Ohmae's Region State: Globalization in 2005

Context of the Book (2005)

• By 2005, globalization reached its peak due to the Washington Consensus.
• All economies became interconnected through trade and finance.
• States became more irrelevant in economic policies & market regulations.
• A decade prior, Omae noticed foreign policy attracts investments & trade.
• 'Region State' is the state's core, functioning as states-within-states.

Continued

• Regions house MNCs & FDIs, which are all massive.
• Successful states cater effectively to MNCs, creating 'seductive' environments to encorage production chains.
• States strategically invest in Human Resources, reshuffle cultural issues and generate employment.
• Today, national borders are not important, and countries' labor forces are interconnected.
• The Celtic dance troupe Riverdance is no longer strictly Irish and includes Irish, English, Scots, Russians, Americans and Ukrainians.

Dynamic Change

• Improved transportation allows easy flight bookings and global product shipping.
• The Internet facilitates instant communication, impacting business and politics.
• Accelerated trade due to the Internet empowers demand and supply forces.
• Investors can quickly react to events, and business deals happen rapidly.

Non-State Actors

• MNCs gained power, influencing powerful countries.
• George Soros profited a billion dollars in 1992 by challenging the Bank of England.
• Multipliers exist for both states and non-state actors.

Multipliers Definition

• In economics, multipliers are indicators measuring the outcomes when the state alters policy impacting; pumping money, spending, raising rates etc
• In finance and business, they are processes to create wealth from nothing.
• Understanding multipliers requires shifting from traditional concepts of money (unless you grasp the credit system).

More points on Multipliers

• Money and capital accumulation in banks become credits as tracked in ledgers or software.
• Credit outweighs hard cash, paving the way for banks/states investing for returns depending on monetary system.
• Multipliers are targeting money in credit form, they help allow credit money to increases without hard cash.

Multiplier Examples

• Currency exchange rates, especially the floating kind, such as the Soros example.
• Anything involving the use of money and interest, including:
  • Loans
  • Investments
  • Stocks and bonds
  • Dividends
  • State-owned T-Bonds and Bills
• The credit system's control determines wealth or economic crisis like the 2008 one.

Money Multipliers and the State

• Soros's 1992 defeat of the Bank of England and the 1997 Financial Crisis shows interconnectedness.
• Clinton's US economic surge caused the Asian Tigers' economies to crash.
• High US interest rates in the 1990s caused investors to leave the Tigers for the US.
• Globalization allows countries to import cheap products from anywhere.
• Countries can focus on research and market trend investments.

Key Argument by Ken'ichi

• Globalization rendered many theories obsolete.
• Macro-economics policies only work in state isolation (Finance, Trade, Labor).
• The state should anticipate market development and not use welfare to counter global supply and demand.
• Ireland, Thailand, and others strategically invested in growing sectors, using a step-by-step Washington Consensus approach.

Omae's Standpoint

• Omae is between Neo-Classical Liberalism and Neo-Liberal Commercialism.
• 1990s work addresses the state's retreat replaced by regional blocs.
• He focuses on international market powers and companies' ability to utilize market forces.
• He criticizes state intervention and traditional economics.
• He advocates for market mechanisms like Adam Smith/Milton Friedman, believing market forces work.

Overlooking International Economics

• Traditional fiscal policy lowers interest rates to encourage borrowing.
• Traditional monetary policies include printing excessive money, lowering rates.
• Focus is needed on the global economy, understanding its cause and effect on the national economy.
• Interest rates influenced by Foreign Direct Investment (Clinton Administration), high rates can boost investments.
• Borrowing capabilities increase despite unchanged nominal income due to FDI.

Global Economy and Local Politics

• Central banks will invest in more profitable/better opportunities if there is lack of domestic options.
• Opportunities include property trusts, T-bills, among other investments.
• Low interest does not mean companies stockpile products due to just-in-time system from globalization.
• Japan accounts for 1/3 of US deficit, via reserve moneys and taxes to the US.
• In 2004, Japan held 14 trillion USD in US to ensure the Yuan could be pegged to USD.

World Economy Facts

• T-Bills and Bonds have safer returns for investment and reserve boosting, leading to extra funds.
• T-Bills (3 Months) yield 4.94% extra money based on market interest with real-time updates on US Treasury Website.
• Traditional economic policies are ineffective today.

Timeless Ideas

• Adam Smith has the Division of Labor and Invisible Hand (Market efficiency).
• David Ricardo has comparative Advantage, distinction between basic/production sectors.
• John Maynard Keynes is disagreed with due to a closed economy and unstable investment from increasing spending.
• Keynes' policies is effective during major crises like the Great Depression.
• Predecessor to Keynes; he was stuck at the nation-state level, but knew state duties were in education/healthcare.

New Thinking

• A new understanding is required, because new technologies are changing the world of business.
• High tech during Ricardo's term was pigeon message, and that news took forever.
• Communication has shifted from week-long waits to instant transfer.
• Instant communication includes telecommunication and instant access.
• The world of business has moved forward, but economics has been stuck in old paradigms.

In Summary

• Politics that minting Money and controlling currency are dead.
• Management is more flexible, for example; pension funds and investment properties don't have to pertain to a single nation-state
• Money while most important for profit, is no longer stacked, and is a much more liberated element due to a good "just-in-time" management
• Also money has no particular allegiance.
• While many old school counties have tons sitting around doing nothing.

GDP Interest Rares

• Product deflation is the reality that goods should be cheaper over time.
• Computers should go down in GDP as time goes on.
• This is inaccurate due to the decrease in cost reduction.
• Empirical data tells that countries with higher balance of payments should have weaker currency.
• Consumers are simply saving the money than spend it.

New World Points

• The economy is at it's essence uncharted territory.
• Money and economy is extremely volatile, even with strong economies.
• High yields are good, capital can increase, and the game it's self increases as a rule of capitalism.
• Managing trade relies on exchange rate.
• China became more loose with trade and surplus.
• To this affect, Japan holds down the volatility of the USD.

New World Cont...

• Money traders in Japan usually seek a calculated goal, however over-react if a change impacts monetary.
• Trade becomes aggressive from private sectors, the currency becomes volatile.
• Central banks will prevent this by having to step up and fix the situation.
• In the end, traders or consumers, may inevitably pay for more than a reasonable price.

Global Protectionism

• FDI in the Japanese market comes with taxes, money goes to subsidies.
• American beef will be cheaper than Japanese Beef.
• Money is essentially being thrown away to sustain the Japanese market.
• The rice market is also heavily controlled.
• The market is distorted as a result of heavy money circulation.

Cont. Global Protectionism

• Japan's farmers are too small to compare to China in size, production, and quality, and political lobbies.
• Japan artificially props up the US economy through purchasing US dollars and reinvesting them into stocks.
• The take-away is that markets should reign free.

Clinton

• The market was a new ground and has been largely successful over the decades.
• Clinton's efforts can be thanked for drawing the world capital.
• Clinton had some of the strongest economies in the world because of it.
• Bush on the other hand, resorted to a global risk-taking strategy, which ultimately set the economy back.

Final Lessons

• Your country's wealth is not the key to getting rich
• Small countries can service new niches if that is the only option.
• China's rich resources are not the key to success due to other internal conflicts.
• Wealth isn't limited, it's about attracting it in all forms.
• Size no longer matters; planning expectation is key.

In 2005, globalization peaked, driven by the Washington Consensus and interconnected economies. States became less relevant in market regulation, while regions emerged as key players, attracting MNCs and FDIs. Successful states catered to these corporations, investing strategically in human resources and employment.