Economic Globalization and Culture
A Discussion with Dr. Francis Fukuyama


Earlier this year, the Merrill Lynch Forum spoke with Dr. Francis Fukuyama about globalization. The conversation focused on how culture shapes, and is shaped by, the increasing worldwide economic integration. In his comments, Fukuyama challenges the view that globalization is leading to cultural homogeneity, arguing that societies largely maintain their individual characteristic despite economic pressures. In fact, Fukuyama asserts that these cultural values in many respects define how business is conducted within a nation.

This does not mean that society is not influenced or altered by the process of globalization -- Fukuyama does believe there is a convergence of political and economic ideologies. Rather, he suggests that there are deeper elements of culture not easily abandoned.

Q) To what extent has globalization been realized?

I think that in many respects, globalization is still superficial. Although there is a great deal of talk about it currently, the underlying truth is that the global economy is still limited. It seems to me that the real layer of globalization is restricted to the capital markets. In most other areas, institutions remain intensely local.

Trade, for example, is still predominantly regional. Relatively little trade flows beyond local regions: Asians trade mostly with Asians and Latin Americans trade mostly with Latin Americans. Even in more developed regions this practice holds true. Intra-European trade accounts for roughly 60% of all European trade.

This regional limitation is true elsewhere. Most companies are predominantly national, and certainly governments remain very national. Consumer markets are not only national, but they are segmenting even further within regions as consumer education improves and consumers are able to demand products that precisely meet their needs.

Q) Are there aspects of globalization that lead to greater homogenization?

I think that homogenization and an affirmation of distinctive cultural identities will occur simultaneously. In terms of large economic and political institutions, cultures are becoming more homogeneous. There aren't as many alternatives and regime types. It isn't possible to have a kind of Peronista economic nationalism, or a certain kind of socialism. It turns out that, given the nature of the global economy, there are only so many ways that a political or economic system can be organized to make it viable and competitive. To be an advanced society, a country has to be a democracy, and it has to be connected to the global marketplace. In that respect, there is a greater homogenization of institutions and ideologies. On a cultural level, it's not clear that homogenization is proceeding nearly as rapidly. To a certain extent, there is a real resistance to cultural homogenization.

Q) Do you believe that homogenization will ever occur on a deeper level?

It could be that culture will ultimately become homogenized, just like political institutions, but I believe that it's going to be a much slower process. Many people think that because we have advanced communications technology, and are able to project global television culture worldwide, this will lead to homogenization on a deeper cultural level. I think that, in a way, it's done just the opposite.

For example, there is probably less mutual liking, more distrust and greater emphasis on the difference between the cultures of the United States and Asia today than there was 40 years ago. In the 1950s and '60s, Asia looked up to the United States as a model of modernization. Now, Asians look at American urban decay and the decline of the family and they feel that America is not a very attractive model. Communications technology has allowed both Asians and Americans to see each other more clearly, and it turns out they have very different value systems.

Q) Can global corporations have a homogenizing effect on culture?

I think that there is a global consumer culture that is spread by companies like McDonald's and Coca-Cola. However, if you look beneath the surface and ask people in different countries where their loyalties lie, how they regard their families, and how they regard authority, there will be enormous differences. When people examine a culture, they pay too much attention to aspects like the kinds of consumer goods that people buy. That's the most superficial aspect of culture. A culture really consists of deeper moral norms that affect how people link together.

In my second book, Trust: The Social Virtues and the Creation of Prosperity, one of the central theses argues that these deeper qualities, the so-called moral norms, define economic activity. For instance, Chinese culture is family-centric limiting business transactions to extended family. This fact has many consequences. It means that Chinese businesses tend not to be very large, probably because they are unwilling to bring in managers from outside the family. It means that it's very difficult to establish brand names because large marketing organizations are not used. It also means it is very difficult to build lasting institutions that endure for more than two or three generations. In the China example it is culture that drives economics.

Q) What constitutes these deeper cultural Identities?

Obviously language, religion, and race are all important components of a local identity. My particular interest is in what I call networks of trust. These networks vary in different parts of the world. I think that to really understand how to operate in any region of the world, you really need to understand the networks of trust in that area. Once a trust relationship is established, a business relationship can follow.

For example, in many Latin American countries, many of the largest companies are almost always controlled by a group of families. This is also true in other countries, such as China and Turkey. Obviously, business opportunities in such countries very much depend on an understanding of the way that these social networks are wired together. The only people with a full understanding of how these networks work are the locals themselves. That's why outsiders sometimes find it difficult to conduct business in countries where the expected degree of transparency and ability to form business relations without preexisting social relationships are lacking.

Q) Are there universal human attributes that cut across cultures and nations?

Yes. The desire for material progress is obviously a universal drive. I think that there's a fair amount of evidence that a desire to exchange on the market is also a universal human attribute. In those places where market exchange is not practiced, it is almost always because the state or other form of governmental authority prevents it.

Fernando De Soto's book on Peru gives a beautiful example of the human desire for market exchange. The book evidences the tremendous desire of poor Peruvian peasants who have moved to Lima to barter and exchange. The peasants can't set up formal businesses because it takes 25 days to get a permit, and a great deal of money is needed to bribe government officials. To make market exchanges, they set up this huge informal economy that even has its own judicial system.

I also think a good argument can be made for the universality of entrepreneurship. Over the last few years, the World Bank has strongly advocated the concept of micro lending. Before this, their policy was to lend to central banks and larger institutions. However, a closer examination of social networks revealed that the real entrepreneurial energy is at a much lower level. An interesting example of this entrepreneurship is the informal taxi and transportation services that have been set up in many third world countries. In South Africa, the government granted a monopoly in public transportation to a few companies that completely failed to satisfy the demand. Informal taxi service became one of the largest sources of income for blacks during Apartheid. It was one of the few areas where they could expand their business.

Q) Will globalization lead to the development of additional cultural universals?

I think that there is a set of cultural attributes that must accompany economic modernization. These include a greater degree of individualism, understood as people being evaluated based on their achievement rather than in terms of an inherited status.

What bothers me about the recent discussions of globalization is that people seem to think globalization is going to be much more homogenizing than it really is. In fact, I think that it will have the opposite effect. In a certain sense, the de facto free trade regime and economic interdependence actually allows people to stress cultural differences in ways that they couldn't have before.

Quebec is an example of this phenomenon. There is a great deal of division in Quebec on the issue of separation. I think that there's no way that anyone would have even thought of separation without the North American Free Trade Agreement and the silent revolution in the '60s, when Quebec really modernized economically. In some ways, Quebec is actually more integrated with the American economy today than with the rest of Canada. If they separate, it's not going to cost them economically. In a sense, free trade creates an economic floor. The prosperity brought about by globalization then permits cultures to really assert their own uniqueness.

Q) Can cultures be enhanced by interacting and adapting to one another? For example, America has certainly adopted aspects of its culture from other parts of the world to its benefit.

The American culture has been enhanced by cultural addition and adaptation more than most other places. In a way, this distorts Americans' perceptions. They look at their own experiences with melding different cultures, and assume that the process will happen as easily in other parts of the world. I think that it probably will happen, but it won't be as easy.

Even in a country as similar to the United States as France, this sort of cultural addition would be more difficult. I know France reasonably well. I go there a fair amount, and I follow French politics. The thing that strikes me is how different France and the United States are, despite two centuries of interaction. Many Europeans cannot understand the libertarian ideals that Americans have. France is very state centered and bureaucratic. They tried privatization for several years in the late 1980s. It generated a strong backlash among the French workers, and the Government has changed its position. Whereas the majority of Americans think that privatization is the coming wave of public policy.

Q) What role will information technology play in globalization?

I am very skeptical about the claim that technology alone is going to enable globalization. The problem is trust. My feeling is that trust is essential to business relationships, and trust is basically a social phenomenon. People establish trust by dealing with one another on a reciprocal basis. Through this, they become familiar with each other's identities, behavior, reliability, honesty, and ability to perform to certain specifications. It is extremely difficult to purvey that kind of information over a digital network.

There is a lot of interesting evidence to support this. There was a study done at SRI in the mid 1960s that examined the impact of long-distance telecommunications on the volume of trans-Atlantic business transactions. There was actually a very weak relationship. Trans-Atlantic business transactions were more strongly correlated with air travel, because most deals could not be consummated without establishing a social relationship.

In digital commerce, people are now technically capable of carrying out a transaction, but they are lacking the value added services that enable them to develop a trust relationship. What globalization requires is not just network technology, but rather the creation of a whole new series of services that are able to convey the information needed for trust.

Q) Will globalization result in a great deal of political change?

There is a correlation between a country's level of economic development and successful democracy. Recently, a study was done that examined the transitions to democracy of several nations. Once equivalent GDP per capita in 1992 purchasing power parity dollars reached $6,000, there's no country in history that has become a democracy and then lapsed back into authoritarianism.

Globalization and capital development do not automatically produce democracies. However, the level of economic development resulting from globalization is conducive to the creation of complex civil societies with a powerful middle class. It is this class and societal structure that facilitates democracy.

I disagree with Samuel Huntington on this point. He argues that China could radically develop for the next two generations without its political institutions becoming at all similar to those of the United States. Huntington does not believe that development will lead people to demand political participation, liberalization of the press, or other civil liberties. I just don't buy that argument. Ultimately, I think that there are going to be political changes as a result of the economic development.

On the other hand, I do believe that the "safe" forms of cultural self expression, the sub-political ones, will continue to exist in their distinct forms. One of the ways in which these distinctive cultures will be expressed is through unique business practices in industrial structures. However, I think that even in this realm, there will eventually be a certain degree of homogenization. For example, right now, Japanese financial institutions are unique and highly regulated. There are no other financial institutions in the world with the same kind of practices and policies. Under global competition, the Japanese institutions are really coming under a lot of pressure to conform to more common, global business standards.

Q) How do you see globalization changing the relationship between the state and citizens?

I think that the attitude that people hold towards the state is one of the major cultural differences that exists across industrialized nations. My colleague at George Mason, Seymour Martin Lipsit, has spent his entire career writing about American exceptionalism. He argues that there is a huge cultural difference between the United States, and even a country as similar as Great Britain in how people view state authority and the effectiveness of state institutions.

Actually, the one area where information technology is probably going to have a vast effect is in citizens' relationships with the state. There are a lot of trans-national, non-state actors today that didn't exist in the past -- environmental groups, for example.

One of my former colleagues at Brown did a study of this phenomenon in Mexico during the Chiapas rebellion. The Mexican government was going to respond to the rebellion in the way that it usually has, which is to send troops into the area and suppress it militarily. However, international human rights organizations were able to mobilize very quickly, using faxes, e-mail and other communications technology. These organizations were able to put the Chiapas Indians on television to tell their side of the story. The Mexican government decided that they needed to attempt negotiations with the Indians because of the widespread publicity. I think you're probably going to see more of this in the future.

Q) Finally, is globalization really a euphemism for Americanization?

I think that it is, and that's why some people do not like it. I think it has to be Americanization because, in some respects, America is the most advanced capitalist society in the world today, and so its institutions represent the logical development of market forces. Therefore, if market forces are what drives globalization, it is inevitable that Americanization will accompany globalization.

However, I think that the American model that people in other cultures are adopting is from the America of two or three generations ago. When they think of globalization and modernization, many people think of America in the 1950's and '60s; "They put a man on the moon," John Wayne, and Father Knows Best. They're not thinking of the America of the Los Angeles riots and O.J. Simpson. The culture that we exported in the '50s and '60s was idealized. It really presented quite an attractive package. The culture we export now is cynical, and a much less attractive model for other nations to follow.