround the world, travelers who were unable orunwilling to go abroad still kept the lines of com-munication open through the expanded use of tele-phones and the Internet.

To say that al Qaeda’s attacks failed to untangleglobalization’s web is not to say globalization wasunaffected. But overall, the picture that emerges is oneof September 11 as symptom, rather than cause, of thestresses inherent in the deepening of global integration.

H A L F E M P T Y O R H A L F F U L L ?

Last year’s Globalization Index recorded new highsfor global integration, as 2000 capped a decade of dramatic expansion in global economic flows and

The Globalization Indexbrings globalization intosharper focus by assess-

ing changes in its most importantcomponents, whetherengagement in interna-tional relations and poli-cymaking, trade and

financial flows, or themovement of people,ideas, and informationacross borders. The indextracks these changesacross 62 advancedeconomies and keyemerging markets todraw a picture of global-ization across all theworld’s regions.

The index quantifieseconomic integration bycombining data on trade, for-eign direct investment (fdi) andportfolio capital flows, andincome payments and receipts,which includes compensation of nonresident employees andincome earned and paid onassets held abroad. It charts per-

sonal contact via levels of inter-national travel and tourism,international telephone traffic,and cross-border transfers,

including remittances. Theindex also gauges technologicalconnectedness by counting Inter-net users and the Internet hostsand secure servers throughwhich they communicate andconduct business transactions.And it also assesses politicalengagement by taking stock of

the number of internationalorganizations and U.N. Securi-ty Council missions in whicheach country participates, as

well as the number of for-eign embassies that eachcountry hosts.

For most variables,

each year’s inward andoutward flows are added,and the sum is divided bythe country’s nominal eco-nomic output or, whereappropriate, its popula-tion. Political engagementfigures are treated differ-ently, with participationin U.N. Security Councilmissions divided by thetotal number of missions

active in each year andembassies and internationalorganizations remaining asabsolute numbers. This processproduces panels of data thatenable comparisons betweencountries of all sizes.

The resulting data panelsfor a given variable are then

How the Index Is Calculated




political engagement, as well as the increased mobil-ity of people, information, and ideas.

This momentum slowed as the United States, Japan, and Europe experienced simultaneous eco-nomic slumps. World economic growth, for exam-ple, plummeted from 4 percent in 2000 to 1.3 per-

cent in 2001. But sluggish economies had been aproblem well before September 11. Moreover,despite the shock of the attacks, particularly to sec-tors such as aviation and tourism, the Organisa-tion for Economic Co-operation and Developmentnoted that half a year later, “the direct economiceffects seem to have largely vanished,” thanks in partto the rapid response of central banks worldwide,which aggressively lowered interest rates.

More fundamentally, the retreat of economicglobalization must be put in the context of its tremen-

dous advance over the last few years. Consider 2001’sstunning drop in levels of fdi, which fell more than50 percent worldwide from $1.49 trillion to $735 bil-lion, due in large part to a steep decline in cross-bor-der mergers and acquisitions. In nominal terms (notadjusted for inflation), however, the total flows were

still higher than any other year before 1999. Andwhen viewed as a share of global economic output(as calculated in the Globalization Index), fdi flowsin 2001 were nearly double their level in 1995.

Or look at the 1.5 percent decline in the volumeof world trade in 2001. First of all, it came on the heelsof a dramatic 12 percent increase in 2000. Moreover,exports as a share of world economic output wereactually higher in 2001 than in any year of the pre-ceding decade, save 2000. In fact, the downward dipin trade probably says more about the bursting of the

compared and “normalized”through a process that valuesthe single lowest data point atzero and the highest at one,while assigning relative valuesbetween zero and one to theremaining data points in thepanel. Suppose the variable istrade. The maximum value of

inward and outward tradeflows is 341 percent of grossdomest ic product (gdp )recorded for Singapore in1995, while the minimum is15.3 percent of gdp for Brazilin 1996. These data points arevalued at one and zero, respec-tively, with all others fallingin between.

Country scores are summedacross the panels, with doubleweighting on fdi and portfoliocapital flows due to their par-ticular importance in the ebband flow of globalization.Internet indicators and politicalindicators are collapsed into asingle variable each. The Inter-net variable is then doubleweighted in the final calcula-

tion, as are the internationaltelephone traffic scores, reflect-ing their status as importantmeans by which ideas andinformation are spread acrossnational borders. GlobalizationIndex scores for every countryand year are derived by sum-ming the scores across panels.

Small trading nations tendto take top places in the index,leading some observers tospeculate that size plays anundue role in determining lev-els of globalization. A closerlook, however, suggests other-wise. Statistically speaking,there is very little direct corre-lation between the size of acountry’s economy and itsglobalization rank. Bigeconomies rank from 11th(United States) to 51st (China),while smaller economies rankfrom 1st (Ireland) to 46th(Egypt) and 60th (Venezuela).But size is not irrelevant,either; it is only in combinationwith the level of economicdevelopment, as measured by

per capita income, that therelationship becomes clear.Simply put, small countriestend to have an advantage overlarger countries at similar lev-els of per capita income.

These key indicators onlyscratch the surface of global-ization’s complexity. Many

other aspects of global integra-tion—including culture—defymeasurement.

Cultural exchange hasundoubtedly grown in tandemwith the movement of peopleand ideas across borders andwith the growing use of com-munications technology, but lit-tle accurate data are available.For instance, statistics on tradeflows in music or books mightshow a country’s comparativeadvantages in manufacturingthese products, such as cds andtechnical manuals, but wouldnot reveal whether the goodsreflect the ideas and culture of the exporting nation. Conse-quently, cultural trends are notincluded in this index.



The A.T. Kearney/Foreign Policy Magazine Globalization Index

includes rankings of 62 countries for 13 variables grouped in

four baskets: economic integration, personal contact,

technology, and political engagement. In the table, the countries

ranking in the top 10 in each category are shaded red.

Rankings

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it bubble than it does about post–September 11transportation bottlenecks. Airfreight charges shotup by 15 percent at the end of 2001, but the vastmajority of goods continue to be shipped by sea.

Beyond the economy, global integration actuallydeepened on several levels. The war on terrorism, for

instance, was a key factor fueling political integration.As U.S. Deputy Secretary of State Richard Armitageobserved in the days following the attack against theTaliban in Afghanistan, “More than 180 nations arepart of the coalition to fight terrorism; 25 nations areengaged in military operations and 132 have signed theInternational Convention to Suppress TerrorismFinancing; 136 have contributed some other concreteassistance, running the gamut from humanitarian sup-plies to the use of airspace and base access rights.”

But other drivers were at work as well. Mem-bership in international organizations expanded sig-

nificantly in 2001, with humanitarian and commer-cial organizations leading the way. China joined theWorld Trade Organization (wto) and became thefourth-largest trader after the United States, Japan,and the European Union (eu). (And, despite ongo-ing political tensions with China, Taiwan also joinedthe wto.) The International Organization for Migra-tion, dedicated to the idea that humane and orderlyinternational movement of people benefits both indi-viduals and societies, saw its official membershipgrow and now includes 59 of the 62 countries cov-ered in the Globalization Index. And, although the

number of active U.N. peacekeeping missionsdeclined in 2001, the number of participating coun-tries grew. Even the antiglobalization movementwent global in 2001, when activists gathered in PortoAlegre, Brazil, to stage the first annual meeting of theWorld Social Forum as an in-your-face challenge tothe free-market agenda of the annual World Eco-nomic Forum in Davos, Switzerland.

Funding for key multilateral institutions alsoincreased. Thanks to an upsurge in voluntary con-tributions, the World Health Organization’s budg-et for 2000–2001 grew more than 9 percent, from$1.65 billion to $1.80 billion. The InternationalMonetary Fund’s (imf) budget jumped 6 percent,from $638 million (April 2000 to April 2001) to$676.7 million (April 2001 to April 2002).

Although travel and tourism suffered a signifi-cant slowdown, it was less painful than many pre-dicted following the September 11 attacks and theclosing of airports in the United States. By the endof the year, the number of international touristarrivals reached 597.5 million, down 0.95 percent

from the previous year—the first year-on-yeardecrease since World War II. Hit particularly hardwere Southeast Asia, the Americas, and the MiddleEast, where arrivals declined by 10 percent or more.

But even as family members and business people

traveled less across borders, they helped push inter-national telephone traffic to record levels. The Inter-national Telecommunication Union (itu) estimatesthat international telephone traffic grew more than9 percent in 2001, reaching 120 billion minutes. Inthis year’s Globalization Index, levels of personalcontact (as measured by international travel andtourism, international telephone traffic, and cross-border transfers) had a profound impact on therankings of some countries. Pakistan and India, forexample, are almost evenly matched in their levelsof economic integration (scoring 60 and 61 respec-

tively). But Pakistan’s overall ranking (50) is high-er than India’s (56), due in large part to its signifi-cantly higher level of personal contacts with thewider world (scoring 37, compared with India’s 49).

Moreover, even as the dot coms were going bust,the number of Internet users worldwide grew 22.5percent, from 451 million in 2000 to 552.5 millionin 2001 (and may now total as many as 580 million).Although this number suggests only 9.1 percent of theworld’s population had access to the Internet in2001, it marks a significant rise from 7.1 percent in2000. China added 11 million new users in 2001,while emerging markets added some 32.5 million newusers altogether, more than in any previous year.

W I N N E R S A N D L O S E R S

As in previous iterations of the Globalization Index,small trading nations tended to rank ahead of largereconomies in 2001. In some cases, the same integrationthat once brought capital pouring into a country sud-denly, in 2001, helped facilitate its exit. Countries such






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Is globalization bad for the environment? Not according to

this comparison of Globalization Index scores againstthose of the Environmental Performance Index (EPI),

developed by the Yale Center for Environmental Law and

Policy and the Center for International Earth Science

Information Network at Columbia University. In fact, the

most global countries tend to rank higher in environmental

performance, and less global countries’ environmental

performance is not as good. Seven of the top 10 most

global countries are also among the EPI’s top 10.

The EPI measures environmental results at the national

level, gauging air and water quality, greenhouse gas

emissions, and land protection. It was designed to permit

cross-national comparisons of the effect of government

policies on the environment and includes both measures

of current environmental performance and rates of

improvement.

One might conclude it is natural for the richest countries

to be both more global and more able to afford good

environmental policies. But in fact, per capita income

differences explain only a portion of the variation in EPI

scores. It’s not how wealthy a country is, but how well its

government and the private sector harness available

resources that determines whether a country manages its

ecosystems well.




as New Zealand, Romania, South Africa, and Turkeysaw the previous year’s portfolio investments liqui-dated in large numbers (a phenomenon that othercountries, such as Argentina, Indonesia, and Russia,have experienced for several years running).

The slowing pace of international economic

activity affected different regions in markedly dif-ferent ways. Initially, U.S. integration with worldmarkets was not affected as deeply as that of manyother countries—in large part because global capi-tal markets saw the brightest prospects in the Unit-ed States and continued to supply fdi and portfo-lio capital to U.S. companies, albeit at somewhatreduced levels. Recent estimates, however, suggest afurther downward trend, with fdi estimated at $44billion in 2002, down from $124 billion in 2001.

Meanwhile, Western Europe suffered a significantdownturn in levels of economic integration, even as

political, social, and technological integration con-tinued to climb. fdi to and from the United Kingdom,for instance, dropped by more than 75 percent andto and from Germany by 70 percent. Portfolio invest-ments to Italy were off by more than 50 percent, andeven London’s financial center saw portfolio inflowsdive from $258 billion to $64 billion—a 75 percentreduction. As a result, Western Europe was the onlymajor world region to see its Globalization Indexscores decline from last year’s levels (with nine of the15 countries in the region posting lower overallscores). Finland, France, and Spain all dropped out

of the top 10 this year for economic integration.One country that survived the storm was Ireland,

which for the second consecutive year ranked asthe world’s most global country. Despite difficulttimes for the Irish economy, the strength of Ireland’sportfolio capital flows and its continued investmentin high-tech industries actually deepened the coun-try’s integration with the rest of the world. In 2000,Ireland ranked as the world’s fourth-largest recipi-ent (and third-largest contributor) of portfolio cap-ital. By 2001, Ireland had overhauled its financialservices regulatory framework, introducing a singleregulatory authority responsible for issues acrossthe full range of the industry. At the same time, bar-riers to entry in financial services fell, due both to theeffects of the single currency and to new legislationallowing any institution licensed by an eu memberstate to set up shop in Ireland. The impact on port-folio capital flows has been dramatic—an increasefrom $80 billion to $91 billion in 2001, even asFrance and the United Kingdom saw inflows tum-ble by as much as 75 percent.

Ireland has other strong links to the global econ-omy, based largely on its heavy investment in high-techand information technologies. The country increasedtrade levels in 2001, one of only a handful of coun-tries to thwart the global trade slowdown. On thestrength of robust exports of computer components,

electronics, and medical and pharmaceutical products,Ireland ranked third behind Singapore and Malaysiain total trade as a share of gross domestic product(gdp). Its Internet infrastructure continued to grow,and countrywide the number of secure serversincreased from 337 to 500. Ireland was also theworld’s most talkative nation, owing to the heavy traf-fic into its call centers as well as the strong growth inoutgoing international calls.

For the second year in a row, Switzerland rankedas the second most global nation. The country’sstrong reputation as a financial services center has

prompted high levels of capital inflows and out-flows. In addition, Switzerland is distinguished by thesheer volume of income receipts from its investmentsoverseas, which averaged $7,670 for each citizen in2001. The country is a popular center for travel andtourism, not only because some 11 million visitorsentered the country in 2001 but also because Swisscitizens made an average of 1.85 international tripsthat year, second only to the Czech Republic.

Sweden moved up one notch to claim third placein this year’s Globalization Index. In addition to strongInternet infrastructure, the differentiating factor was

a huge jump in fdi, as German, French, and Finnishcompanies acquired shares of Swedish utilities. Inflowsjumped from $22.1 billion in 2000 to $46.8 billion in2001—or $5,269 per Swedish resident.

Among emerging markets, Southeast Asia couldagain claim the title of world’s most economically inte-grated region, although its exposed export-orientedeconomies took a beating from the downturn in glob-al trade, with exports (as a share of gdp) falling bymore than 4 percent. Nevertheless, as a share of gdp,Southeast Asia’s exports grew by more than 22 per-centage points since 1995, a record no other regioncan match. Singapore and Malaysia ranked among thetop 10 most economically integrated nations in thisyear’s index (at fourth and eighth place, respectively).Malaysia also scored fairly high in its overall ranking(18), with the number of Internet users jumping 35percent to reach 5.7 million, making it SoutheastAsia’s largest Internet center. Singapore dropped fromthird to fourth place in this year’s index, as both netfdi inflows and total portfolio capital flows declined.In 2001, Singapore concluded a free-trade agreement



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with New Zealand and was in the process of negoti-ating with countries such as the United States, Japan,and Australia. However, the global economic reces-sion and the bursting of the it bubble, which led toreduced demand for computer components, hit Sin-gapore’s exports severely—its trade surplus plum-

meted from $22 billion in 2000 to $12.7 billion in2001. Despite these setbacks, Singapore remains themost globalized Asian nation in our survey.

Meanwhile, East European countries stoodresilient against the tide of bad economic news in2001. Bucking the international trend, both theregion’s exports and imports grew. In fact, all of Rus-sia’s former satellite countries covered by this year’sGlobalization Index scored higher than Russia itself.

The Czech Republic (in 15th place) was the mostglobalized nation in Eastern Europe and ranked high-er than Western neighbors Italy (24) and Greece (26).

The Czech Republic has proved attractive to foreigninvestors (including automobile manufacturers Toy-ota and psa), thanks to its geographic location at thecenter of Europe and competitive advantage in termsof lower cost yet highly skilled workers.

High levels of economic integration made Pana-ma (ranked 30th) the most globalized nation in LatinAmerica for the second year in a row. Panama scoresconsistently well in part due to its Colon Free Zoneat the gateway of the Panama Canal, which importsgoods from the United States, Europe, and Asia andthen reexports them to the rest of Latin America. (In

2001, exports from the Colon Free Zone declined dueto weaker demand throughout the region. Nonethe-less, the country’s overall exports saw a modestincrease of $34 million.) Panama also ranks high inthe Globalization Index because it holds the world’slargest shipping registry and Latin America’s largestinternational banking center (as measured by thenumber of banks). And in 2001, Panama witnesseda significant increase in portfolio flows—from 1.9 to8.1 percent of its gdp—as banking authorities con-ducted major international refinancing operations,issuing U.S. dollar-denominated bonds to restruc-ture its international debt.

By contrast, Venezuela ranked last in LatinAmerica, dropping from 57th to 60th place. Thecountry’s decline in 2001 was due to the temporarydrop in oil prices (the petroleum sector accounts for80 percent of all exports) and because fdi plum-meted by 23 percent to $3.5 billion. Local businessleaders blame President Hugo Chávez for the accel-erated pace of capital flight from Venezuela—citing,for example, a new law on hydrocarbons that raised

royalty taxes from 16.6 to 30 percent and the pres-ident’s threat to withdraw public deposits frombanks to “defeat financial speculators” intent onbuying dollars and taking them abroad.

Venezuela’s problems represent an extreme case of Latin America’s overall malaise in 2001. Total fdi in

the region fell by more than 10 percent (due, in part,to simultaneous economic crises in Argentina andVenezuela), and trade declined by 2.3 percent (due toreduced demand in the United States and Europe andthe decline in commodity prices for oil and coffee). Butone notable development augurs higher levels of per-sonal and technological integration for Latin Ameri-can countries in the years ahead: The number of wire-less telecommunications subscribers grew 33 percent(more than 86 million people) in 2001, or double theworld growth rate. David Kerr, of the research firmStrategy Analytics, suggests that since many Latin

Americans cannot afford personal computers, theregion’s “trajectory is more like that of Scandinavianmarkets and indeed some Southern European marketswhere wireless is the default access to the Internet.”

Similar growth occurred in telecommunicationsin Africa. The “African Telecommunication Indi-cators 2001” report, published by the itu, notes“the penetration of telephone subscribers in Sub-Saharan Africa surpassed the psychological mile-stone of one for every 100 inhabitants during theyear.” The oft-quoted statistic that Tokyo has moretelephones than all of Africa is no longer true; the

continent now has twice as many phones as Japan’scapital city. Yet the digital divide with the rest of theworld remains wide. In 2001, Africa had only 0.31Internet hosts per 1,000 people (compared with163 per 1,000 in the United States). Africa alsoremains the region least integrated into the globaleconomy. The continent’s share of global trade hasactually declined in the last decade. G. E. Gondwe,director of the imf’s African department, notesthat “if the region’s countries had merely main-tained their export market shares of 1980, their2000 exports would have amounted to $161 bil-lion—more than double the actual outcome.”

Botswana saw its exports decline by nearly 9percent in 2001, as the sluggish global economydepressed the demand for diamonds, which accountfor 80 percent of the country’s export revenue. ButBotswana still came out on top as Africa’s most glob-alized nation, thanks to being ranked No. 1 in theindex category of transfer payments. (A significantnumber of Botswanans work abroad, largely in SouthAfrican mines, and send their remittances back home




In the most global countries, trade among multinational

corporations and their aff iliates—say, between Ford MotorCo. and Ford Motor Co. of Canada—accounts for a much

larger share of exports than other sorts of trade. In the

United States, for instance, intrafirm trade amounted to

$526 billion in imports, or 47 percent of the U.S. total value

of imports in 2001, and $223 billion in exports, or 32

percent of the total annual value of exports.

A recent study by the U.N. Committee on Trade and

Development shows that the significant role of intrafirm

trade in world trade is pervasive, particularly in countries

with substantial gains in export growth. Multinationals

affect export patterns in everything from manufacturing to

natural resources to agriculture. However, the role of

foreign affiliates in exports varies substantially among

countries ranked in the Globalization Index—from one

tenth of 1 percent in Egypt to 14 percent in Japan to 64

percent in landlocked Switzerland, which must host a

disproportionate number of affiliates and parent

companies relative to its economic size to extend its reach

beyond its borders.

Source: U.S. Commerce Department’s Bureau of Economic

Analysis



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to their families.) Kenya was the least globalizedAfrican nation in this year’s index. The country’sreputation for corruption and bureaucratic ineffi-ciency continue to drive away foreign investment.

The Middle East displayed the most dramaticupward and downward movement in this year’s

rankings. Morocco jumped from 46th to 29thplace, making it the most globalized country inthe Arab world. Much of this movement was driv-en by high-profile foreign investment deals associ-ated with the liberalization of the country’s telecomsector. Saudi Arabia (in 61st place, down from37th last year) is simultaneously the largest econ-omy and least globalized country in the Arabworld. Its fdi flows fell by roughly 98 percent in2001, due to falling oil prices and increasinglynegative perceptions of the kingdom among theinternational business community.

In many ways, Saudi Arabia is a poster childfor why the Middle East as a whole remains mar-ginalized by globalization. Economic growththroughout Arab countries has stagnated. TheMiddle East accounted for 10.7 percent of worldexports in 1981 and only 3.5 percent in 2001. Arecent report by the World Economic Forumblames Arab governments for pursuing a one-dimensional growth strategy based upon the accu-mulation of capital: “The export structure of theregion as a whole is still primarily based either onits absolute advantage in petroleum products, as

in the case of the major oil-producing countrieslike Kuwait and Qatar, or on its comparativeadvantage in labor-intensive manufactures, as inthe case of Morocco and Tunisia.” The UnitedNations Development Programme offers an equal-ly grim assessment of the region, noting that Arabcountries have one of the lowest levels of it accessin the world: Only 1.2 percent of Arabs can accesscomputers, and half that number use the Internet.Large-scale illiteracy and deficiencies in the edu-cational system have contributed to a capabilitygap throughout the Arab world.

C A U S E A N D D E F E C T

Princeton historian Harold James suggests that mostpeople tend to confuse the cause of globalizationwith its effects. International openness, he says, didnot lead to the spread of technology. Rather, it was“technical changes and efficiencies of scale that havemade purely national markets relatively inefficient,”thereby compelling business to spread across borders.

That argument offers insight into why global-ization did not grind to a halt after September 11.Some assumed that as nations took measures totighten control of their borders to protect them-selves from international terrorist networks, theywould also staunch the flow of people, goods, and

services. But open borders are not the cause of glob-alization as much as they are the result. The mostdestructive act of terrorism in history could notdestroy the underlying drivers of global integration.

Even as deepening global integration makesnations more vulnerable to exogenous shocks, itonly strengthens their resolve to cope with crises.Witness how the Bush administration, which hadlong cast a skeptical eye on financial bailouts, recent-ly threw its support behind a $30 billion imf loanpackage for Brazil to prevent that country’s eco-nomic crisis from spreading throughout Latin Ameri-

ca and ultimately affecting U.S. trade. And, in theaftermath of the terrorist bombing in Indonesia thatkilled nearly 200 people, leaders at the November2002 summit of the Association of Southeast AsianNations pledged to strengthen regional efforts tocombat terrorism.

Globalization might be resilient to external shocks,but it tends to create its own internal stresses. Profes-sor James offers another history lesson that warnsagainst complacency. Many believe the Great Depres-sion—which effectively ended the 20th century’s firstera of globalization—was the direct result of World

War I. By contrast, James cites three factors inherentin globalization that he claims caused it to auto-destruct: the instability of capitalism, the backlashamong those who did not reap the benefits of globalintegration, and the failure to create institutions thatcan adequately “handle the psychological and insti-tutional consequences of the interconnected world.”

There are signs that some parts of the worldbelieve the costs of globalization now outweigh thebenefits. Argentina implemented a series of stringentreforms to more effectively open itself up to the glob-al economy; for its troubles, the country got thelargest debt default in history—prompting PresidentEduardo Duhalde to declare the system “broken.” Theantiglobalization movement has gained political trac-tion as populists have made electoral gains in Europeand Latin America. And the global war against ter-rorism has provoked fears of a human rights race tothe bottom, as nations eager to calm jittery foreigninvestors by clamping down on terrorist activity mightalso excessively clamp down on political freedoms.

But the jury is still out on whether history is






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repeating itself today. As this year’s index makes clear,technological and personal integration continuesunabated even in countries whose overall levels of eco-nomic integration were minimal. Political engage-ment has expanded because the benefits of multilat-eral cooperation still outweigh the costs of going it

alone. The forward momentum of these trends inthe face of al Qaeda—a transnational terrorist net-work that is itself a manifestation of the darker side

of globalization—testifies to the resilience of globalintegration. But, as the war against terrorism contin-ues, those most interested in promoting global inte-gration must do more to heed the concerns of thosewho feel marginalized by it, lest the backlash againstglobalization become a self-fulfilling prophecy.

Or, put another way, al Qaeda is not the realthreat to global integration. Globalization has noth-ing to fear but globalization itself.

The data sources used to construct the third annual A.T. Kearney/ Foreign Policy MagazineGlobalization Index are available at www.foreignpolicy.com and on the Web site of A.T. Kearney’sGlobal Business Policy Council at www.atkearney.com.

Several authors, policymakers, and commentators have offered perspectives on how the September

11 terrorist attacks affected globalization. In “Countering Terror With Trade” (Washington Post , Sep-tember 20, 2001), U.S. Trade Representative Robert Zoellick argues that the United States must vigor-ously promote free trade to “thrust forward the values that define us against our adversary.” In a speechtitled “Globalization,” delivered at the Institute for International Economics on October 24, 2001 (avail-able on the Web site of the Federal Reserve), Federal Reserve Board Chairman Alan Greenspan warns,“If we allow terrorism to undermine our freedom of action, we could reverse at least part of the palpa-ble gains achieved by postwar globalization.” In“Globalization,Alive and Well” (New York Times, Sep-tember 22, 2002), Thomas Friedman argues that global integration continues to thrive because it is the“best way to lift . . . people out of abject poverty.” Walden Bello sees a “silver lining” in the attacks (“TheAmerican Way of War,” Znet , December 30, 2001) because the event encouraged the peace, human rights,and antiglobalization movements to coordinate their efforts more closely. The Economic Consequencesof Terrorism (Paris: Organisation of Economic Co-Operation and Development, 2002) notes that the eco-

nomic effects of the September 11 attacks “largely vanished” half a year later but warns that increaseddefense spending among several countries could reduce the post–Cold War peace dividend.

In The End of Globalization: Lessons From the Great Depression (Cambridge: Harvard Uni-versity Press, 2001), Harold James examines how global integration could collapse under its owninternal stresses. Joseph Stiglitz argues in Globalization and Its Discontents (New York: W.W. Nor-ton & Company, 2002) that globalization can be a positive force, but only if multilateral organi-zations change the way they operate. Similarly, in George Soros on Globalization (New York: Pub-licAffairs, 2002), Soros acknowledges that the antiglobalization movement offers valid critiques andsuggests remedies to “make global capitalism more stable and equitable.”

Over the last year, Foreign Policy has provided extensive coverage of the trends in econom-ic, political, and cultural globalization. In “The Dependent Colossus” (Foreign Policy, March/April2002), Joseph S. Nye Jr. argues that although globalization reinforces U.S. power today, over time itmight have the opposite effect. Friedman and Robert Kaplan debate whether globalization promotesstability or sows seeds of chaos in “States of Discord” (Foreign Policy, March/April 2002). MoisésNaím suggests the terrorist attacks engendered a more sophisticated understanding of globalizationin “Post-Terror Surprises” (Foreign Policy, September/October 2002).

»For links to relevant Web sites, access to the FP Archive, and a comprehensive index of relatedForeign Policy articles, go to www.foreignpolicy.com .

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