Globalization is that it is not a complete solution, writes guest columnist A-P Hurd. People have better odds of making good economic decisions at a regional scale where they understand the culture and context.
IF globalization were a religion, I’d be having my doubts. That’s not because I can’t see the global trade coming into the Port of Seattle from my office window. It’s not because I don’t believe in global capital flows — after all, I started out my career pricing large foreign-exchange transactions between corporate banks with global reach.
No, what I mean about doubting globalization is that it is not a complete solution. Culture is stickier than anyone thought. Distance still translates to cost.
What I’ve realized after my recent trip to Hong Kong is that much of our economy organically gravitates to operating at a regional scale. I’m not sure why, but it may be strength of culture; culture exists at regional scales and has very little to do with the scale of sovereign nations or multination trading blocks. The Germans have a hard time bailing out the Greeks and the Irish. NAFTA trading partners have mighty battles about labor mobility.
Regional economies, on the other hand, feel intuitive to many people. Venture investors (who might be thought to be nimble and global) frequently operate at a regional scale. Perhaps it’s because people are most comfortable dealing with risk in a context that they know.
I heard a quote the other day that 75 percent of decisions are made on gut feeling and data is just used to back up the decision once it’s made. If that’s true, regional economies are a not-so-surprising response. People have better odds of making good economic decisions at a regional scale where they understand the culture and context.
The other factor that supports regional economies is time. As the time required to communicate has been shrunk dramatically during the past several decades, we have come to believe that we can transcend distance. But even as bandwidth expands, words and pictures remain a limited conduit to understand an opportunity. Our aspirations to compress distance ignored the fact that we don’t just need to move light down cables, we ultimately need to move goods and people. Moving goods and people over distances takes time, costs money and is fundamentally inefficient.
So what did I learn about regionalism in Hong Kong? Well, for starters I went there with the naive notion that Hong Kong and China were still separate. This is patently not the reality of today. Hong Kong, Shenzhen and Guangzhou are part of the same economic region.
People in Shenzhen work in the New Territories — part of Hong Kong — and go to school there, too. Companies do R&D in research parks in Hong Kong’s New Territories, process their financial transactions in Hong Kong Central, and do their design and manufacturing in Shenzhen and Guangzhou.
Two years from now there will be a high-speed train from Central in Hong Kong that reaches Shenzhen in 22 minutes and Guangzhou in 53. That’s well within the time-scale of a regional economy and job shed.
What’s particularly interesting about this is that each of these major cities is not trying to replicate the entire infrastructure within each city. They are more focused on having all the functions of a regional economy within the region (a “complete region” strategy) and then maximizing connectivity for information and people within that region.
In North America, distances are greater. Arguably, our Cascadian regional economy includes Vancouver, B.C., and Portland, perhaps even San Francisco.
In a recent paper in the Harvard Business Review, Michael Porter suggests that companies that are rooted to place and committed to stakeholder value in those places are ultimately more successful economically. And yet, in the Northwest, we often let ourselves be defined by sovereign borders of country and state rather than the job shed, watershed and cultural ties that bind us.
Global trade is not going away. Without a doubt, there are things that cannot be replicated within each region of the world. But, before we go on outsourcing as if distance doesn’t matter, we should take a hard look at what’s possible in our regional economies: how much can be done here and how connected we can and should be.
A-P Hurd is a vice president of development at Touchstone and a fellow of the Runstad Center for Real Estate at the University of Washington.