Mexico and the World
Vol. 2, No 4 (Fall 1997)
http://www.profmex.org/mexicoandtheworld/volume2/4fall97/preface.html

Preface

* Professor, Graduate School of Business, Stanford University. President Emeritus, SRI International.

The economic geography of the world is undergoing rapid and profound changes, and nowhere is this more apparent than in North America. There are various symptoms of these global changes. We have accelerated economic growth in new areas, particularly in major portions of Asia, but in the Western Hemisphere as well. The World per capita GDP continues to grow, trade growth is even greater than world GDP growth, and foreign direct investment grows even faster than trade. What is driving this change? How are governments -- at the national, state, and local levels -- responding?

The old concept of economic geography focused on the natural endowments of regions and countries -- mineral resources, rainfall, agricultural production, the level of manufacturing, port facilities, and other infrastructure. Today, economic geography is much more concerned with created economic assets such as technology and education, industrial clustering and its sociology, and community-industrial process dynamics. It is also concerned with inter-regional business, economic, and institutional relation ships.

Technology, the embodiment of knowledge, is driving most of the changes in the world economy, and, either directly or indirectly, will be the center of political concerns. Global economic data show that the per capita use of basic materials is declining or growing more slowly than the per capita growth of GDP while the per capita growth of knowledge intensive business and services exceeds the per capita grown of GDP worldwide.

This lesson has not been lost on developing countries. Whereas it was important to improve and develop their agriculture in order to have a well-fed, healthy population, it was essential that these countries participate in the growth of the knowledge int ensive industries in order to be a participant in the growth of the world economy. The countries that have pursued market-based export-oriented growth in manufacturing and other knowledge intensive areas have experienced job creation, rapid growth in dem and for labor, and rapid growth in real wages. The global share of manufactured goods in developing countries rose from twenty percent in 1960 to sixty percent in 1990. 

Led by technology, the first major change of the last two decades is the pronounced shift to knowledge intensive industries. Even rather basic products such as glass and steel employ sophisticated high tech production processes. Since the mid 1970s the aggregate per capita growth of the world economy has come largely from the knowledge intensive industries and services. This increase in knowledge intensity means that research and development are now more important than ever, and recuperating their imm ense costs are dependent on global sourcing of system components and global distribution of products. In regional terms, this is apparent in terms of regional industrial integration in North America, as well as in other areas around the globe. 

What could be called a new "world business paradigm" then requires new government to government relationships, with fewer trade barriers, tariff and non-tariff, to work efficiently. NAFTA is a good case in point, as is the drive to expand NAFTA in the direction of the proposed Free Trade Agreement of the Americas (FTAA) by early in the next century. Business has led governments in developing such global interdependence, but there is growing evidence that at least some enlightened political lea ders are catching on and changing their thinking. 

This is in part because it is increasingly clear that many social issues can be solved only at the trans-boundary, transnational level. For example, environmental problems, health and disease, water supply problems, drugs, terrorism, and regional conflic t do not know national boundaries. Governments have moved to greater cooperation and agreements (such as the NAFTA side agreements on the environment, labor, and trade disputes) to solve these problems. In fact, the U.S. is signatory to more than 150 ag reements on the environment alone. These agreements deepen international interdependence. 

It has also become clear that history has not been kind to the notion of centrally planned economies, which enjoyed a considerable vogue in Latin America up until the 1970s and in some cases even beyond. In fact, the unilateral opening of Mexico in the 1 980s and a shift from protection and import substitution to a more open export oriented economy laid the framework that made the subsequent NAFTA negotiations possible. By the mid-1980s, the shift in Mexico was dramatic.

It was a recognition that import substitution and a policy of "self sufficiency" leads to a stagnant economy. Mexico's earlier economic regimes had much in common with centrally planned economies: large amounts of state owned industry; tra de was not an engine of growth, and entrepreneurship faced large barriers of entry because of the special position of the protected industries. When Mexico changed course under the presidencies of Miguel de la Madrid (1982-1988), Carlos Salinas (1988-94) and Ernesto Zedillo (1994-2000), Mexican capital returned to Mexico, foreign direct investment increased, and exports grew. This lesson was not lost on other economies practicing import substitution. It was the beginning of a trend. In spite of recen t financial difficulties, Mexico and other Latin American countries are moving to more open economies. 

The Mexican, Latin American, Asian, and Eastern European experiences in the late 1980s and 1990s were mutually reinforcing of the idea of open competing economies -- an economic globalism essentially based on comparative advantage which means specializati on. But specialization today is not based on single products or single industries, but on clusters of industries mutually supporting each other. Clusters mean locales or regions. Networks may diffuse some of the effects of regional clusters. But much of the economic dynamics of a cluster occurs in specific regions. 

As can be seen in this important, benchmark volume Integrating Cities and Regions: NAFTA and the Western Hemisphere Face Globalization regions differ greatly in their industrial sociology, and the comparisons and contrasts offered in this volume are rich in insights for researchers and policy makers alike. For as local regions of a country become more the locus of economic development, economic authority is decentralized from the national capital to the region. Additionally, these local regions are buil ding relationships to regions in other countries, e.g. the U.S. and Canada, or the U.S. and Mexico. Several such examples are reported in this volume. 

Finally, as economic authority diffuses away from the nation state -- upward and outward and downward and inward -- policies, particularly economic policies, are less effective at the national level. As the economies of the world become more interdepende nt and as governments move to more and deeper transnational agreements to solve social problems, there is an inevitable loss of sovereignty, though the nation state will into the forseeable future still be the basic unit for global governance. The nation state is needed to solve security problems, to keep the world financial system secure, to solve global environmental and health problem, and in general to make the world a hospitable place for working and living. 

Within this context, the present volume provides a pioneering look at how regions from Cascadia to Silicon Valley, from San Diego-Tijuana to New York, Toronto, and Mexico City, are addressing emerging regional challenges in the new millennium.