Opinion

Chrystia Freeland

How do middle powers fare in a winner-take-all economy?

By Chrystia Freeland
April 16, 2013

This essay was originally published in the Toronto Globe & Mail.

How should countries navigate the twin challenges of our time – globalization and the technology revolution? If that seems to be an abstract question, consider the people of Cyprus whose futures have been devastated by their country’s failure to surf those international waves, or the threat posed by North Korea and its refusal to participate in these two transformations.

Most of the conversation about how geopolitics is changing in the 21st century focuses on the shift from west to east, and on how we’re moving from the bipolar power equation of the Cold War to a new bipolar relationship, that of the U.S. and China, that determines the mood music for everyone else.

That’s true. But what if you aren’t in Beijing or Washington? How has the world changed for the middle powers, and what should we do about it?

The biggest shift is that business has gone global. Companies and capital operate internationally, often beyond the economic reach of any particular nation-state. People are pretty global, too, living lives that freely cross national borders.

But while the world is becoming borderless, it isn’t becoming flat. It’s spiky, and the economic forces of our age are making the peaks higher. We live in a winner-take-all economy, and the winning people, companies and ideas are increasingly concentrated in a handful of global cities – in fact, in a handful of global neighborhoods and sometimes, in the case of the plutocratic palaces at 157 West 57th St. in Manhattan or One Hyde Park in Knightsbridge, in a handful of buildings.

If you don’t happen to control one of these global mountaintops, figuring out your country’s place in the world is the challenge of 21st-century statesmanship. Here are three starting points:

First, don’t fight the tide. Swedish Foreign Affairs Minister Carl Bildt believes it’s essential to embrace globalization. “I want to have more of the world in Sweden and more of Sweden in the world,” he told me. Sweden isn’t afraid of brain drain, he said. Instead, “we encourage our young people to study abroad and to work abroad.” Many return, but even those who don’t help to connect Sweden to what Mr. Bildt calls “the global flow of ideas.”

Second, find your strategic national niche. Technology leaders such as Google chairman Eric Schmidt think a lot about power laws, the phenomenon whereby you see concentration at the center of networks. His own company is an example of power laws. So are Facebook and Apple. This winner-take-all dynamic means businesses need to think strategically when it comes to picking the fields on which they play. The same applies to countries.

But Roger Martin, dean of the University of Toronto’s Rotman School of Management, warns of one paradoxical danger: If your niche becomes too important, it can be a struggle for smaller players to remain dominant. The Keystone pipeline is an example. “As long as Keystone was a niche issue, Canada was okay. But this is not just about a pipeline any more. This has become about one of the top five global issues – energy and sustainability – and Canada having a voice in that discussion is very tough sledding.”

The third point is the hardest. Sometimes, the global current of ideas Mr. Bildt is keen to plug into flows in the wrong direction. Wise national statesmen need to be connected enough to hear the world’s conversation and influential enough to shape it. But they also need the self-confidence to swim against the tide when the global conventional wisdom is wrong.

Canada has a pretty good track record on this score – with hindsight, contrarian decisions such as not deregulating our banks and not fighting in Iraq look better and better. Lester Pearson, who invented so much of the postwar international architecture and secured Canada’s place in it, was sworn in as prime minister 50 years ago, on April 22, 1963. His successors need to devise a new strategy in the world where it’s even harder to thrive if you aren’t No. 1.

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Smaller countries and their leaders are more open to learning from others and their mistakes. Larger countries and their leaders are more insular. Colin Powell has said learning languages besides English was a waste of time. Justice Scalia after a trip to Italy said that the Supreme Court had nothing to learn from Italy’s courts. With such attitudes, it is harder to learn.

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