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There's no question that "globalization" has been a defining feature of the political economic landscape for the last seven decades. It has led to phenomenal increases in living standards for a huge portion of the world's population. It has revolutionized the way the global community interacts. It has also resulted in a fierce backlash from those who feel threatened by the changes it has wrought, and by those who have been left behind.

But what is globalization, anyway? Economic globalization, in a classic definition, is described by Stanley Fischer as: "the ongoing process of greater interdependence among nations [and] is reflected in the increasing amount of cross-border trade in goods and services, the increasing volume of financial flows, and the increasing flows of labour." For the most part, this definition holds true. However, it's the "for the most part" bit that Paul Romer takes issue with in a recent NBER paper. I can't find an un-gated version, so I'll lay out the basic argument here.

Let's start with the fundamental assumption in economics that more world trade = good, due to comparative advantage. We then add another basic argument: that the life expectancy of the vast majority of mankind depends upon ideas: techniques, therapies, and treatments developed in the health sciences. Capiche?

Now consider this scenario: you have pill X and pillY. A rich-world worker can produce 10X and 10Y pills per hour, using the latest formulas; a worker in a poor country can only produce 3x pills or 5Y pills per hour, and uses and older, generic formula that is less effective. In a typical textbook trade model, the rich-world has a comparative advantage and should export their (more effective) pills to the poor world. However:

"Trade in pills is an obvious sign of inefficiency. The efficient form of trade would have the workers in the poor country making pills that use the same formulas as the workers in the rich country. If the rules in these two countries give workers in the poor country access to the formulas for the pills at no charge, we would have large gains from globalization and no conventional trade in goods or services.

Just to make sure that I am not cited by the thought police, this does not show that trade restrictions are good. Nor does it show that intellectual property rights are bad (or good). It does show that we need a richer vocabulary, one that can allow for the possibility that such ideas as the formula for a pharmaceutical can also flow across a border. If flows of conventional goods and services are the only things we see and describe, we will miss the deeper forces and sometimes get the sign wrong. More conventional trade can be a sign of something wrong: inefficiently low cross-border flows of ideas."

Romer breaks down the concept of ideas into two pieces: technology and rules. Technologies are ideas about how to rearrange inanimate objects. Rules are ideas about how people should interact.

To illustrate: in the 1990s, the Chinese airline industry was one of the most dangerous in the world. While they were using similar airline technologies as other parts of the world, they did not have a common airline language/phrasebook, and this led to confusion. Starting the mid-1990s, Boeing (which had invested in the technology) began offering free training (changing the rules) for airline personel and airtraffic controllers; the number of crashes plummetted. The rules need to fit the technology.

By contrast, Romer points out that private firms have frequently failed to introduce modern water technologies, with clear health benefits, to countries where there weren't effective rules for regulating private monopolies. In this case, it may be too expensive or difficult for private firms to try to change the rules, and so the technology isn't spread.

What is the take-home message?

"How we think is influenced by what we teach, and what we teach about the gains from globalization may do more harm than good. It encourages two types of errors. It suggests that technologies cannot be copied and that rules are easy to copy. In each case, it would be more accurate to say that incentives matter. Rules matter because they change both the incentives for flows of technologies and the productivity of technologies that are available locally. "

So when it comes to economic development, we need to break free from the traditional understanding of economic globalization to consider the transfer of ideas and how they can be implemented effectively. I'm confident that people who work in this field have known this for years - perhaps it's time that academics caught up?

IPE Journal looks back at the political events, people and trends that defined our world in 2008.

- The worst financial crisis since the Great Depression sets in motion a paradigm shift in global power and authority. The state reoccupied the commanding heights of the global economy through stimulus packages, banking nationalizations and automotive bailouts. The IMF regained relevance, and political fortunes were turned in response to the crisis. The G20 replaced the G8 (but for how long?), and the WTO sadly threw in the towel for 2008.

- Barack Obama was elected the 44th President of the United States in one of the largest electoral landslides in decades. He is the first African-American elected to the highest office. He quickly established a "team of rivals" cabinet, bringing together the best, brightest and (slightly) bipartisan to implement his foreign policy and economic agenda. This agenda will likely be defined by what has been called a "21st century New Deal".

- Russia invaded and briefly occupied much of Georgia. The conflict reasserted Russian influence in its "near abroad", exposed EU divisions over Russian relations and raised tensions over NATO expansion and US missile defense in Eastern Europe. It also exposed the real power dynamics in Russia, with Putin effectively orchestrating, commanding and negotiating throughout the conflict. However, by the end of 2008, the financial crisis would for the first time raise questions over Putin's rule as the country was forced to devalue the rouble and ripples of unrest began to sprout up.

- Parts of Africa continue their descent into hell. Kenya erupts, Somalia struggles, and Darfur is a humanitarian disaster. Fighting has resumed in the DRC with Rwandan support, and Mugabe has maintained his iron grip on power, squeezing Zimbabwe dry in the process. Mbeki left office in South Africa, paving the way for Zuma in 2009. The world now looks to Ghana in the final days of 2008, and hopes for a victory for African democracy.

- The Treaty of Lisbon, an attempt to streamline and bolster the EU, is rejected by Irish voters, temporarily killing the process. While certainly a setback for further European integration, Europhiles promise to continue holding referendums until the voters get it "right." A December summit laid out the blueprint/compromise for Lisbon's revival in 2009, and, for possibly the first time in EU history, ended with universal praise of a French president.

- Attacks in Mumbai: as of yet, not a defining geopolitical event since Pakistan and India worked hard to prevent the situation from escalating. Nevertheless, this is a potential touching-off point for the nuclear rivals in 2009. It also might (by design??) divert Pakistani attention away from fighting terrorism in the northwest tribal areas, and reignite violence in Kashmir. The implications of Mumbai are vast, and potentially destabilizing for the entire world.

- Israel, in response to repeated rocket attacks, and in advance of national elections, pounds Hamas and infrastructure in Gaza. The year's final week produced one its most explosive events, as the fighting in Gaza risks wider political instability and a humanitarian crisis in the territory. Many analysts believe that Israel's overwhelming aerial assault is an attempt to dictate a new truce with Hamas, but its military establishment is signalling that the shock and awe may be only the first phase in a wider operation aimed at removing Hamas from power.

***Co-written by Dave Hart

Jacob Zuma has shamefully countered global appeals for Mugabe's removal, and the people of Zimbabwe lose again.

Check out this cool website "dedicated to showcasing African ingenuity." Definitely makes you think twice about throwing stuff away.

Things I've found over lunch today:

• Togolose inebriation innovation
  
• USAID bags used to insulate homes
  
• Some very cool handmade toys

Just when things couldn't possibly get worse in Zimbabwe, they tragically do. Zim's health minister has declared a national emergency, as a cholera outbreak has claimed the lives of at least 565 people. The UN estimates that more than 12,500 are infected, and given the water, sanitation, and medical situation in the country, the death toll may rise substantially. The WHO believes these estimates may be significantly lower than the actual figures.

The cholera outbreak not only underlines the collapse of the state under Mugabe, but the danger posed by the current deadlock in powersharing talks between Zanu-PF and the MDC. The country is in desperate need of a new government, and the foreign aid and assistance that will likely coincide with such a transition of power. Aid is essentially frozen in boycott of Mugabe, and a large part of the medical system's failure can be attributed to the brain drain and flight of skilled workers (including doctors and nurses) that Mugabe has instigated.

There is hope. The health minister's announcement coincided with perhaps the strongest condemnation of Mugabe by an African leader to date. Kenyan Prime Minister Raila Odinga has branded the powersharing talks "dead" and called on African governments to "push [Mugabe] out of power". However, as Odinga acknowledged, Mugabe basically serves at the will of the South African government, and only serious action by the ANC to push Mugabe out will succeed.

South Africa's cabinet has called an emergency meeting to discuss the deteriorating situation in Zim. It is time the ANC stood up and assumed the responsibility it has for the crisis to the north. Jacob Zuma and the African Union are confronted with an opportunity to rid Zim of Mugabe forever. It is their duty to turn the human devastation of the cholera outbreak into a new beginning for Zim and its people. They must act now.

Politique
-G20 leaders arrived in Washington for a summit that had been hailed Bretton Woods II. With President-elect Obama avoiding the summit, and sharp differences between world leaders on the reforms needed to repair the international financial and economic systems, the summit ends like so many before it- with a consensus on principles, little coordinated action, and an agreement to meet again. Declaration text here.

-A regional war looms as the situation in the DRC deteriorates. African peacekeepers are impotent and declared targets by Nkunda, the number of foreign troops/mercenaries in the country grows by the day, and southern African leaders are threatening full-scale military involvement. The NYT looks at the role of minerals in the DRC's history of conflict.

-The EU agreed to restart talks on a strategic partnership agreement with Russia following an EU/Russian summit at Nice. Russia hasn't met the EU conditions set out as a prerequisite to talks following the conflict in Georgia, and it seems only Lithuania has the spine to say so.

-Iraq's cabinet approves new security pact with the US. The agreement extends US troop mandate through 2011.

Economia
-Paulson shocks congress with plan to spend remaining TARP money on capital injections into troubled institutions and companies and consumer spending. The Treasury will no longer purchase illiquid assets, and congressmen/women of both parties are screaming "bait and switch". Paulson deputy Kashkari testified before an angry House, with Rep. Elijah Cummings asking him, "Is Kashkari a Chump?"

-Treasury v. FDIC. FDIC's Bair wants to directly assist 1.5 million homeowners in the US, while Paulson resists a (*cough-cough*) "government spending program"- Paulson believes that his actions are "investments".

-Is a sterling run imminent? That's what George Osborne, Tory shadow chancellor, implied this week in criticizing Gordon Brown's fiscal plans. Osborne's political career is likely done. Sterling has hit a 6-year low against the dollar at $1.49, and Simon Derrick at BoNY Mellon believes sterling's position is now worse than Sept. 1992.

-Eurozone enters its first official recession.

The Rest
-India celebrates first lunar landing.

-This week in Japanese innovation: a robot that feeds you, and bionic legs.

-Arsenal's Prem title run is dead in the water.

-Gordon Brown: control freak.