The horrific events of September 11 have become a point of demarcation for people around the world. Many of us now feel a sharp distinction between the "world before" and the "world after" the attacks. HBS Working Knowledge has asked for my thoughts on how these events will affect business prospects for developing countries.
My view is mixed. In the short run, it seems clear that developing countries will suffer setbacks. There is, however, reason for cautious optimism in the medium and long run. It may seem odd to focus on developing countries in the aftermath of this tragedy. The direct effects of the tragedy—the loss of life, the billions in property damage—are confined to the eastern United States. But the lost sense of safety extends far beyond New York, Washington D.C., and western Pennsylvania. Conversations with friends from all parts of the world reveal that the psychological shock of the impact has been global.
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| I am optimistic because the tragedy provides a moment of clarity that highlights what we have in common. | |
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| —Robert E. Kennedy |
In the short run, the attacks will likely affect developing countries in two ways.
First, these countries' exports to the United States will decline as growth slows. This effect will be exacerbated by increased security, inspections, and other barriers to the free flow of people and products.
A second effect involves shifts in psychology. It seems likely that people will embark on a quest for safety. Business travel has already plummeted, and it seems likely that direct investment and portfolio capital flows will follow. Because developing countries are perceived as the most risky international destinations, they will likely suffer the greatest effect. In the short run, this retrenchment will slow managerial interactions, technology transfers, and the establishment of new crossborder economic linkages that are key elements of growth in developing countries.
So why am I cautiously optimistic? I offer two distinct reasons. First, the factors driving economic growth in developing countries remain in place. Dozens of countries have implemented programs of economic reform—by one count, more than 50 countries with a population of 3.2 billion have done so since 1985. Developing countries' demand for international products and services remains large. Wage differentials are huge. And technological advances will continue to reduce the barriers to interacting across borders. The psychological shock of September 11 may stay with us, but the logic of global integration remains compelling.
Second, the events of September 11 are likely to cause a tempering of inflammatory rhetoric in developing countries, often by the very leaders who implemented economic reform programs. Liberalization is tremendously controversial because it creates winners and losers. Even as reform has spread around the world, many leaders have resorted to scapegoating powerful outside forces. Nelson Mandela has blamed "financiers, speculators, and traders" for economic ills in South Africa. In the wake of the Asian Financial Crisis, Malaysia's Mahathir Mohamad thundered against "America's Jewish speculators." Egyptian President Hosni Mubarek laments that "our global village has caught fire, from where we do not know." And these are the reformers!
This dichotomy between policy and rhetoric has been tremendously corrosive. It raises perceived risks and lowers interactions from abroad. "Us vs. them" is often an effective political tool. The problem is that it generally repels "them"—the foreign managers, investors, and firms that policy reforms were designed to attract.
I am optimistic because the tragedy provides a moment of clarity that highlights what we have in common. Most countries of the world believe in individual rights, personal freedom, and due process under law. But some do not. After September 11, the chasm between these two world views suddenly seems much more important than disputes over industrial subsidies or access to strategic sectors. A Turkish friend compared the "world before" to a bickering family. In the heat of the moment, the dispute of the day seems imperative. In the "world after" we realize there is a threat from outside, and the dispute of the day is forgotten.
It is far too soon to tell if the moment of clarity and sense of shared grief will last. Sometimes it takes an immense shock to break us out of our habits. If the sense of community does last, it will be a very positive development for these countries. I am optimistic that it will.
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