The Little Book of Economics: How the Economy Works in the Real World, Revised and Updated

Chapter Six

Drop the Puck!

The Globalization Game Is Here Whether We’re Ready or Not

In the summer of 2006, Israel fought a fierce, one-month war with Hezbollah. Israeli jets pounded southern Lebanon while Hezbollah rained rockets on northern Israel, sending residents into bomb shelters and emptying the beaches, stores, and port of Haifa, one of Israel’s largest cities. Yet Israel’s stock market was higher when the war was over than when it began. That year Israel’s economy grew 5 percent and its currency soared.

Why so little harm to the country’s economy amidst so much destructive violence? In a word: globalization. Israel’s economy is led by advanced technology companies whose markets are the rest of the world. Just before the war, Warren Buffett acquired Iscar Metalworking Company, a precision metal-cutting tool maker. It was hit by a rocket but never missed a shipment. During the war, Hewlett Packard made one of the largest ever acquisitions of a predominantly Israeli high-tech company.

Globalization is the increased flow of goods, services, people, ideas, and capital across borders. As economies merge with each other, interest rates in one country respond to the whims of investors an ocean away, local companies’ sales depend on the tastes of foreign consumers, and local consumers can choose from a cornucopia of foreign and domestic offerings. As such, globalization means more is riding on the skills of a country’s own citizens. If they produce something the world wants, their ...