I love the opening description.
Bird's Eye
By Karl Zinsmeister - American Enterprise Magazine
Don't Be Afraid of Competition
An English princess, with Egyptian boyfriend, riding in a German car powered by a Dutch engine driven by a Belgian tippling on Scottish whiskey, is chased by Italian paparazzi on Japanese motorcycles and crashes in a French tunnel. She is treated by a U.S. doctor using Brazilian medicines. She dies.
It’s true: Di was KILLED BY GLOBALIZATION!
Recently, a fascinating menagerie of capitalism-haters, xenophobes, union die-hards, enviro-radicals, cultural reactionaries, and Massachusetts senators have been proclaiming the evils of globalization (which is just a $50 word to describe the fact that the entire world is becoming one big interlinked market). Armed with the shocking facts I’ve assembled above, enraged activists should be able to lever enough sympathetic coverage out of Barbara Walters, Mike Wallace, the New York Times, the National Enquirer, etc. to expand the anti-globalization crusade even further. If the masses who dropped Teddy Bears on Diana’s grave can be mobilized, then maybe the Benedict Arnolds and sweat shoppers and downsizing demons who are ruining America (after outsourcing the Princess of Wales to the Elysian fields) will FINALLY BE STOPPED!
Of course, one could draw a different conclusion from the international nature of Diana’s last fling. One might say that globalization is now so woven into our lives as to be simply a bedrock fact of modern existence. The availability of cappuccino in Missouri convenience stores, imported Cadillacs rushing past Lenin’s tomb on the streets of Moscow, men with names like Ichiro leading off our baseball games, the migration of spring break from Ft. Lauderdale to Mexico—these things are now as permanent and irreversible as the disappearance of whalers, bare-breasted maidens, and head hunters from the South Pacific. You may love the change, you may mourn it. But there’s no use in picketing. Life moves forward.
And today, changes occur more rapidly than at any time in the past. I will be the first to admit this can sometimes be disorienting. I was a little taken aback when I picked up a tube of good-old Crest toothpaste from my sinktop last year, started to read the label, and found the words “Made in Mexico.” O.K., we all recognize that labor-intensive products like blue jeans or green beans may be less expensive to produce in a place like Mexico. But toothpaste? I imagine that mixing the minty stuff and injecting it into plastic sleeves has been a low-labor, highly mechanized process for decades. How could it possibly be more efficient for Procter and Gamble to move everything south of the border, let the machines run there, then truck the heavy tubes all the way to me in upstate New York? I scoffed at this for a day or two. And then I just let it go. I’ve got to assume there is some advantage in doing business that way—or else nobody would have gone to the trouble to set it up. Why battle the natural economic breezes?
This issue of The American Enterprise features an interview with Fred Smith, the man who dreamed up FedEx and the overnight delivery business that is now such an important part of our lives. In one of his many memorable declarations, Smith has said of his company that “We are the clipper ships of the computer age.” That’s exactly right. Now, anyone who has seen a schooner under full sail might miss the romance of the sea merchants. But they did exactly what FedEx does today, only less reliably and a lot more slowly. The Flying Cloud was fine for importing tea, but try waiting on it to deliver blood you badly need for a transfusion.
The undeniable reality is that most of the economic transformations which dizzy us today also leave us better off—dramatically so over the long run. There are something like 25,000 different items in the inventory of an average supermarket these days. I ate lots of grapes this winter; I have no idea what country they came from, but I’m sure they weren’t grown in New York. Globalization gave me a nice alternative to raisins.
Nonetheless, a minor economic hysteria is currently sweeping this country. It started with the Democratic primary, when the candidates went looking for sticks with which to beat George Bush. John Edwards, Dick Gephardt, Howard Dean, John Kerry, and company noticed that the popping of the dot-com bubble in 2000, the 9/11/01 attacks, and the uncovering of the 1990s corporate accounting scandals brought a recession. They wailed loudly about employment losses, a “jobless recovery,” “outsourcing” ordeals, and “the worst economy since Herbert Hoover”—all of this obligingly echoed by the media. Hearings are being held, TV specials aired, protectionist measures proposed in Congress.
Just out of curiosity, do the facts back up the idea that we’re in an economic fix? Well, no. The U.S. unemployment rate is currently 5.7 percent. That’s lower than the average for the 1990s, or 1980s, or 1970s. As Jim Glassman points out in his spunky column on page 48,it compares to unemployment rates of 9.6 percent in France, and 10.4 percent in Germany.
America’s economy is currently growing faster than that of any other developed nation in the world. Our productivity growth is better than at any point in 20 years. Inflation, interest rates, and mortgage costs are at historic lows; real income has never been so high; home ownership stands at a record level.
When he accepted the Democratic nomination for re-election as President on August 29,1996,Bill Clinton proudly stated that “We have the lowest combined rates of unemployment, inflation, and home mortgages in 28 years.” Well guess what? Those combined rates are even lower today than when President Clinton did his crowing. So why does it feel like you’ve stumbled onto the obituary spread every time you open the business section or front page of a newspaper these days?
The main reason for today’s economic second-guessing is the political season I’ve already alluded to. But I believe there is also a deep-rooted gloom impulse within our national media and parts of our political class which naturally boils over once or twice a decade. The last big roil occurred in the mid 1990s. It was a classic, ideologically induced panic attack, fanned by a series of articles churned out by the New York Times. In the spring of 1996, the Times ran a seven-part series totaling more than 40,000 words titled “The Downsizing of America.” It was the longest piece of journalism printed by the Times since the Pentagon Papers.
It argued that American families and communities were being torn by economic shocks. Job security was a thing of the past. Wages and income were falling! Middle-class Americans were suffering! And employers COULDN’T CARE LESS! The Times announced “an unrelenting angst that is shattering people’s notions of work and self and the very promise of tomorrow.” These same themes were echoed by the rest of the major media. Newsweek ran menacing mugshots of business leaders on its cover under a headline of 3-inch-tall red letters reading “Corporate Killers,” and, on the inside, “The Hit Men.” Leftish professor Robert Reich warned that “there is something terribly wrong, terribly un-American…prosperity is bypassing…most full-time workers.” He insisted that “the precariousness of the middle class is stunningly obvious.” Looking back now at what actually happened during the ’90s as demonstrated by hard evidence—family earnings, personal consumption, home size, a sharp poverty decline, burgeoning college attendance, zooming motorcycle and boat sales, you name it—it’s quite clear that America was dancing an economic jig precisely when these pointy-headed critics were proclaiming doom. “Unrelenting angst,” my eye.
The droopy-mouthed economic Eeyores in our politics and media emerge on a regular cycle, rather like the cicadas that crawl from the ground in force every few years and start singing loudly in our trees. Before 1996’s “downsizing” hysteria there was the circa-1990 “Japan as Number One” phobia. America’s sluggish, selfish, short-sighted business economy was going to be eaten whole by the Japanese, we were told. All I can say now is: Burp!
In the mid 1980s,the hue and cry was over “de-industrialization.” All Democrats, some corporate-welfare Republicans, and hordes of media enablers insisted that America could not survive without a government-controlled “national industrial policy.” And before that, starting around 1980, the mania was a purported “infrastructure crisis.” Walter Mondale, Gary Hart, the New Republic, and others with x-ray vision assured us that our bridges were all about to fall down! Our highways were crumbling! Our ports were on their last legs, and threatening to sink our economy with them! I bet you’ll never guess that the proposed solution to all this potholed “infrastructure” was more government planning, legislating, and spending.
Thankfully, each of these crazes was beaten back by cooler economic heads. And as a result, the U.S. had an extraordinary 1980-2004 economic run. We’ve enjoyed vastly more growth, less indigence, and more technological progress than the Europeans and Japanese, who resorted to heavy government interventions to address similar Chicken Little claims from their own critics of modern capitalism.
But proclaimed trauma is “outsourcing”—which is in turn the cicadas have hatched again. Today’s loudly part of the larger problem of “globalization.” This latter syndrome is felt to be so wicked it has spawned its own “anti-globalization movement.” As amusingly international in scope as the economic trends they decry, the anti-globalists have thrown bricks through windows on all the inhabited continents.
As many observers have pointed out, the anti-globalization campaign has become a catchall for frustrated radicals, malcontents, and utopians of all stripes. “Since the heavily advertised death of socialism, if there’s an idea that unites much leftish economic thought today, it’s that globalization is the root of many evils,” writes the editor and publisher of Left Business Observer. “Anti-capitalism has turned into anti-globalization among left-wing students,” observes Columbia professor Jagdish Bhagwati. Globalization is said by the Left to exploit poor Third Worlders abroad, and to “delay the doomsday for capitalism at home” which Marx so confidently predicted. (Uhhh, we’re still waiting, Karl.) In addition to keeping alive the “anti-capitalist and acute anti-corporation mindset,” Bhagwati notes, “throwing sand into the gears of globalization is seen as a way to spit on American hegemony.” This important element of anti-globalization’s appeal is explored in greater detail by Frenchman Jean-Francois Revel on page 36.
New Republic writer Franklin Foer notes that the anti-globalists “represent a revolt of the affluent. They are college students and graduates materially comfortable enough to condemn materialism.” As they organize their protests on cell phones and the Internet, jet to locales like Cancun and Genoa to set up barricades, and tinker back home in Vermont or Oregon at black-smithing or selling organic vegetables to tourists to support themselves (with the help of checks from mom and dad), these protesters are obvious beneficiaries of the global exchanges and capitalist prosperity that they attack. Some simply feel guilty. “Though their message is muddled, it seems to pretty much reprise the message of the ’60s:concern for the Third World and loathing of American power,” reports Foer.
The anti-globalists aren’t just conflicted college students, though. Many of them—as is easily observed at their protests, in their books, and on their Web sites—are strident and sometimes violent revolutionaries. Leading anti-globalist organizations like Peoples’ Global Action are little more than fronts for warmed-over Marxists who, after the discrediting of communism, under-went cosmetic surgery and mascara-heavy makeovers, and re-emerged as friends of the peasant. As the left-wing on-line encyclopedia “Wikipedia” notes, it is common for anti-globalists to refer to the managers of international companies like Microsoft, Monsanto, and Nestle as “war criminals.” Routinely, “corporations are rhetorically likened to locusts or rapists.” It’s a short step from this kind of language to the violent “direct actions” anti-globalization radicals often take at international economic gatherings, producing deaths and costly damage in settings ranging from Seattle to Ottawa to Italy.
At the heart of the anti-globalization movement is an even deeper radicalism: the rejection of reason. Activists disown the very idea of the scientific method, of economic research, of measurement, of weighing costs and benefits. As the Wikipedia summarizes, they “oppose a ‘tyranny of Number’…meaning any global measurements of people or profit at all.” Adherents have an essentially religious resistance to trade, communication, business, and exchange on an international level.
Anti-globalism is closely linked to the earth-worshipping Gaia ethos, to many madcap notions of “deep ecology,” to peace protestors, to various sexual liberation movements, to Luddism, feminism, socialism, Green ideology, communism, and other irrational fundamentalisms of the Left. At any anti-globalization rally you will see representatives of all these impulses. The more practical leaders of the movement mostly characterize themselves as anarchists.
Just for fun, let’s be war criminals for a moment and practice the tyranny of Numbers. Let’s take some of the complaints of the anti-globalist movement seriously, and see what hard empirical evidence can teach us about their claims. Take, for instance, the idea that global trade is merely capitalist exploitation of weak nations by strong nations. Given how anxious most poor nations are to trade with rich nations (the Third World’s main beef these days is that the First World won’t trade and invest more with them),this sounds a little fishy on its face. But let’s be open minded. What do the real outcomes of recent decades tell us about how freer trade affects poor countries?
The answer is encapsulated in the charts on pages 24,22,27, and 23 of Johan Norberg’s fine essay leading off our feature section. The more a country trades freely, those graphs demonstrate clearly, the less likely it is to be poor. Third World nations that held themselves apart from globalization during the last decade actually damaged themselves, while those who participated in trade and accepted foreign corporations and private investment grew briskly. The true result of free economic exchange is thus not “rape,” but rather things like fewer dead babies, more educated women, clean water to drink, decent houses to live in.
When the influential left-wing charity Oxfam claims that “trade is reinforcing global poverty and inequality, because the international trading system is managed to produce these outcomes,” you are hearing conspiracy theory in its most ignorant form. Does anyone really believe that pot-bellied, cigar-smoking managers in companies like Microsoft and Nestle and IBM actually conspire to run the international trading system specifically so as to shaft poor people? And the first part of Oxfam’s statement—“trade is reinforcing global poverty and inequality”—is just as crackers as its conspiracy dig.
Consider developments in the world’s two most densely poor countries after they abandoned socialism for capitalist trade From 1978 to 1998, poverty in China fell from 28 percent to percent, according to statistics from the Asian Development Bank. In India, poverty declined from 51 percent to 26 percent over the same time period. If you think the simple spread modern technology caused these improvements, independent economic policies, consider that during the quarter century prior to 1978—before China and India decided to tie fortunes to global trade—poverty actually went up in China, and held stagnant in India at 55 percent.
Further evidence of trade’s importance in bringing prosperity to the Third World can be seen in Africa. Africa is the part the world that has globalized the very least. Not coincidentally, it is by far today’s worst suffering continent, hosting 66 percent of the world’s poor. For more evidence on whether international capitalism harms or helps Third Worlders, see Professor Bhagwati’s excellent exploration of the subject on page 28.
A recent change in tactics by opponents of global capitalism illustrates the essential phoniness of many of their objections For a long time, the Left has argued that the problem with globalization is that it enriches the industrial countries at expense of poor countries (“Nike preys on the leatherworkers Malaysia”). But very recently, enemies of capitalism reversed the charge: Globalization comes at the expense workers in the industrial countries (“IBM gives good jobs Indians, betraying U.S. software engineers”).Once and for all: Is U.S. investment in the developing world good for them or for them? Good for us or bad for us? The critics can’t have both ways. In attempting to do so, they demonstrate that anti-globalization complaint is fundamentally a witch hunt—attempt to heap abuse on international business even if claims are directly contradictory.
Let’s bring the globalization debate home. hard facts on outsourcing? Is it treason that damages What are America, as John Kerry has said?
Actually, according to a March 2004 study by Nobel laureate Lawrence Klein and economist Nariman Behravesh, overseas outsourcing increases the total number of U.S. jobs, and benefits the U.S. economy in many ways. Their report looks specifically at the effects of sending computer software and services overseas, and finds that, because the industries which use computers become more productive, the process ultimately produces twice as many jobs in the U.S. as are displaced.
In 2003, Behravesh and Klein estimate, offshore outsourcing of computer services created a total of 90,264 net new jobs in the U.S. The decline of 24,860 jobs in the software industry and 3,393 more in government was counterbalanced by 20,456 new jobs in wholesale trade, 19,815 in construction, 18,895 in transportation and utilities, 18,015 in education and health services, and so forth. By 2008, the authors project, outsourcing of computer jobs will result in a net increase of nearly 320,000 new jobs in the U.S. as a whole. And additional new jobs aren’t the only benefit. The two economists find that computer outsourcing also reduces inflation, expands exports, raises American wages, and yields higher overall economic growth.
One of the problems in judging economic changes is that the disadvantages are usually obvious, whereas the benefits are often hard to see at a glance. Lots of Americans now know that the number of computer service jobs outsourced to India has risen from 110,000 to 250,000 over the last five years. But few realize that over that same period India increased its purchases of U.S. services from $1.8 billion to $3.4 billion annually.
Many more billions of dollars worth of services are sold by the U.S. than we purchase abroad. And it isn’t only in services that the U.S. remains extremely competitive economically. When BMW decided recently to expand the number of cars it manufactures, it decided to “outsource” the work to the U.S. by building a new factory in South Carolina. Germany’s rigid labor laws and high social costs encouraged the decision. American politicians wanting businesses to make the U.S. their first choice when sinking new investments would do well to make sure our regulatory environment remains attractive to others in the future.
The bottom line: About 25 cents of every dollar in our Gross Domestic Product is now related to international trade. In 1970 that ratio was only about 10 cents. Anyone claiming that the internationalization of business is bad for us must explain why the most prosperous third of a century in American history has coincided with an explosion of overseas commerce.
Many of the issues blamed on international trade are, in truth, unrelated. Of the 58.6 million job layoffs in the U.S. between 2001 and 2003, how many would you guess were the result of jobs shifting overseas? Try just 690,000.The rest were simply part of modern capitalism’s normal churn. “Well that raises another problem,” you may say. “What the devil is wrong with an economy that lays off58.6 million people, anyway?” The answer is, “Nothing.” From 1993 to 2002—boom years by any standard—America’s total employment grew by 17.8 million. But do you know how this happened? Fully 310 million jobs were eliminated during that decade, and replaced with 328 million new ones. This may sound bad on paper, but that fluidity is precisely what makes the U.S. a marvel of creativity and new production, and the world’s best locomotive for pulling people from poverty to comfort.
And capitalist churn is not just an American phenomenon; it occurs wherever economies are free to experiment and grow. Between 1995 and 2002,countries like China, Japan, and Brazil eliminated more manufacturing jobs than the U.S., according to a recent study from Alliance Capital Management. Brazil shed fully 20 percent of its manufacturing jobs during that period, Japan 16 percent, China more than 15 percent (mostly from clunky state-owned factories).A willingness to replace less-productive old jobs with more-productive new jobs is the source of affluence today.
Jagdish Bhagwati notes that “when jobs disappear it is usually because technical change has destroyed them, not because they have gone anywhere.” He recalls, “When I came to my university 25 years ago, I got a secretary. Today, the new hires get a computer instead.” And a solution that is economical in one place, he notes, may not make sense in a different setting. “In India, where a secretary costs a small fraction of what one would in New York City, but a computer costs more, any Indian professor who asked for a new laptop would probably get a secretary instead. It is simply a matter of economic reality in both places.”
The real root of this: The world has become extremely competitive. the fretting over globalization, I suggest, is Globalized trade, communication, and travel has clearly ratcheted up competition in many sectors—the economy, technology, education.
It can admittedly be a little scary to compete for your living. But we all know that without the spur of competition, any organization eventually grows fat and lazy. Most Americans welcome the benefits of competition, and rely heavily on it to keep progress flowing.
The question about globalization thus becomes: Do we trust our ability to compete successfully against alternatives from other countries? Do we have confidence that we’ll win our share? Or are we afraid to face the challenge?
This winter’s Democratic debates often seemed to portray U.S. workers as frail reeds, worn out by a mean economic world, tiptoeing right at the verge of tears.Is that you? Is that me? Since when do Americans need to be sheltered from testing ourselves against others? What makes anybody think our society will become stronger if U.S. companies are forbidden from matching their workers against foreign alternatives for tasks like answering phones or writing computer programs or assembling hard drives? For that matter, is it even possible in this day and age to protect second-rate businesses from more productive rivals? One of the wisest responses to the 1996 economic sob story by the New York Times that I described earlier came from writer Robert Samuelson. Behind these whiny stories about the unfairness of economic discipline, he wrote, “is a contemporary consciousness, shared by many journalists, that assumes that people are entitled to life without worries, setbacks, or conflicts—and that anything less is a ‘crisis.’” This is infantilization of grown-up Americans, and it does not become us as a nation.
Nor will it make our society better. “The ultimate effect of shielding men from the effects of folly is to fill the world with fools,” said Herbert Spencer. We have seen this as a practical fact too many times to count. The managers and workers at U.S. automakers slumbered away in lazy mediocrity until sharp competition arrived from abroad. Now their cars are safer, more comfortable, less polluting, and cheaper to buy and operate than in the era before global competition. The battle brought out a better us.
If John Edwards wants to see American workers at the top of the heap, he and his trial-lawyer buddies ought to stop blocking efforts to tame the ridiculous lawsuit costs that drag on many of our companies. Dick Gephardt ought to ask the union bosses whispering in his ear whether the work rules and seniority stipulations and non-portable pensions and costly fringe benefits they’ve insisted upon have anything to do with the migration of work elsewhere. Software engineers interested in heading off Indian outsourcing need to ask their employers what they can do to help stop the mushrooming of employer-provided health care costs.
Wages account for only 10 percent of the total cost of U.S. manufacturing today. Litigation expenses, taxes, environmental rules, workers’ comp, benefit costs, and regulatory expenses total up to more than twice the wage bill at America’s average manufacturer. If they’re concerned about our economic viability, activist politicians should chisel away at those problems. Or, even better yet, address the biggest obstacle of all to a stronger American economy, by opening up our public schools to competition.
The very worst step we could take would be to “shield men from the effects of their folly,” as Spencer put it. Protectionism never helps in the long run. Besides, there is no economic crisis today in need of heading off. At our current rate of annual productivity growth our economy will double in size over the next two decades. That will make life better in many ways small and big. (If, on the other hand, the political class screws up our private economy, the Baby Boomers had better plan to triple up three to a room in their nursing homes, and learn how to divide their blood-pressure pills.) The American economic formula has been the very same simple one that nature uses to produce a taller corn plant: lots of cross-breeding and competition, resulting in impressive upward evolution over time. By inviting the smartest, most diligent, and talented workers on the globe to exchange their best products for ours, we’ve not only grown rich but also honed our own abilities to a very sharp edge.
America is a competing nation, not a shielding and sheltering one. Competing even more strongly in the future is what we ought to concentrate on now.
Published in Are We Being Run Over By Global Capitalism? June 2004
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