Published: Aug 15, 2001 in Knowledge@Emory
The 2000 U.S. Census confirmed what most of us already knew: the United States’ economy is rapidly being integrated with the economies of its Latin neighbors. NAFTA is greatly affecting political and social change in the Western Hemisphere, and events from the latest Summit of the Americas, held in Quebec in April, are promising to speed up that change dramatically. The Americas aren’t alone in this rearrangement of trade. Since the fall of communism, the global landscape is undergoing a realignment of nations, not seen since the Industrial Revolution and colonial expansion took root centuries ago.
There is little doubt that the creation of these new markets will provide opportunities for economic advancement, particularly for wealthy entrepreneurs and multinational corporations. But if recent protests and violence, including the death of a protestor in Genoa, are any indication, not everyone is excited about this proposition. In addition to the political implications of shifts in power, there is growing concern that realignment will spark a powder keg of social, racial and religious tension.
To help clarify the matter, faculty members of Emory’s Goizueta Business School and others discuss the issues involved and explore the ramifications of the realignment.
One thing is certain, the realignment is already underway. At the 2001 Summit of the Americas, the nations of the Western Hemisphere (minus Cuba), the target date for free trade and potential economic integration was moved up to begin as early as 2005, ten years earlier than the original estimate. “The mood of the Americas is that we must move faster than ever before,” says Jagdish N. Sheth, professor of marketing at Emory University’s Goizueta Business School. “That’s a political intent; whether they can get it done or not depends on a number of structuring issues.” Politicians and businesspeople set the goals for trade at the Summit; in reality, there are numerous factors that they can’t control, from social issues to shifting political winds.
World economies are now in the process of reorganizing from primarily east-west relationships, significantly above and below the equator, into relationships based on a north-south axis. “The European Union began the journey with a formal creation of a north-south axis,” explains Sheth. “It was the first economic integration between northern and southern Europe, two areas that are very different culturally and politically. Now the EU is moving into Eastern European countries, eventually into Russia. We think that block will eventually extend into Africa, below the Sahara – starting with South Africa. Despite Black rule initiated by Nelson Mandela, the Dutch and German white minorities still control the wealth, and those tensions have already begun, for instance in Zimbabwe. They’ll probably politically realign with Europe because their cultural heritage is more European than America,” he said.
Further east, Japan’s economy has been silently integrating with the Asian block, as are the economies of Australia and New Zealand, and eventually Mainland China, says Sheth.
The United States and Canada comprise one of the largest and most stable trading relationships in the world, and the pair is looking south. “We are aligning ourselves with more and more of our neighbors here,” Sheth continues. “All of this begins with trade first, and privately formed investment comes second.”
Exceptions to the north-south theory are India and Britain. Both countries are expected to align with the Americas. India, a significant Asian economy, poses a direct threat to China in its natural region. Britain, by refusing to accept a German-backed Euro, effectively removed herself from the European economy. The highest amount of foreign investment in the U.S. now comes from Britain: $660 billion, or 10 times that of the next competitor, and there is more to come.
Social Consequences
Countries like the U.S., Japan, France, and Germany envision a bright economic future. But the process of transformation is not easy. “Any move like this creates cultural assimilation,” Sheth notes. “How much tolerance will we have for that? By the year 2020, 25 percent of the U.S. population will be of Latin origin, surpassing African-Americans and Asians. We have to look at ourselves and ask – are we willing to accept that? Or will we have riots, like the ones happening in Britain over the Asian population?”
The United States has a long history of cultural assimilation, and Sheth believes this tradition gives us an advantage over much of the world. But there will be losers in the power base. “As economics drive the world’s future, people with non-economic interests, such as religious leaders, will lose their power. So fundamentalist movements will rise,” observes Sheth. “In this transition, you are subordinating religion—you are really rising above religion. So religious states will have a tremendous change of power. The result will be political gridlocks,” he contends. “If you don’t have a strong leader, either the president or prime minister, you’re going to see politically divided countries fighting it out.”
One leader noted for his ability to maneuver this type of terrain is Mexico’s President Vicente Fox. “Fox is able to rise above the political gridlock in Mexico. He’s making some tough decisions right now, and his political future may not be there, or he may get assassinated, like Mrs. Gandhi in India. Is George Bush going to come out as a strong leader who can rise above this? Roosevelt was able to rise above politics when we had a major crisis. Do we have that kind of leadership, not just in the United States, but in Canada, in Mexico, in Brazil?” ask Sheth.
As capitalism spreads throughout the Third World and former communist countries, concerns about inequality and fairness become paramount. There are two accurate arguments about globalization, says Michael Sacks, a professor of organization and management at Goizueta. “The first is that globalization is good, it expands the economy, and creates more wealth,” Sacks explains. “The second is that markets distribute this income to the people who already have resources, such as multinational organizations, and the poor typically get poorer.
“We do know that as countries shift to capitalist systems, the gap in the Gini index (a measure of resource inequality) grows dramatically. So while capitalism produces more wealth, it doesn’t spread evenly across society,” observes Sacks. “This presents fundamental concerns about access to economic opportunities, as those who already have resources tend to be the ones who benefit from a globalized economy.”
“The protesters you see at economic meetings have real concerns,” Sacks says.
After NAFTA: AFTA
It only takes one look at the demographics of the Americas to grasp where the future buying power lies. While U.S. Baby Boomers are shifting their thinking toward retirement mode, today’s average Brazilian is 18 years old and just ready to embark upon a lifetime of earning and spending. Combine Brazil’s 175 million people with the 100 million in Mexico, a market with similar demographics, and you’ve got the economic equivalent of the United States before the 2000 census. Despite an economic crisis in the mid-1990s, the Mexican market has recovered at full steam, with trade to the U.S. rising from $60 billion to $200 billion, making it the U.S.’s second-largest trading partner, behind Canada. That number is expected to hit $500 to $600 billion in the next decade, surpassing Canada.
And those markets are growing, fast, unlike their northern neighbors. According to Jeff Rosensweig, professor of finance at Emory’s Goizueta Business School, five years ago, the population distribution north and south of the Rio Grande was about equal. By the year 2050, there will be two people living in Central and South America for every one person living in the U.S. and Canada.
North American businesses are already scrambling to learn Spanish and Portuguese. But the issues here go much deeper than the language barrier. Politics, logistics, and social barriers will have to be bridged in order to create a unified Americas. It involves a shift in attitudes, says Sam Zamarripa, the Atlanta, Ga-based chairman of the Latin American Association board of directors; president of HispanB2B, Inc.; and managing director of MeritSpan Holdings, Inc., in a recent panel discussion at Goizueta. “Trade is not about the flow of goods and services,” Zamarripa insists. “That is just the outcome.” Human relationships are at the core of every successful transaction. The U.S. scores few points in its relationship with Mexico, especially when it refuses to allow immigrants simple rights like licenses to drive and fish. “If they come to work, we must treat them with dignity,” he continues. “We have to build better relationships.”
The fall of communism, and the subsequent move toward global capitalism, has created a situation of opportunity and uncertainty on a scale rarely seen. History, and progress, don’t wait for individuals to accept change; economics tend to set the pace. The realignment of nations will go on, no matter how much political gridlock is created by individual countries and movements. Those countries that cling to the past—the Afghanistans and Cubas of the world—will only find it harder to catch up later. But change is in the wind. “After the end of the Cold War, the U.S. remained the single economic superpower, and the U.S. has always turned its sights toward Europe,” says Teodoro Maus, another panel member and ex-consul general of Mexico in Atlanta, Ga. “Now, the European Community is going to be the big competitor. It’s going to be a heavy, aggressive struggle, and the only potential to win that struggle is to create a strong neighborhood that will be an enormous superpower.”