During the late 1970s, but particularly after the fall of the Berlin Wall, a lot of countries started to pursue development in a new way through a process that I call reform wholesale. The era of Globalization 2.0, when the world shrank from a size medium to a size small, was the era of reform wholesale, an era of broad macroeconomic reform. These wholesale reforms were initiated by a small handful of leaders in countries like China, Russia, Mexico, Brazil, and India. These small groups of reformers often relied on the leverage of authoritarian political systems to unleash the state-smothered market forces in their societies. They pushed their countries into more export-oriented, free-market strategies-based on privatization of state companies, deregulation of financial markets, currency adjustments, foreign direct investment, shrinking subsidies, lowering of protectionist tariff barriers, and introduction of more flexible labor laws-from the top down without ever really asking the people. Ernesto Zedillo, who served as president of Mexico from 1994 to 2000 and was finance minister before that, once remarked to me that all the decisions to open the Mexican economy were taken by three people. How many people do you suppose Deng Xiaoping consulted before he declared, “To get rich is glorious,” and opened the Chinese economy, or when he dismissed those who questioned China's move from communism to free markets by saying that what mattered was jobs and incomes, not ideology? Deng tossed over decades of Communist ideology with one sentence: “Black cat, white cat, all that matters is that it catches mice.” In 1991, when India's finance minister, Manmohan Singh, took the first tentative steps to open India's economy to more foreign trade, investment, and competition, it was a result not of some considered national debate and dialogue, but of the fact that India's economy at that moment was so sclerotic, so unappealing to foreign investors, that it had almost run out of foreign currency. When Mikhail Gorbachev started dabbling with perestroika, it was with his back up against the Kremlin wall and with few allies in the Soviet leadership. The same was true of Margaret Thatcher when she took on the striking coal miners' union in 1984 and forced reform wholesale onto the sagging British economy.
What all these leaders confronted was the irrefutable fact that more open and competitive markets are the only sustainable vehicle for growing a nation out of poverty, because they are the only guarantee that new ideas, technologies, and best practices are easily flowing into your country and that private enterprises, and even government, have the competitive incentive and flexibility to adopt those new ideas and turn them into jobs and products. This is why the nonglobalizing countries, those that refused to do any reform wholesale-North Korea, for instance– actually saw their per capita GDP growth shrink in the 1990s, while countries that moved from a more socialist model to a globalizing model saw their per capita GDP grow in the 1990s. As David Dollar and Art Kray conclude in their book Trade, Growth, and Poverty, economic growth and trade remain the best antipoverty program in the world.
The World Bank reported that in 1990 there were roughly 375 million people in China living in extreme poverty, on less than $ 1 per day. By 2001, there were 212 million Chinese living in extreme poverty, and by 2015, if current trends hold, there will be only 16 million living on less than $1 a day. In South Asia-primarily India, Pakistan, and Bangladesh-the numbers go from 462 million in 1990 living on less than $1 a day down to 431 million by 2001 and down to 216 million in 2015. In sub-Saharan Africa, by contrast, where globalization has been slow to take hold, there were 227 million people living on less than $1 a day in 1990, 313 million in 2001, and an expected 340 million by 2015.
The problem for any globalizing country lies in thinking you can stop with reform wholesale. In the 1990s, some countries thought that if you got your ten commandments of reform wholesale right-thou shall privatize state-owned industries, thou shall deregulate utilities, thou shall lower tariffs and encourage export industries, etc.-you had a successful development strategy. But as the world started to get smaller and flatter-enabling China to compete everywhere with everyone on a broad range of manufactured products, enabling India to export its brainpower everywhere, enabling corporations to outsource any task anywhere, and enabling individuals to compete globally as never before -reform wholesale was no longer sufficient to keep countries on a sustainable growth path.
A deeper process of reform was required-a process I would call reform retail.
I Can Only Get It for You Retail