Why Globalization Cannot Be Stopped

Trade in goods and even services may be slowing for now, but globalization retains its momentum with migration and an unstoppable flow of ideas. Blame human nature.

About to drop
About to drop
Ricardo Arriazu


BUENOS AIRES â€" Is globalization slowing down? For some observers at least, it has not just slowed in recent years but may have even reversed course. Such a supposition is largely based on a small but incipient decline in the rate of growth of global trade in proportion to the global GDP, or all goods and services produced worldwide.

Globalization is no novelty. While many see its beginnings with the Renaissance, it began to achieve a decisive momentum with the Industrial Revolution, and attained exponential growth in the years after World War II. It has of course had fluctuations and the rate of growth of global trade is just one variable affecting the globalization process and its scale. Another is changes in movements of capital, people and ideas.

The first great globalizing process occurred between 1870 and 1913, a period of marked growth in global trade, capital flows â€" both through direct investments and pure financial flows â€" and migration. World trade increased in volume then from 9% to 16% of global GDP, while migration flowed mainly from Europe to the United States, Argentina, Canada and Australia. Modern Argentina is today a perfect reflection of that migratory flux.

The process stalled with World War I, and further still with the 1930s Great Depression and World War II. In that period the relationship between global trade and GDP returned to the values of the 1870s. Some analysts have suggested that those conflicts were in part provoked by social and economic changes that were happening too fast for cultural absorption or acceptance.

The second great globalizing process began in the late 1940s and continued, with little pause, until today, featuring trade volumes of 40% of the world's GDP, an almost total integration of world capital markets, and considerable movement of persons (limited by restrictions in some countries) and ideas (accelerated exponentially by the Internet).

Some analysts attribute reduced growth in global trade to a new wave of protectionism. While the trend does exist â€" though perhaps more in the realm of declarations than practice â€", other factors can explain this trend. One is the greater share of services in GDP and smaller growth in the trade of services compared to goods. Between 1980 and 2015, the volume of trade in goods grew twice as much as GDP growth or trade in services. But that difference has almost disappeared in the last four years. Currently services constitute about 65% of global GDP compared to less than 50% in 1970, and less than 40% in 1950.

Explosion of traveling ideas

But while trade is growing more slowly, the opposite is happening with ideas. While there are many ways to measure growth in the exchange of ideas (number of Internet connections, frequency of use, participation in networking sites, clicks, etc.), without a doubt this exchange has had explosive growth and is helping reshape globalization.

Rather than reversing, globalization has simply taken new forms. It is a cultural challenge perhaps comparable in its impact only to migratory fluxes or movements of persons today.

Humans were always said to be social by nature and interaction is crucial to two of their crucial objectives: survival and reproduction. Advances in communications multiply the options for attaining these objectives. In my opinion, globalization processes are the inevitable consequences of the social nature of humans and of the falling cost of communication (both in transport and other means). Institutions are in turn the ideal means of utilizing opportunities and minimizing the conflicts inherent to this interaction.

These interactive processes are today provoking a clash of two human characteristics: curiosity about, and fear of, the unknown. These are two, ancestral human traits that face today a much faster rate of change in external conditions and means of movement.

Recent advances in brain research show that an important proportion of our mind is related to social activities, as corroborated by the mirror neurons discovered in the 1990s. Italian neurophysiologist Giacomo Rizzolatti, observes that human survival depends on understanding others' actions and intentions, which is what mirror neurons facilitate through instinctive, simulative reactions that far outpace reasoning.

Adapting to a changing world does not mean dumping a national culture or a country's institutions, but precisely incorporating the best of those changes coming in from elsewhere. Protectionism and cultural isolation do not improve welfare, but merely protect certain sectors in a country. Each country must thus consider how to maximize the benefits of globalization for itself, and filter these down to the majority of its population.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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