Is America Losing At Globalization?

In the just-completed summer Olympics, America's status as the globe's athletic hegemon was clearly under attack. The United States won the overall medal race, edging out China 110 to 100. But the hosts won significantly more gold medals, and favored U.S. individuals and teams fell victim to Jamaican sprinters, Japanese softball players and boxers from pretty much everywhere. Action off the field also highlighted a similar shift in the balance of power, as viewers marveled at the impressive hardware (buildings like the Water Cube and the Bird's Nest) and software (the spectacular opening ceremonies). "None of these was an accident," says Edward Gresser, director of the project on trade and global markets at the Washington, D.C.-based Progressive Policy Institute. "They reflect the deep economic trends of a decade in which our competitors have raised their game and we haven't."

The Olympics may be the ultimate quadrennial global competition. But from China's gleaming maglev trains to India's superior wireless-phone networks, there are also signs that the United States is losing ground in the daily global competition for economic supremacy. In the 1990s, while the loss of manufacturing jobs was controversial, American consumers and businesses seemed to regard globalization and free trade as net positives. The integration of China and the former Soviet bloc into the trading system lowered inflation, opened new markets and brought billions of workers into the labor force. Armed with a strong dollar, Americans roamed across the flat world like Kenyan distance runners.

But in this decade, rampant growth in emerging markets has mercilessly boosted prices for energy and commodities; competition from foreign workers has tamped down wage growth, and the weak dollar has made U.S. companies vulnerable to foreign buyers. "In the 1990s, we got all the upside of globalization," said David Smick, a consultant and author of the new book "The World Is Curved: Hidden Dangers in the Global Economy." "Now we're getting some of the downside."

As a result, Americans are now more inclined to see themselves as victims of globalization—rather than as beneficiaries of it. A Los Angeles Times/Bloomberg poll this spring found that 50 percent of respondents said free trade hurt the economy, while only 26 percent said it helped.

Americans returning from jaunts abroad can't help but notice that the distinguishing features of modern capitalism, many of them developed in the United States, are being put to greater effect overseas. I've had better cell-phone service in Cambodia than in Connecticut. South Korea, and many other countries, has a higher rate of broadband penetration than the United States. An Ernst & Young report found that about 24 percent of America's major roads are in "poor to mediocre condition," while China builds ever-faster trains. In 2000, U.S. exchanges accounted for about half the value of global stock markets; at the beginning of this year, they accounted for just 33 percent. When the sale of Anheuser-Busch to InBev, the Brazilian-Belgian giant, is completed, each of America's Big Three beermakers will be part of a foreign conglomerate.

As capital and financial know-how spreads throughout the world, America's status as the global leader in risk management has taken a beating, thanks to Wall Street's credit immolation. The evaporation of savings has forced American bankers to beg sovereign wealth funds in Asia and the Persian Gulf for new capital. The Big Three automakers are lobbying for federal loan guarantees. The "ownership society"? More like "bailout nation."