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Home > Opinions Last Updated: 15:04 03/09/2007
October 18, 2004

Convergence or Divergence

Toyoo GYOHTEN (President, Institute for International Monetary Affairs)

I. Convergence under globalization

The end of the Cold War in the late 80's marked the historic victory of democracy and market economy over Communism and centrally planned economy. The U.S., which was the undisputable champion of these two values, became the singular hegemon of the world. The end of the Cold War, at the same time, ushered in the age of globalization.

There are many definitions of the globalization. In my view the most important characteristic of the globalization, which engulfed the world in the late 20th century, was the free and massive flow of capital and information. Indeed, cross border lending and investment have become popular since 17th century. Various means of communications, such as telegraph and telephone, have been in use since 19th century. However, the explosive increase of the international capital flow since the 80's was made possible only by the phenomenal progress made in the financial engineering and the enormous global imbalance due mainly to the US current account deficit. The size and speed of the international capital flow of today marked not only a quantitative change but a qualitative transformation which brought about a fundamental change of the financial market and the financial industry. It left a lasting and far-reaching impact on the function of the world economy.

A similar historic change took place in the area of information. Almost breathtaking progress made in the computer technology and the means of communication such as Internet and mobile phone have indeed revolutionalized collection, processing and dissemination of the information. Today, thanks to the sophisticated information technology, all taxpayers, voters, shareholders, and consumers can enjoy access to the same information instantaneously and globally. Most importantly, the new situation naturally enhanced the people's demand for greater transparency and accountability. It has forced a fundamental change of the political and the corporate management. Political leaders and corporate CEO's can no longer maintain their authority by way of monopolizing information as their predecessors used to do. They are always scrutinized. They have to establish their authority on the basis of transparency and accountability. This is the globalization.

The U.S. has dominated the world under globalization. It was certainly not without good reasons. The American market was the most open and dynamic, Corporate America was the most efficient and competitive, particularly American financial institutions were best fit for the new business environment under globalization. American higher education was the best in the world and attracted talented young people from all over the world who created and ventured new technologies and business models. Thus, the U.S. became the singular global leader. Its political, economic, technological, and military power became unbeatable. Even in such areas as pop-culture and daily life style the American influence was universally conspicuous. In other words, the world seems to have been governed by a single set of value standard. It was indeed a process of global convergence and, to a considerable extent, it was a process of Americanization.

II. Globalization was not a panacea

However, while the process of convergence seems to have been progressing in many fields, it also became increasingly clear that the convergence into a singular value standard will not bring about any ideal world. In other words, what we thought to be an invincible axiom proved not to be flawless.

For instance, we thought a free capitalistic market was the best type of market because it would produce the highest efficiency and the greatest benefit to the market participants as a whole. Also, it was hopefully believed that a free capitalistic market did have an inherent ability to correct its own mistakes. However, a long series of corporate scandals which were exposed during the past several years in America, in Europe, and in Asia have clearly taught us that a free capitalistic market cannot be viable unless it is supported by a strong pillar of the ethic and the sense of social justice, and that such a pillar does not exist inherently in the market. It cannot be denied that a sort of efficiency will be attained when there is a free competition in pursuit of the maximum profit. However, there is no assurance that it can do so while containing the explosion of unbridled greed.

It is true that many corrective measures, including legislations and reorganizations, are planned and implemented, but there is hardly any evidence that the correction is completed. In all markets in the world there is a recognition that a simple effort to converge with the crude form of free capitalistic market will not produce the best result and that each market has to devise a structure of the market which will be fit best for the given conditions.

Equally significant case of disappointment with the convergence under globalization was encountered in the political and cultural arena. When the democracy prevailed over the autocracy there was a natural but a bit naive mentality spread in the West, particularly in the U.S., that the democracy was the only viable political system. After the Cold War it was true that the whole world seemed to have believed it. There was no dissenting view, probably because everybody could enjoy dreaming about the democracy in his own fashion. So far so good. However, situation became complicated when the West started to tutor the world which, in the view of the West, was not fully democratized yet. It was the case of a Crusader mentality or a Missionary mentality of good will.

It is certainly difficult to draw a clear line between preaching and interference, but when countries in question perceived the Western action as an unreasonable interference they became averse to the idea of a universal democracy. Under such circumstance it is unfortunate that most of those countries cannot afford to distinguish between acceptable elements and unacceptable elements of the Western democracy. They simply reject the convergence under globalization.

The issue of terrorism is indeed complicated. It reflects serious internal problem of the Islamic World, it reflects the deep sense of injustice harbored in the mind of the underprivileged, it reflects conflict between different religious belief, but it does also reflect the underlining antagonism on the part of those who feel they are victimized against the onslaught of the force of convergence under globalization. Naturally, the sense of being victimized is felt not only in the political area but also in the cultural and societal areas.

All in all, the trend of convergence under globalization which demonstrated itself in wide areas including political system, market structure, corporate management, etc. has generated skepticism, discontentment, frustration, and in some cases, antagonism.

III. Where is divergence?

In spite of the strong trend of convergence into a single global standard as I described above, under the surface there are still substantial differences in almost all major issues.

Take the case of the corporate management. It is obvious that, financially speaking, a corporation is owned by shareholders. Profit or loss will belong to shareholders. The management is entrusted by the shareholder to run the company. Thus the sole function of the management is to increase the return to the shareholder either in the form of dividend or price of the share. This has been the typical American way of evaluating the performance of the corporate management, and in fact in other markets in Europe and Asia it has become the most common criterion. The ultimate goal of the corporate management is believed to be the maximization of the shareholder value.

However, there are still some people who were not fully convinced by the argument. They believe that the interest of other stakeholders of a corporation, such as employees, customers and community residents, should also be respected. These stakeholders, although they do not own the company's share, support the company's operations in various ways.

There are still divergent views about the priority among the stakeholders. Naturally these divergences produce not insignificant nuances in the management style. What is important is that the divergence is not a mere mental product but is a product of actual performance.

Another important case of divergence is about the concept of profit in economic activities. According to the traditional capitalist notion the profit is the surplus which can be measured by the amount of money. The ultimate objective of corporate activity in the capitalist market is to maximize the amount of profit in this sense. No matter what sort of sugar-coating you may wish to use, this is the cold reality. However, in today's market where transparency and accountability became the order of the day, corporations have come under severe public scrutiny. Protection of environment and public health, respect of social justice, and friendliness to the community have all come to be viewed as a part of the corporate social responsibility for which corporations are asked to pay necessary cost.

In other words, no matter how big is the amount of profit recorded on the corporation's account, if the corporation fails to carry out its responsibility, the value of the corporation will be reduced and eventually be punished by the market. It means the concept of profit must be reviewed in a broader context incorporating various unconventional elements which are not always measurable in money term.

In the political arena we are now faced with divergent views on such fundamental concepts as democracy and human right. In the West, I am afraid we have taken these values too much for granted. We believed these values are sacrosanct and cannot be subject to divergent interpretations. However, things we have been seeing in the world outside of the West seem to tell us we were wrong. We believed that a political democracy can be secured by multiple party system and free secret ballot.

We discovered, however, that when people had something other than political freedom as the main agenda they opt for undemocratic alternative. Similarly, we thought human right is something we have to protect by all means. However, we have not thought of the conflict between the individual human right and the collective human right.

When a majority of people in the society wish to achieve certain social amenity such as security, efficiency, cleanliness, etc. they will be ready to place such collective human right above the individual human right. Also, as we observe in many developing societies where the highest priority for the society is to feed, clothe, accommodate and educate the mass, the full respect of individual human right needs to be compromised at least partially.

What I want to emphasize here is that, in the wake of the globalization, there is a force to urge everybody to agree on certain common denominators. To refuse to agree will result in the isolation and the marginalization in the global market and the global society. Yet, it is inevitable that due to the differences in history, culture, societal structure, religious belief, etc. it is not possible to complete a full convergence worldwide. The more serious issue is if a society, a group or an individual feel they are coerced into accepting the value standard by outsider, or if they feel they are unduly victimized because of their non-acceptance it may inflame hatred and revenge.

IV. Convergence or divergence?

It is obvious that globalization prompted the convergence of value standard. By sharing the rich resource of information people in the world were given opportunity to compare different value standards. People chose the democracy and the market economy because they thought these systems were better than the communism and the centrally planned economy. But it does not mean that the process of convergence has completed and the history ended there.

Divergence remained because there were inherent differences which could not be dissolved quickly and easily. Also, in other cases, the progress of convergence rekindled the momentum of divergence. That is to say neither convergence nor divergence can prevail universally. Both will stay there. The crucial question is if they can remain compatible each other. If they cannot we have to resign ourselves to the doomsday scenario of the eternal clash of civilizations, religions and ethnic groups.

My view is that convergence and divergence can be compatible if certain conditions are fulfilled. First of all, we should not succumb to fatalism. We have to view the process of convergence and divergence as something which has positive dynamics in it.

For example, the convergence under globalization can well invigorate healthy local initiative. Let me tell you a very mundane analogy. Like in many other countries McDonald Hamburger shops made an onslaught into Japanese eatery market. It was a strong sign of convergence of people's eating habit. Interestingly, though, the success of McDonald Hamburger chain quickly stimulated the local venture business to invent conveyer-operated sushi restaurants now known as Turntable Sushi Bar. It became a global favorite supporting another line of global convergence, and people are now enjoying the divergence of savors.

The second condition of compatibility is that there should not be coercive imposition of a single set of value standard. The acceptance of certain value standard, i.e. convergence, need to be made on a voluntary basis. It must be stressed that the process of acceptance can well be prompted by the work of market force and the realistic appraisal of the self-interest of the party concerned. Everybody should be allowed to compare merits and demerits of convergence and divergence. Convergence will remain viable only when it is accepted by one's own volition. It is true that the process of choice may take some time. Remember the Cold War lasted for forty years. During that period the situation can be volatile and even dangerous. As I pointed out, if somebody felt victimized by the wave of convergence under globalization he may react in irrational ways which destabilize the world. The best way, and probably the only way, to cope with the situation is to engage in an active and open communication. When one is provided with adequate information and materials there is the best chance for him to make a reasonable judgment. Whether he accepts or rejects the convergence it will not cause a violent result.

In concluding I would like to summarize my argument as follows. As the result of globalization there is inevitable trend toward the convergence of value standard. However, this trend will bring about divergence in two ways. One is by exposing inherent and underlining differences, and the other is by creating new conflict when the convergence is forced in a coercive way. Two approaches should be taken. One is to try to deal with the divergence in a positive and constructive way so that divergence can support the creation of a new convergence. The other is to try to live with the divergence while making the best effort to maintain an open communication so that the conflict will not develop into violent situation. Convergence and divergence are not incompatible.

(Transcript of a recent presentation by Toyoo Gyohten.)

Copyright © Japanese Institute of Global Communications