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Article: PUTTING GLOBAL LOGIC FIRST

1. Explain briefly the main theme of this article 'Putting Global logic First'.

The nation-state has begun to crumble. What is emerging in its place is


the region-state, which is defined by economic activity, not political
borders. The factors behind the shift are threefold:
First, people, capital, and information can move across borders so
quickly that economic decisions are often based on the fear that
needed resources will go elsewhere. The speed and volume of
transactions in the global capital market national governments cannot
control exchange rates or protect their currencies, and political
leaders increasingly find themselves at the mercy of people and
institutions making economic choices over which they have no control.
Second, as consumers see how other people live, they pressure their
governments to give them access to the best and cheapest products.
When the government doesnot cater to their demands, public finds a
way to vote with their pocketbooks.
Third, as governments defer to special interests and try to provide
constituents with a civil minimum of services, they invest inefficiently
and as a result destroy wealth.

Nation-states are no longer meaningful units in which to think about


economic activity. In a borderless world, they combine things at the
wrong level of aggregation. Chinese government has worked so well
on special economic zones which involves a mix of policies allowing
for favorable terms for foreign investment, access to credit,
transshipment of goods, and so forth. Region-states are economic
units, not political ones which lie within the borders of an established
nation and their primary linkage is with the global economy. Region-
states welcome foreign investment, foreign ownership, foreign
products and also whatever will employ their people productively,
improve their quality of life, and give them access to the best and
cheapest products in the world. If a country genuinely opens itself up
to the global system, prosperity will follow. If it does not or if it does so
only halfheartedly, relying instead on the heavy, guiding hand of
central government, its progress will falter. Silicon Valley, the giant of
microelectronics industry in the US has created industry associations,
lobbied the federal government, studied competitiveness as a way to
get more federal funding for research and development, and become
downright protectionist. As a result, many countries have started their
own Silicon Valley which has invited a host of newly energized and
well-funded competitors for Silicon Valley in the US. On the other
hand, when Hollywood recognized that it faced a severe capital
shortage, it did not throw up protectionist barriers against foreign
money. It invited Rupert Murdoch into Twentieth Century-Fox, C. Itoh
and Toshiba into Time Warner, Sony into Columbia Pictures, and
Matsushita into MCA. Although political leaders will resist
acknowledging the demise of the nation-state, only those who can
accept it and promote region-states within and across their borders
will be able to provide the best quality of life for their constituents.

2. Outline separately the relevance of this article for a country's economic


development, for MNEs for their sustainable growth and profitability
and for citizens of countries for their career progression.

This article has great relevance for a countrys or MNEs development


and for the citizens of countries for their career progression.

The author has given a very good example of Hong Kong economy
embracing first Shenzhen and then other parts of the Zhu River
Delta, often called the Pearl River Delta, in China. Hong Kong, where
per capita gross national product was $12,000, was the driving
economic force in the lives of the people in Shenzhen, and its
radiating influence boosted per capita GNP there to $5,695. By the
year 2000, that cross-border region-state could raise the standard of
living of some 11 million people to more than the $5,000 level. It
involves a mix of policies allowing for favorable terms for foreign
investment, access to credit, transshipment of goods etc.
Another very bright example is the ladder of development. Moving up
that ladder means being able to put the right policies, institutions,
and infrastructure in place at the right time. The concept of ladder of
development can be implemented in region states in order to give
direction to their growth. This can help in giving right direction and
shpe to the economic development of the country.
The Silicon Valley example elaborates that countries shouldnot have
a lot of boundaries which will hamper its economic growth. Silicon
Valley, the giant of microelectronics industry in the US has created
industry associations, lobbied the federal government, studied
competitiveness as a way to get more federal funding for research
and development, and become downright protectionist. As a result,
many countries have started their own Silicon Valley which has
invited a host of newly energized and well-funded competitors for
Silicon Valley in the US. On the other hand, when Hollywood
recognized that it faced a severe capital shortage, it did not throw up
protectionist barriers against foreign money. It invited Rupert
Murdoch into Twentieth Century-Fox, C. Itoh and Toshiba into Time
Warner, Sony into Columbia Pictures, and Matsushita into MCA.
Hollywood did not turn protectionist just because it faced a capital
shortage. The same logic should be applied by the countries and
MNEs around the world.

3. Explain in 10 sentences what you like the most from this path breaking
article written 20 years back which you feel is relevant even till today.
Explain the rationale for your answer for their sustainable growth and
development.

The way that the author has identified the concept of region-state,
provided example for the same and emphasized on its importance for
economic growth in the future makes this article path breaking. The
author goes on to show that economic growth of a region is not dictated
by the geographical boundaries or the central government in which that
region lies. These regions are natural economic zones because they
possess the key ingredients for successful participation in the global
economy. For example, Hong Kong economy had reached out to
embrace first Shenzhen and then other parts of the Zhu River Delta,
often called the Pearl River Delta, in China. Hong Kong, where per capita
gross national product was USD 12,000, was the driving economic force
in the lives of the people in Shenzhen, and its radiating influence has
already boosted per capita GNP there to USD 5,695. Further, the author
has explained that for a large country to survive economically and
politically, it will have to allow the development of multiple autonomous
region-states within its territory. Moreover, there are many upsides to
the concept of region states since it leads to employment, improvement
of quality of life, and access to the best and cheapest products in the
world. When region-states prosper, their prosperity spills over into
adjacent areas.
The relevance of this concept can be deciphered from the following
example. In May 2010, the Peoples Republic of CHina designated the
city of Kashgar in Xinjiang a Special Economic Zone (SEZ). Kashgar's
annual growth rate was 17.4 percent from 2009, and Kashgar's
designation has since increased tourism and real estate prices in the
city. Kashgar is close to China's border with the independent states of
former Soviet Central Asia and the SEZ seeks to capitalize on
international trade links between China and those states.