Thursday, October 9, 2008

Another cost of globalization

I have had disagreements with people, some through this blog, some not, who contend that I am anti-globalization, that I fall in with the blood-throwing wild-eyed anti-WTO nuts. I am lumped in with those who believe in protectionism, I guess because I don't genuflect to a copy of The World Is Flat, Tom Friedman's tribute to the wonders of globalization, reporting he did based on talking to a series of people who are profiting from, well, globalization.

It is a measure of our increasing need to polarize our opinions that you're either for unbridled globalization, or you're in favor of building high walls around the nation and keeping out all foreign influences. Yet, if there's one thing history teaches us, especially recent history, it is that extremism is almost never desirable, that a vast array of society needs to fall somewhere between the two poles.

One way this mediation happens is through government policy; when mediation fails, we see it as some groups profiting at the expense of others. Take globalization's employment component, the offshoring of jobs. We see companies and their executives making large sums of money from the destruction of towns and careers, and it's clear that they're not paying anything to compensate the nation for that destruction. In fact, tax policy actually makes offshoring that much more attractive.

Now I'm not saying, and never have, that government fiat should ban offshoring, that jobs should be forcibly maintained in a high-cost country like the United States. Even if it were possible to craft legislation that would accomplish job retention, it probably wouldn't work, not without massive dislocations (and, of course, certain industries would find ways to get around restrictions, mainly through lobbying).

But offshoring has massive costs that are not being borne, even in part, by the entities that are profiting from it. Those costs are being endured by the people who can least afford it, those folks who have lost their careers (and I do wish we would stop talking about job loss; career loss is a far more accurate term for a lot of people) and the communities that depend on those people. The multinationals march into the future of infinitely large Chinese and Indian middle classes, leaving behind citizens of the country that financed their growth in the first place.

The point is, if retraining and longer unemployment benefits are the best answer we can come up with to deal with job dislocation (and they are decidedly imperfect), then it is not wrong to expect corporations or their executives to pay for those things. Vague hand-waving about how society is made better through globalization does nothing to ease our transition through this great experiment.

Now maybe you don't believe what I'm saying about offshoring. Perhaps you believe that the labor market is one big crapshoot, that you take your chances when you choose a profession - if it turns out that Indians can do your job more cheaply, that's just the way it goes, too bad. And while I believe that belief comes from a horrendous misreading of the American Dream, it's your right to feel that way.

But then you see what's happening to world financial markets. As globalization has increased, finance has become increasingly interlinked, and a crisis in one economy can bounce around the world and back as fast as the bits can be transmitted. There's a cost here in increased risk, and there's a sense that no one has paid for the assumption of that risk.

However, the cost always has to be paid, and a cost that comes out of necessity is almost always greater than one that is planned. And that's what we're seeing now, as our government is planning to shovel out a seemingly endless supply of money to fix problems. Much of that money is going to companies that, while nominally based in the U.S., actually see themselves as transcending national borders.

When we all pay to stabilize a financial institution that has significant business overseas, we're engaged in a kind of foreign aid. I've argued before that we have missed the reality that offshoring is a variety of foreign aid, in which manufacturing workers in Ohio are paying their careers to people in developing nations. Now we're all doing it, and there's very little assurance that we'll get anything back that is close to what we've paid.

Fareed Zakaria has a Newsweek essay which is pretty close to the mark. He sees the current crisis as "deep, wrenching," but likely less severe than the ones we used to have in the 19th century. Recessions are shorter and less frequent, and it's due to the balance we've struck between the prosperity-creating free market and the regulations we've enacted to curb some of its excesses:
Capitalism is now a global phenomenon, powered by the actions of companies and governments all over the world. Countries will continue to rely on free markets and free trade to get growth and rising standards of living. Over the last three decades countries have liberalized their markets not because people like Bob Rubin or Hank Paulson forced them to do so, but because they could see the benefits of moving in that direction (and the costs of not doing so).
To Zakaria, the true change from this crisis will come in the world's opinion of the United States.
The real fallout of the financial crisis will be the delegitimization of American power. People around the world once saw the United States as the most modern, sophisticated and productive economy in the world. Now they wonder, was this all a house of cards? They listened to American policymakers with respect, even awe. Today, they wonder if these officials know what they are doing. This loss of credibility will have hard consequences. The scholar and analyst Zachary Karabell said on CNN two weeks ago, "We will look back on this as the moment that the global capital base moved outside America." For decades, the United States has attracted massive amounts of capital—80 percent of the surplus savings of the world—which has allowed it to live beyond its means. That era is drawing to a close. America will have to fight to attract capital and investment like every other nation.
He argues that the solution will come from "smart government," from effective policy-making instead of rote citing of "ideological mantras." But we're a long way from that:
Policies are designed to pay off powerful constituents rather than generate long-term growth. We have the most expensive and inefficient health-care system in the industrialized world, the most wasteful energy usage, the lowest savings rate, the worst maintained infrastructure, a complex and corrupt tax code. We've gotten by despite all these problems because the overall system has been dynamic and the world looked to America as the place to put its savings and its faith. But the free ride is coming to an end. It's time to get serious.
Of course, Zakaria offers no way to get to that seriousness, no one does, because our system is so entrenched in its beliefs that we can't look beyond them. Our more progressive presidential candidate isn't talking about anything so radical as fixing these things, offering only hazy "change," so caught up is this country in its worship of the free market.

And now we have a bailout, and another one, and another one, and we throw money we don't have at our problems, and we take it upon ourselves to fix a global system. We don't fix health care, because we need to cut in all the wasteful third parties that are a part of the problem now. We don't turn off our minivans when we wait for little Billy to finish soccer practice, because we want to use gasoline as an inefficient source of heat. We don't want to save money, to defer gratification; after all, we "deserve" our little luxuries.

And we see our status in the world decline, we watch the ideals that once defined America become tarnished through greed and fear, and we tell ourselves, everything's going to be all right, because it always has been before. And we slide, not all that slowly, into the abyss.


Anonymous said...

I think you've misread the American Dream. Life, liberty, and the pursuit of happiness. No promise of a pony!

Here's an anecdote from my idiosyncratic life: I learned computers as a child. I earned from computers only ten years later. The last recession left me out of work for 2 ears. In that time, i re-learned my passion for computers. And I started a software business that markets directly to a global customer base through the internet. So I didn't spin a spinner in college and take my chances. I did what was in my heart, and I accepted the life it held in store for me. So I don't understand people who came in for the money. I kind of wish the money would disappear. In a sense it did with open source... do you write essays against that?

Moving jobs is expensive, and this cost is borne from the owners.

In my state, the cost of unemployment payouts are borne by the owners.

Another statistic I'd like to study is: How many people are employed globally by software now, vs 20 years ago. I suspect the current situation would not be possible without the contribution of new international labor sources. And so while you believe careers have been destroyed, I believe the converse would prevent a useful global industry. Would such a scenario accelerate our abyss slide? I think so.

I share your objection to tax policy promoting offshoring. And I agree that mass job dislocation is a serious problem that governments should address. Laws already exist in many states that require notification for layoffs with many large employers.

By the way, I was in the WTO riots! Good times!

Please do tell me I need a dictionary again! Love it! What a winner! Seriously guy there's a frustration with you that pervades everything you write. I follow a lot of blogs that tackle these issues without this... passion, yes... but also a sort of deep fearful cynicism. That's what I want to understand about you.

Anonymous said...

For a counterperspective on globalization and also that which offers a different take on Friedman's book, I would like to recommend a small, but interesting book, by Aronica and Ramdoo, "The World is Flat? A Critical Analysis of Thomas Friedman's New York Times Bestseller."

Interestingly enough, the book written about two years back, discusses in the following chapters,
"Debt and Financialization of America"
"America"s Former Middle Class"
"A Paradigm Shift for America" with prescriptions for the future

the debt ridden American society, deregulated financial institutions, mortgage crisis and other related issues, with clear pointers to the economic crisis gripping US today. For more information regarding the same, check this out:

This is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike. As popular as the book may be, some reviewers assert that by what it leaves out, Friedman's book is dangerous. The authors point to the fact that there isn't a single table or data footnote in Friedman's entire book.

"Globalization is the greatest reorganization of the world since the Industrial Revolution," says Aronica.

You may want to see
and watch
for an interesting counterperspective on Friedman's
"The World is Flat".

Also a really interesting 6 min wake-up call: Shift Happens!

There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation

Androcass said...


Thanks for the info. I've heard good things about the Aronica/Ramdoo book, but haven't run down a copy yet.

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