THE WORLD IS STILL ROUND

One of the unheralded contrasts of our time is this: everywhere we see the increasingly powerful effects of globalization; and yet, the single most important reality for the economic well-being of most people is their nationality. The idea that we're all being swept along by the impersonal forces of globalization seems intuitively logical and instinctively menacing. The older and less-noticed truth is that the nation usually remains, for better or worse, the decisive force in determining the economic condition of its citizens.

The United States, Europe and Japan offer an object lesson. All face, generally speaking, the same opportunities and threats from globalization. But results vary dramatically. Since 1995, American economic growth has averaged 3.3 percent; Europe's, 2 percent, and Japan's, 1.3 percent. (Europe refers to the 12 countries using the euro.) Even within Europe, stark contrasts emerge. Ireland's growth averaged 7.9 percent over the decade; Germany's, 1.3 percent. Somehow, national policies, culture and business overshadow globalization.

Why? It's not because globalization is a myth. In his highly readable and informative book "The World Is Flat," New York Times columnist Thomas Friedman describes an economic system of transnational supply chains, foreign "outsourcing" of services and intensifying international competition. He asks Dell Computer to describe geographically how his laptop was made. Here's the abbreviated answer: engineers in Texas and Taiwan codesigned it; the microprocessor came from one of Intel's factories in the Philippines, Costa Rica, Malaysia or China; memory came from Korean, German, Taiwanese or Japanese firms with factories in their countries; other components (keyboard, hard-disk drive, batteries, etc.) came from U.S., Japanese, Taiwanese, Irish, Israeli and British firms with factories mainly in Asia; the laptop was assembled in Taiwan.

What Friedman means by "the world is flat" is that everyone increasingly competes with everyone else on everything. Adam Smith famously wrote that "the division of labor is limited by the extent of the market"--meaning that larger markets spawn more specialization. Now markets seem universal; national borders seem to crumble. The Internet is a global auction block. Someone mistakes me for a business, so I receive occasional e-mails from Asian and U.S. Web sites to buy industrial goods. Last week it was forklifts.

But, of course, the world is not flat. Borders, though battered, survive and have economic meaning. National markets do exist. One big difference is their vigor in creating local demand and jobs. Europe's sluggishness may reflect more than high taxes and restrictive regulations. Some Europeans blame attitudes: because Europeans fear the future more than Americans, it's said, they spend less and save more. Even if the argument is wrong, the larger point is right: national markets are defined by psychology, as well as politics.

It's easy to exaggerate globalization. Yes, some computer, software and engineering jobs have already moved to India, China and other low-cost countries. More will follow. But the process is limited. The McKinsey Global Institute says that 750,000 American service jobs have been "offshored" out of total U.S. jobs of about 140 million. Perhaps 9 percent of U.S. service jobs might theoretically migrate abroad, McKinsey says, but "it is unlikely that all these... jobs will move offshore over the next 30 years." There are practical obstacles: language differences; management resistance; computer incompatibilities. Similarly, it's easy to overrate trade's impact on factory jobs. A study by economists Martin Baily of McKinsey and Robert Lawrence of Harvard attributes roughly 90 percent of manufacturing's recent job losses to domestic forces.