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Linda Lim
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Cheap Credit Keeps the U.S. Economy Afloat, Says Prof. Linda Lim

12/1/2005 --

Alumni learn about globalization—its history and future—at Annual Business Conference.

ANN ARBOR, Mich.—Along with the pageantry and reminiscing that goes with a University of Michigan homecoming weekend, many Ross School of Business alumni take advantage of educational opportunities to brush up on business trends.

Globalization remains one of the hottest topics among entrepreneurs and other business professionals, and it was a popular one at the school's Oct. 7 Annual Business Conference, where Linda Y. C. Lim, professor of corporate strategy and international business, spoke on the issue.

Her lecture, "Meeting the New Challenges of Globalization," traced the history of trade dating to the ancient Silk Road and spice trade linking Europe with Asia and included predictions for global trade in the coming decades.

"Globalization has become a buzzword for the cross-border flow of goods, capital, knowledge, ideas and people," said Lim, whose research focuses on the political economy of multinational and local business in Southeast Asia, including the changing international trade and investment environment, and the influence of domestic politics, economic policy and culture on business structure, strategy and operations.

The 1990s were what Lim calls the Golden Age of Globalization. Market-oriented economic reforms emerged throughout the developing world following China's opening to the world in 1978 and India's in 1991. The break-up of the Soviet Union along with Latin America's embrace of democracy and neo-liberalism in the 1980s also played a role, as did the establishment of unilateral trade and investment liberalization through the World Trade Organization (WTO) and regional economic integration projects (the European Union and the North American Free Trade Agreement). An explosion of technological advances in transportation, information and communications also contributed.

Some of the results of enhanced globalization since the 1980s, according to Lim, were:

  • Large reductions in poverty in Asia.
  • Globalization of supply chains in high-tech manufacturing in East Asia and in information technology-enabled services in India.
  • Low inflation and interest rates in the U.S. despite record budget and trade deficits, thanks to the globalization of capital flows.

Government's Role and Responsibilities
Lim said that currently "cheap credit" is keeping the American economy afloat, and it eventually will have to be repaid, including to the Asian central banks that are funding the U.S. deficits.

At the same time, "Americans are afraid of losing their place at the top of the economic heap. As you know, the U.S. Congress recently passed a resolution to block a Chinese company's attempt to purchase a U.S. oil company. I believe that is a watershed vote reflecting an unprecedented turn against free trade and investment by U.S. political leaders," she said.

With growing concerns about national security, intellectual property leakage, terrorism, the spread of disease and declining international competitiveness in some industries, "I think we will see a stronger role for government in the economy," Lim said. She sees the U.S. government responding to calls for healthcare intervention, energy conservation and environmental protection while holding back on further trade and investment liberalization. "We are on the cusp of change. The Golden Era is over," she said.

"Is the U.S. willing to be just another rich country? We see today that business is looking for a 'non-China' to buy from to diversify risk and dependence. It is a political game that business must be savvy about," said Lim.

Businesses' New Challenges and Opportunities
The growth rate of outsourcing has been slowing due to currency risks, rapid cost escalation, protectionism and a weaker U.S. dollar, among other things. Conversely, more overseas investment suggests that business can avoid higher taxes and interest rates domestically as capital flows shift to emerging markets.

The emergence of global-minded students around the world is already broadening the scope of job candidates. "A global talent search can allow you to look for your next PhD chemist anywhere in the world," she said.

How to Respond to New Challenges of Globalization?
Lim outlined the ways in which students, businesspeople and other citizens can respond to the new global world by sharing a list compiled by the outplacement firm Challenger Gray & Christmas and published in Parade magazine:

Skills Needed in the Global Economy

  • Learn a language—Chinese would be especially useful.
  • Crunch numbers—Math skills rule in accounting, engineering and computers.
  • Take Acting 101—This helps in business, sales and retail.
  • Do lab work—Chemistry will help in the search for energy.
  • Get global—Learn about other cultures and nations.

Globalization's Image
The 2003 Pew Global Attitudes Survey of 38,000 people in 44 nations found:

  • Large majorities in all countries believed globalization was somewhat or very beneficial to their countries and families.
  • People in developing countries had a more favorable view of globalization, multinational corporations and international institutions like the World Trade Organization, World Bank and International Monetary Fund than people in developed countries.
  • 90 percent of people in China thought globalization was good, compared with 78 percent in the United States.

Written by Nancy Davis



For more information, contact:
Mary Jo Frank
Phone: (734) 647-4626
E-mail: mjfrank@umich.edu