A defensive strategy

2/23/2009 - With the recession spreading worldwide like pandemic flu, globalization has revealed its darker side. Sylvia Nasar, for one, isn’t surprised.

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  “Anyone who has read economic history knows that globalization and financial crises go together like baseball and steroids,” said Nasar, an economist, journalist and author of the bestselling book A Beautiful Mind, a biography of Nobel-Prize winning economist and mathematician John Forbes Nash.

Nasar, who spoke Feb. 19 in the Kellogg School’s Owen L. Coon Forum, explained that economic downturns that occurred in the 19th century look much like the current global recession. “A bubble burst, investors panicked, asset prices collapsed … and being the world’s biggest economy, we plunged into a recession and dragged much of the world with us,” she said.

Karl Marx and Friedrich Engels acknowledged in The Communist Manifesto in 1848 that these global downturns revealed that “the world was becoming one,” said Nasar. At the same time, “this idea that there was an underside to globalization — that there were costs as well as benefits — was very much present in people’s minds.”

Drawing other comparisons between the 1800s and modern day, Nasar explained that history has taught us that productivity is the single most important factor in determining a country’s fate during a financial crisis. “If China had a Great Depression tomorrow, it wouldn’t take away the transformation that that economy has produced,” she said. “If you want sustained growth, and a sustained and permanent increase in living standards, it’s not possible unless you raise productivity.”

Productivity may also determine a country’s wealth. “People have ideas about what makes some countries rich and some countries poor,” she said. “I’ll just say that if it were a natural resource endowment, you’d have to explain why Japan has done better than China, and the UK better than Spain.”

To prepare for the recession, nations should be most concerned with building an environment at home “that lets management focus on making incremental improvements in productivity year in and year out," Nasar advised. “The bottom line is, in a global world, think locally.”

Nasar has written for The New York Times, Fortune and U.S. News & World Report. She is Columbia University’s first James S. and John L. Knight Professor of Business Journalism and has served as a visiting scholar at Cambridge University, the Russell Sage Foundation and the Institute for Advanced Study at Princeton. She is currently working on a book about 20th century economists.

Nasar’s talk was the latest in this year’s Kellogg Distinguished Speaker series. Recent speakers have included 2008 Nobel Laureate Paul Krugman, author James B. Stewart, and Newsweek Editor Jon Meacham. Law professor Lawrence Lessig, authors Alice Schroeder and Michael Mandelbaum, and economics professor Robert Shiller will deliver talks at the school later this year.