Author: Edward Goldberg, 2017
“In 2016, I wrote a book entitled The Joint Ventured Nation: Why America Needs a New Foreign Policy. The Joint Ventured Nation was about globalization: putting it into historic context, and how America’s foreign policy needed to adjust to that change…”
Edward Goldberg is Adjunct Assistant Professor at the Center for Global Affairs.
Photo from Pixabay under Creative Commons.
In 2016, I wrote a book entitled The Joint Ventured Nation: Why America Needs a New Foreign Policy. The Joint Ventured Nation was about globalization, putting it into historic context, and how America’s foreign policy needed to adjust to that change. I am now halfway finished with my new book, The Globalization Manifesto. This new book is not about foreign policy per se; it is about the 900-pound gorilla named globalization that has reshaped America. It is about why globalization is here to stay, why America is the winner in the game of globalization, and why all the king’s horses and all the king’s men can’t put the Humpty Dumpty of yesterday’s non-globalized world back together again.
Globalization is a natural part of the human condition. It is the economic, political and cultural version of evolution. Globalization is not a new phenomenon; it existed thousands and thousands of years before Tom Friedman wrote The World is Flat. What is new is its speed.
As the Israeli historian Yuval Noah Harari points out, some cultures began swallowing and absorbing others from the earliest times of history.
For example, consider the history of tomato sauce and pasta in Italy. Tomatoes defined globalization during the Renaissance. The tomato originated in the Andes mountains, travelled to Mexico where it became part of Aztec cuisine, was brought to Spain by the returning conquistadors in the 1500s, shortly afterwards arriving in Italy where it was reportedly first used by Cosimo de’ Medici, not in a sauce, but as an ornamental item. For its part, pasta appears to have originated in Greece and the Middle East, and was brought to Italy not by Marco Polo, as the myth states, but by Arab traders.
The United States is a child of globalization, born during one of globalization’s earlier inclinations, the European age of discovery. Globalization is part of America’s DNA. To try to separate globalization from America would be like separating a child from its mother.
Long before the current term “globalization” became popular, the United States as a country defined the word. Founded by a mixture of cultures— British in New England, Dutch in New York, French in New Orleans, Spanish in the west and slaves from Africa—the United States then opened its doors in the mid-to-late 19th century to massive immigration from all over the world. In the second half of the 20th century, the United States not only created the rules that allowed the current era of globalization to spread around the world, it also became the enforcer of those rules.
And America was—and still is—the biggest winner in the current era of globalization. Of course, a country like China that was in abject poverty became much richer because of globalization, but America became even wealthier. In a globalized world, trade is only a zero-sum game in the negative when major economies become poorer and drag their trading partners down with them.
Take a look at what has happened since 1980, when globalization first started to be a major factor. The United States at that time had a gross domestic product of $2.8 trillion, while China’s was only $302 billion. By 2016, the US economy had grown to $18.56 trillion, and the Chinese economy grew to $11.3 trillion. The US economy grew massively during that period, even taking into account the crash of 2008. Of course, China’s rate of growth during the same time was much higher, but that is just basic common sense. If you start with very little, you need to catch up. China needed to build steel mills and highways, and to electrify its rural areas. The United States did all that a long time ago. The point is that the United States did not get poorer as China grew—quite the opposite.
Since China started at practically zero when globalization began, its winnings look much more impressive to the outside world than reality. In the aggregate, of course, China has become a much wealthier country, but, on a per capita basis, it is still very poor compared with the United States. As an example, in 2016 China’s per capita GDP—based on purchasing power parity—was only $15,400 compared with $57,000 per capita for the U.S. Even Greece, the sick-person of Europe with a per capita income of $26,800, is wealthier than China.
But while China was getting richer, American consumers on the whole—and especially the middle lower class who, because of a smaller income, tend to spend more on basic goods—benefitted enormously from globalization. As an example, look at a basic item like baby and toddler clothes. According to Pietra Rivoli, a trade expert at the McDonough School of Business at Georgetown University, on account of imports, the price of these items dropped by 10 percent from 1999 to 2013. According to the Dallas Fed, Americans saw their choice of products expand by one-third in recent decades on account of globalization. Just look at the variety of fruits and vegetables at one’s local grocery store, even during the heart of winter.
Then, unfortunately, something very radical happened: The United States—ignoring its own history—constitutionally elected an anti-globalization President. A counter-revolution against globalization had been growing rapidly around the world, and on November 8, 2016, those forces captured the U.S. Presidency.
Employing the rhetoric of anger and disillusionment, Donald Trump (setting aside any Russian interference) and the anti-globalization forces were able to reduce the complex subject of globalization to the simple perception that America’s elitist leadership had sold out to the forces of globalization as it marched through the country, destroying jobs and challenging America’s right to freely act in the world. The spin-makers of the counter-revolution had aggressively popularized the idea that world growth is a zero-sum game, and since China’s economy had grown substantially over the past 40 years, it had to mean that the U.S. economy had declined substantially. By implication, the international norms fostered by America’s so-called elites since the fall of the Soviet Union were in fact traitorous to the American people.
We know that there is no record of a counter-revolution against the tomatoes during the Renaissance. But, possibly, that is because the tomato went gradually from being a table ornament to a staple of the Italian diet. Gradual globalization is the true natural human phenomenon. The difference now is the speed of change, as we no longer have the option of centuries to adapt or even decades but—at best—months before there is new change. The purpose of my book is twofold: first, how—within this climate of speed—the counter-revolution against globalization that feeds on the inability of people to rapidly adapt to change will fail, and second, why globalization is necessary and will succeed.
America’s enemy is not globalization; America’s enemy is America. The anger that fostered America’s counter-revolution against globalization derived from the fact that the benefits of globalization were not shared throughout the regions of the country, that there was a severe breakdown in how the American system responded to revolutionary changes in the economy. During previous periods of massive economic upheaval and change—such as the Industrial Revolution or the Great Depression—the American democracy united to reform and reinvigorate the system. There was no similar response this time to support those who were hurt by the massive changes in the economy brought on by globalization. There was never even a full political discussion about how to harness globalization for the benefit of all, laisse- faire simply won without a fight.
Just look how differently China and the United States perceive the benefits of globalization. President Xi of China went to the World Economic Forum in Davos, Switzerland in January of 2017 and easily praised globalization. Of course, he leads a country where just about everyone over the last 40 years benefited greatly from globalization. Whether it is the 50-year-old Chinese peasant who remembers living without running water, or the hundreds of millions of people who have moved into a Chinese version of middle-class life, or the over one million people who now have assets of over a million dollars, China’s citizenry as a whole benefited from globalization. In contrast, two months before Xi’s speech in Davos, Donald Trump was able to win the Presidency on an anti-globalization platform by exploiting the deep range of anger felt by the many Americans who had been left out of America’s Manhattanized globalization boom.
The 2016 election brought into daylight two sharp fissures in the American electorate created by globalization. The first was between the “Newocracy,” America’s new aristocracy, the beneficiaries of globalization—including the multinational manager, the technologist, and the aspirational members of the meritocracy—versus the “refugees from globalization.” This, in fact, is America’s real refugee problem: middle-class American industrial workers who no longer have the job skills to maintain their previous lifestyles in a globalized world.
The other major fissure is between industries, between the new industries and the old, between steel and coal, and the new globalized human capital-based industries of artificial intelligence and e-commerce. What has made the United States the principal creator of the knowledge age is its ability to adapt to change —an ability derived from the United States’ cultural respect for the freedoms to take risks, to innovate and to be entrepreneurial. However, innovation by definition brings about change, creating winners and losers.
In the American economic/political system, the notion that government and industry are totally independent of each other is a simplistic myth. How long the losers survive, and how quickly the winners can grow, is partly determined by which industries get government support and protection, and which do not. For instance, the old-line industries want government protection from imports with penalizing duties, while the new industries want free trade. Where “Made in America” is an important slogan for U.S. Steel, Apple relies on global sourcing and the global exchange of ideas. Consider the industrial leaders who backed President Trump and are in his cabinet; they are primarily investors in the old fixed-asset economy of America, while the new leaders of American corporate life, the Silicon Valley of America, primarily backed Hillary Clinton.
But although the old industries won the election, they had already lost the war. Globalization, the breeding ground for the new industries, is not going back into the genie’s bottle. Consider the Trump protectionist crusade against China in support of American steel at the start of his administration and ask yourself which side will eventually win. The steel industry in the United States in 2016 employed one-tenth of 1 percent of the American work force, approximately 87,000 workers, while ironically the steel-importing industry employed over 60,000 workers in the United States. Without a doubt, the steel industry over the last 20 years has been hemorrhaging workers. Steel jobs nationally fell more than 35 percent just last year, and the year before steel employment had fallen by 4,000 jobs, down from 135,000 jobs in 2000. However, these numbers have little to do with imports, instead being based on automation. The truth is that in the late 1970s, it took ten workers to make a ton of steel, while today it only takes one.
Compare this to the American auto industry; a truly globalized player with its integrated global sourcing, manufacturing and marketing. China is now GM’s largest market with 11 joint-venture plants in China that have produced and delivered in 2016 more than 3.8 million vehicles. Or look at Apple, whose second largest market is in China. A trade war with China to protect the U.S. steel industry would almost certainly threaten GM and Apple. A trade war might make sense as political rhetoric to feed the base, but in reality it is a non-starter.
Furthermore, consider Boeing, in many ways the crown jewel of American sophisticated manufacturing. Although it assembles its planes in the United States, it sources the parts for these planes from all over the world. Parts for Boeing’s 787 Dreamliner come from 5,000 factories worldwide. The forward fuselage comes from Japan, the engines from England, the entry doors from France and the rudder from China. The Boeing 787 might be trademarked Made in America, but in the air it is the flying definition of globalization, a true mutt.
The 787 represents another sharp contrast between the old industries and the new. The new industries straddle globalization, seeing the world itself as the marketplace, understanding that in order to sell to the world, they need to buy from the world. Boeing would need to shrink tremendously as a company to be a supplier of just domestic commercial aircraft, as approximately 70 percent of Boeing Commercial Airplanes’ revenue comes from customers from outside the United States. GE is similar, as in 2017 almost 70% of its revenues will be from outside the United States. In order to sell to the world and not create local foreign pressure to build competing commercial aircraft factories, Boeing—like GE—recognizes that it must share the wealth by sourcing across the world.
Accentuating the divide between the newocracy and the refugees of globalization—and between the new industries and the old—is the fact that the United States and the world have entered the age of human capital. Since the invention of the spinning jenny in 1764, manufacturing and the people it employs have been the underlying basis of all modern economies, and the foundation of America’s middle class. This is no longer so. The world is shifting very rapidly from the manufacturing age to the age of human capital, a shift in many ways similar to the change from the Bronze Age to the Iron Age. The difference is that today’s change is not happening over centuries, but literally overnight.
As the world moves further away from the age of manufacturing, the loss of manufacturing jobs because of automation and technology has become an easy issue to exploit as a rallying cry against globalization, even though their connection is tenuous.
Globalization had nothing to do with all the jobs lost in upstate New York by people who used to make Brownie cameras; does anyone buy a Brownie camera anymore? Additionally, globalization has nothing to do with the department stores that can no longer compete against Amazon, or with your neighborhood supermarket where cashiers have been replaced by scanners. If there is one thing we know for sure is difficult to build a wall around, it is automation.
But beyond the rapid changes in technology, a basic human factor has affected globalization’s appeal: the bloom is off the rose. The original halcyon hopes of the early 1990s have given way to a much more realistic view, not only of the positive elements of globalization, but also of the potential negatives.
The 1990’s were a period of elation, as the Cold War had ended, borders were opening and there was a distinct sense of increasing global unity. Technology was not yet threatening; it was, rather, an exciting vision for tomorrow: the IBM ThinkPad laptop had just gone on the market, and more than 4,000,000 Apple 2 computers had been shipped by 1993. And 9/11—the horrific punctuation mark that continues to shape our public lives—had not yet occurred. The 1990s were also a time of increased prosperity, a time when a rising tide was lifting most boats. Warren Buffet says that, “Only when the tide goes out do you discover who’s been swimming naked.” So it was to be with globalization. Before 9/11, before the financial crisis of 2008, before terrorism in Western Europe—all related to the downside of globalization—the underbelly of the Globalized kumbaya was not apparent. Now the fear created by these events—fueled by the speed of technological change—has ignited the counter-revolution against globalization.
The book I am writing explores how America and the world it created are now in a war between yesterday and tomorrow. America, along with the concept of globalization, is now at a severely destabilizing crossroads. From the time the current era of globalization began to emerge, it was assumed that, because on the whole globalization made societies wealthier, governments would support policies that would enhance global interaction and growth. This assumption has now hit a political wall of nationalism, fear and economic discontent. America—essentially the creator of globalization—is now cannibalizing the system it created. Globalization has been overshadowed by xenophobia, while the lessons of history have been abruptly ignored.
Beneath all the noise, globalization, however, continues to move forward. Globalization, as described by the State University of New York’s Levin Institute, “Is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.” The World Economic Forum adds to this statement by including this phrase, “globalization also [has] a cultural element, where traditions are traded and assimilated.” These definitions, however, ignore one of the most basic points about globalization: Throughout history, countries that blocked globalization withered. This is a truism that has affected all nations whether it was the withdrawal of the great fleet and restrictions on shipbuilding by the Ming Dynasty in China in the mid-15th century, the emperor’s fear of building railroads in the Austrian – Hungarian Empire in the 19th century, or the insularity of the Soviet Union in the late 20th century.
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