Growing up

Frenetic building activity is the most ­visible sign of a growing, increasingly globalized economy. Construction sites in Shanghai, for example, pepper the city's landscape. Growth there is more than a statistically reported increase – it is something you can feel. Nevertheless, what is happening in China reflects more than economic growth. It is an expression of the age-old human urge to convey newfound prosperity, growth, and power by building up as high into the sky as possible.

From the ancient Mayan and Egyptian pyramids to New York's skyline, ­"bigger, higher" has always been a symbol of economic and societal clout – serving as an imposing reminder of what the builder was capable of and what the owner could afford. A belief in what was possible – coupled with advances in architecture and technology?– promp­ted the first major waves of skyscrapers in the US at the turn of the twentieth century – matching its rise as a world power.

Now places like Dubai and Shanghai are making a name for themselves in the skyscraper stakes. The 1,125-meter-high Bionic Tower in Shanghai, for example, will be the first building topping the one-kilometer mark. When finished, will it symbolize China's position as a major economic force? Growth of at least 10 percent a year, 1.3 billion citizens, and the world's largest currency reserves are convincing statistics. Still, China's growth is not an isolated event. A key driver is globalization.

"Globalization" is a modern word, but the idea is nothing new. Almost two centuries ago, David Ricardo, one of the most influential economists in history, railed against the doctrines of the time. While England, his home country, reinforced national borders, he advo­cated the free exchange of goods. His theory of comparative ­advantage has shaped the free trade debate ever since. Ricardo's central ­argument was that, even if one country could produce everything more efficiently than another could, it would reap gains from specializing in what it was best at manufacturing – and trading its products with the second nation. US Nobel Prize Winner for Economics, Paul Samuelson, illustrated the same principle in a famous example. A top lawyer is also the world's best typist. He or she can do both things better than anyone else. Still, he or she would still be better off getting somebody else to do the typing, as this frees up time to provide legal services.

Skeptics are always quick to point out the dangers of narrow specialization. World trade is not a level playing field, they say. Nevertheless, for the world as a whole, globalization has driven economic expansion. In many cases, the growth has been achieved by what the illustrious Austrian economist Joseph Schumpeter termed "creative destruction". The Dow Jones Industrials and the US economy neatly illustrate this concept. General Electric, for example, is the only company of the 12 that made up the original index in 1896. The others, companies such as American Cotton Oil or American Tobacco, have disappeared or been broken up. General Motors and Chrysler became part of the index in the early 20th century, mirroring the rise of the automobile industry. As technology, financial services and entertainment became increasingly important, the DJIA added IBM (1979), American Express (1985), J.P. Morgan and Walt Disney (both 1991). Creative destruction, though, is probably best shown by the changes the DJIA made in 1997, when Hewlett-Packard, Johnson & Johnson, Travelers Group (now Citigroup) and Wal-Mart replaced Bethlehem Steel, Texaco, Westinghouse Electric and Woolworth.

It is clear that "globalization" does not mean economic security for everyone. Creative destruction means that labor and capital, combined with innovation and new products, can lead to increased income – but not everyone will benefit. But it beats the alternative: protracted protectionism and economic isolation as seen most obviously, recently, in the collapse of Soviet communism, are clearly responsible for driving an economy into long-term decline.

Internationalization calls for economies, societies, and corporations to become more flexible. Many companies – even small and medium sized ones – face the challenge of looking hard at their size and structure in order to meet the demands placed on them by international competition. Often, it means developing new products and targeting new markets. It can increase their willingness to take another company over. Or make them decide to dispose of businesses that do not belong to the core of what they have traditionally done – or are best at. This, in turn, drives M&A activity.

It is not only capital and companies that transcend national borders – employees do, too. In Dubai, the majority of construction workers are Pakistani or Indian, while engineers and architects are frequently German or American. Whether construction worker or financial services provider, employees go where the employer is – and vice versa. UBS, for example, is present in many of the regions of the world that are currently forming the crest of the globalization wave – be it Asia, the Middle East, Russia or South America.

Among other activities, UBS is helping companies become part of the economic fabric and history of their country, such as Greentown China Holdings, the largest real estate company in mainland China. In July 2006, with UBS coordinating the initial public offering of its stock, the company started trading on the Hong Kong Stock Exchange.