We are talking about business history at a time when attention spans are reducing and the future is uncertain.
You know it’s interesting that the two business history courses at HBS (Creating Modern Capitalism, and Entrepreneurship and Global Capitalism) are among the most popular electives. Both courses are full up with nearly 40% of the students doing these electives.
Why is that?
I think that the millennials—or the older millennials—are rather lost at the moment. They are lost in the sense that they were born into an age when globalization was ongoing and a good thing. Diversity was ongoing and a good thing and they have an entered an age where this appears to be falling apart. There is a great deal of uncertainty, they can see it in their personal lives because there are no jobs in investment banking and the core places where they used to work are like blowing up. London, now the financial sector with Brexit, no one knows what’s going to happen. So, there is a great deal of uncertainty and nobody can tell them where the world is going. In that sense, history actually can provide some sort of certainty. My course, Entrepreneurship and Global Capitalism, talks about waves of globalization. I have taken them through the first wave when the world globalized before the 1920s and how it fell apart. I took them through that journey and they saw Hitler and all sorts of stuff. Three quarters through the course, Donald Trump was elected and a whole bunch of them came up to me and said thank heavens we took this course—it enables us to see it not just as an incredibly unique moment in history that we have lived in, but we can see how this can happen and why deglobalization happens. Of course it doesn’t tell them how to navigate, but it prepares their mind, to see these things happen.
Given the uncertainties with Brexit and Donald Trump’s policies, is there a reference point in history to understand where we are now?
I think we are in a deglobalization period. We are in the second wave now. The first one was the Wall Street crash that lasted until the 1970s. There was Communism, extreme regulation and controls that we had seen in that period. Think we are probably repeating that now.
What drives deglobalization?
It is policy. The question is why. I personally think globalization has a bit of an issue—it rewards winners. Losers, lose out. So, in the first global economy, in the early 20th century, the world as a whole got very rich. But there was a huge gap between the winners and the losers. So who did well? White men in the US and Europe did well. Who lost out? Women lost out, colonized people lost out, Muslims lost out.
Why is deglobalization repeating?
It is the revolt of the losers. In the first wave the colonized people revolted against that. There was a huge wave of extreme Muslim rebellion and Jihadi movement. We are seeing a repeat of that now. This time it’s not colonized people, but the blue collared, the white workers, the middle class due to the rising disparity in incomes and we are seeing that across geographies from the US to China. We are seeing a very close similarity between these two deglobalization periods. Our story is still starting out, but its direction seems rather too clear.
How long do you see this period of deglobalization lasting?
The last one lasted 50 years and included a spectacular war and much else.
So, have we not learnt our lessons from that period?
Surprisingly, no. We may have absorbed a ton of lessons from the 1931 financial crisis. The Fed policy was based on those lessons. But, the larger lesson that globalization runs into problems if too many people are losers—we have still to learn.
You know this deglobalization is happening at a time when Indian companies are ambitious about globalization. Does this mean that our strategies are at risk?
You know the first thing I always say is that I am a historian and not a fortune teller. That is the most important piece of information (laughs). What I would say is that history is giving some indicators. The comfort about the inevitability of globalization has no historical supporting evidence. I always think that before this the world had never been so connected—people could finally fly places, they finally had cinema. Gandhi was the first to appear all around the world with his salt march as that was the beginning of television. And what did we get—Hitler, massive exchange controls. The more people sought one another, the more they hated each other. So every time people say that in the world of Facebook and Twitter you can’t have deglobalization, I laugh. In fact, I already have evidence of that. The Internet is progressively breaking down into state-control areas. There is massive interference with news flows. There is no technological driver of that. So a technological view that the world can’t enter a period of demagoguery or worse is completely unsupported. Does that mean that it’s going to happen? No. Does that mean it can happen? Yes. For me that’s a cause for a red flag that people have to be aware of that.
What does that mean for people?
For individual concerned citizens, it means they need to be involved in resisting these trends. For corporate leaders, they need to be aware that these things can happen and any sort of naïve optimism about globalization is not historically justified. Otherwise you have this view that everything has changed and that’s completely wrong. The one thing that has not changed is human nature. That’s the reason we have repeated financial crises—because there is this cycle of greed and fear that drives financial services (and) keeps repeating itself. You go back to the tulip crisis in Europe or any other and it’s always the same story. There are consistent patterns in human nature. One of the consistent patterns is that as societies come together, there is reaction or dislike of what they see in the other and we seem to be repeating that. We can see that right now.
Were there any winners in the first wave of deglobalization?
Yes. A number of people who lost out were winners. India had started off the deglobalization period with very few people who were educated. By the 1970s, education levels had shot up in India and female education in particular. Income inequality had peaked in the US in 1929 and shoots down until 1979. There was no financial crisis between 1931 and the 1980s—all the people damaged by the first financial crisis were winners. It’s kind of a trade-off. The innovation levels were very subdued in that period too as government regulations and controls were there. It’s almost a trade-off between fewer losers and government regulations. In the last 30 years we have seen economies opening up, innovations increasing...
So do you feel business houses need to lead the way to usher in change?
It’s a system-wide issue. For individual companies it’s very challenging, particularly if they are a public company, to take measures that are revolutionary towards alleviating that problem. It comes down to leadership in some ways and to say that this is not going well and we need to do something about it that’s very hard to do. Boards have a 3-6-month view of a business and to make some of these changes we need Patagonia’s (a sustainability-oriented apparel maker) kind of change.
Given that some of the challenges we are seeing are due to capitalism, should there be a different way to define capitalism? How would you define it?
Capitalism is a wonderful way to generate innovation and create wealth. But it has this troubled history around its distribution of wealth and that’s caused a ton of problems in the past and something we have to think harder about for what’s going to happen in the next generation. That is why I teach my MBA. I don’t tell them what to do but I explicitly show them examples of when things have not worked out and what it means… One of the most important things that business leaders can do is stop and take two minutes to think of what this service or product can do. For instance, all these people making driverless cars—it hasn’t caused their mind to think about what would happen to all those people driving cars for a living. The people who developed Facebook didn’t give the slightest thought to if you have this fake news, and re-enforce it.