Aviation's Role In Globalization

We are in the midst of profound economic changes known as globalization and yet the topic is rarely discussed at length at aviation conferences or in trade journals. Globalization is the movement to a more connected world. A world organized around nation-states and yet increasingly conjoined in a global marketplace. Globalization is an economic development platform supported by three legs: 1) Global Security, 2) Global Finance and Trade, and 3) Global Connectivity.

When terrorists attacked the U.S. on 9/11 they attacked the economic development platform of the world’s only military superpower. The Pentagon represents global security; the Word Trade Center represents global finance and trade; and aircraft represent global connectivity. Terrorists typically use high concept, low technology approaches when operating their missions. Explosive ridden zodiac rafts attack U.S. warships; truck bombs attack embassies; hijacked civil aircraft attack civilians. All these attacks were an attempt to drive the globalization movement from their midst.

Global Security – In Tom Clancy’s 1980s novel “The Hunt for Red October” the hero, Jack Ryan states “The Atlantic is our ocean” implying that US forces dominated the Atlantic while Soviets “owned the Arctic Ocean”. Today, Jack Ryan would say “Every ocean is our ocean”. Things have changed. The U.S. won the Cold War and is now the world’s only military superpower. Our navy has achieved naval superiority. The rest of the world’s navies are only comparable to our Coast Guard, including Russia. No country on earth can match the U.S. Air Force’s high-tech capabilities and the U.S. Army can take the fight anywhere. We are, whether we like it or not, the “global cop” and the U.S. military is the force that keeps the peace on the global airways and seaways. If we step back and let someone else take that role, who would you want it to be?

Global Finance and Trade – One of the unique aspects of the new global economy is public policy shifting from supporting less government intervention to more private enterprise and reducing barriers to trade and investment. Since the 1970s, many countries have decided to remove restrictions on capital flows. Coupled with other domestic policies designed to promote competition among firms, these kinds of market liberalizations in trade and investment have helped reduce costs to consumers and promote technological innovation. It’s the “hand-him-a-fish or teach-him-to-fish” paradigm. For many years economic development programs for the Third World had been based upon self sufficiency and protectionism against world trade. Since the 1980s onward, market oriented ideas (deregulation, privatization, and competition) are replacing the “government managed economies” paradigm. (Remember China’s “jobs for everyone” program?) The result is greater confidence in the ability of competition and markets to deliver better outcomes, thereby encouraging businesses to expand abroad through foreign direct investment (FDI).

FDI occurs, for example, when an investor sets up an enterprise in a foreign country or obtains a large enough share (at least 10 percent) in an existing foreign enterprise to influence managerial decisions. FDI flows not only from a developed country to an undeveloped country but also flows from one developed country to another. The share of total investment in the U.S. economy that is financed by FDI now reaches close to 20 percent, while in the 1970s it averaged 5 percent.

Globalization is played out in many arenas and by many actors, an important one of which is the multinational company (MNC). MNCs undertake FDI when they establish overseas operations through foreign affiliates. They also engage extensively in international trade. Worldwide, some 60,000 parent operations of MNCs and their 500,000 foreign affiliates account for roughly 25 percent of global output, one-third of it
in host countries. U.S.-based MNCs account for a large share of U.S. production, trade,
and employment. They produce about 19 percent of U.S. GDP through their parent operations.

Global Connectivity – Connectivity is required in order for globalization to work. Connectivity is driven by telecommunications, information technology and transportation of goods and people. Aviation has proven to be instrumental in the globalization process. In today’s new global economy, aviation is at the forefront of the process. The huge volume of time-critical, high-value products crossing national boundaries by air annually has resulted in air cargo accounting for 42 percent of the value of today’s world trade but only 2 percent by weight. Despite the 2001-2003 downturn, the air cargo industry remains a global growth sector. The Boeing Forecast places world air cargo growth for the 20-year outlook period at 6.2 percent and passenger growth at 5.2 percent annually for the same period while world GDP is forecasted to grow at 3.0 percent.

Obvious aviation activities connected to globalization are persons traveling on business on a commercial flight from Chicago O’Hare to London Heathrow or a corporate jet transporting business executives from Teterboro to Frankfurt. There are, however, other activities that take place in aviation that are less conspicuously connected to globalization.

For example, a MNC such as Honda may invest in a manufacturing facility in your community through FDI. Honda executives then travel to your community via corporate jets both during and after construction. In Ohio, FDI comprised 11 percent of private investment for capital projects in 2003 up from 8 percent in 2002 and 2001.

In Cozad, Nebraska an agricultural sprayer applied pesticide to wheat crops which, in turn, were sold to consumers in Japan. Japan ranks second in U.S. wheat exports with approximately 3.1 million metric tons in 2004. Apples and other produce grown in Washington state are commonly shipped to Japan via air cargo aircraft.

Air cargo companies are increasingly being used for supply chain management by manufacturers. For example, Dell Computer in Austin, Texas has disk drives manufactured in Malaysia transported via air cargo aircraft to the final assembly plant in Round Rock, Texas meeting Dell’s Just-In-Time schedule.

A University of North Dakota student pilot practicing touch and goes at Crookston Municpal Airport may someday be flying Northwest Airlines’ Boeing 747s to Shanghai.

Other examples of connectivity may include businesses that use general aviation to support a major exporter in your state. In our firm’s economic impact studies, we are seeing more small businesses, such as IT consultants, who travel to clients in single engine aircraft. These consultants might never travel overseas on business but their client exports on a regular basis.

Aviation provides the connectivity of goods and people to nations around the world. Airports, FBO businesses, air charter services, ground handling services, no matter how large or small, are connected to the new global economy.

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