Riffing off of the University of Toronto’s Roger L. Martin, the history of globalization can be understood as the international trade of different forms of capital. For Globalization I, the world exchanged physical capital (i.e. manufactured goods). The epicenter of this economic epoch was Detroit. United States President Ronald Reagan unleashed Globalization II, the era of financial capital. The twin towers, New York City and London (NYLON), ruled the flows of money across sovereign borders. The time of Globalization III is nigh. Human capital lords over physical and financial capital, setting up Boston as the Venice of the current age.
Echoing Martin once again, the highest return on the type of capital defines globalization. If physical capital offers the strongest returns on investment, then Globalization I rules. Welcome to Globalization II if finance provides the best way to get rich. Lastly, acknowledge Globalization III when higher education defines economic geography. Instead of goods or cash, where the brains go matters most.
Invest in education, not stocks or oil. As the world moves through different globalizations, the rationale for economic development changes. A region might slave to attract and retain manufacturing. A region might slave to attract and retain venture capital. From the president of the Federal Reserve Bank of Richmond, “Investing in People as an Economic Growth Strategy“:
Workforce development is an issue of vital importance for individual workers, for employers and for communities. It’s also critical for our country as a whole. The tremendous gains in living standards achieved over the past three centuries depended crucially on investments in physical capital. But human capital was critical as well: The accumulation of knowledge over time is essential to the process of uncovering and deploying technological innovations that fuel economic growth. And when we look at disparities in economic outcomes across our society, it is clear that differences in human capital accumulation play a large role. Doing our utmost to help the next generation of workers make the best use of their talents and opportunities will lay the groundwork for both them and their children to achieve their full potential and for the United States to achieve a more inclusive prosperity.
“Physical capital” merits mention. “Financial capital” does not. I find the omission conspicuous. Regardless, monetary policy most certainly impacts finance. Now the Federal Reserve Bank adds human capital to its honey do list. Do you want economic development? Invest in people, not place.
Banking on one’s self appears to be the best play. As demographic decline takes over (peak talent?), skills become most dear. For all forms of capital, knowledge workers are the limiting reagent.
Jim Russell, a geographer studying the relationship between migration and economic development, writes regularly for Pacific Standard.
