Economics: Can the U.S. Survive Globalization?
Robert Reich, former Secretary of Labor under Clinton, now teaches at the University of California at Berkeley.
If we define the world's economic leader as the country with the biggest gross domestic product, China is on the way to claiming that prize. China has over a billion people, and its middle class is growing quickly. But we shouldn't see this as a problem. The global economy isn't a zero-sum game where one country gains only if another other loses. As China grows, it will become an even larger market for our goods and services. It's also likely to be a continuing source of capital for us, buying our government bonds and holding reserves of our currency.
Although we've lost manufacturing jobs, this is partly a result of success. About half of those jobs have been lost to new technology, robots and computer-controlled machine tools, which have replaced old-fashioned assembly lines, dramatically reducing the need for workers. In 1900, more than a third of Americans worked on farms; now, fewer than 5 percent do. The manufacturing sector is following this historical pattern.
Meanwhile, we still lead in building intellectual property-products and services connected with the Internet, computer software, biotech, entertainment, marketing, and finance.
The increasing signs of anti-globalism sentiment are unsurprising given that the typical American got nothing out of the last economic expansion. Adjusted for inflation, the median wage is lower than it was in 2000, and jobs are less secure. Americans want to cast blame, and unfortunately, it's always easiest to blame foreigners-the people who trade with us, and migrate to this country. This could be a large problem in the future. When isolationism last flourished here in the 1930s, it hurt the economy, and if it comes to dominate our thinking, it will hurt us again.
M. Kathryn Eickoff, former chief economist of The Office of Management and Budget under President Reagan
Have you or someone you know closed a business, become unemployed or permanently lost a good job? Is your company downsizing, outsourcing, or moving your position overseas? Are you cutting back on your spending because of inflation and higher credit card charges?
You may have heard that globalization, greedy multinationals or illegal aliens are the cause of our problems. In fact, the opposite is true. Globalization means freer markets and more political freedom worldwide; multinationals are businesses, large or small, that have operations in more than one country; and illegal aliens are people who want a better life so much that they are willing literally to risk everything for a chance at the worst jobs our economy offers. All three are major contributors to our prosperity, productivity and standard of living.
With communism and socialism as examples of disastrous economic policies, the world is rushing to embrace capitalism, although not necessarily consistently; only the U.S. wants to run the other way. People in countries around the world know how much better off they are now than a decade ago. However, there are those among us-politicians, union leaders, and government-fed businesses and others, who whine about the good old days. As Washington's economic dictator says in Ayn Rand's far-sighted novel Atlas Shrugged, "We've got to stand still. We've got to make those bastards stand still!"
Well you can't make the brightest and the best, the most conscientious and most productive stand still without destroying the economy. To raise taxes and tariffs, close our borders, and return to isolationism means a return to the "beggar-your-neighbor" policies of 1930 and the Smoot-Hawley tariffs that led to the Great Depression and World War II.
Wilbur Ross, billionaire investor and past director of the Turnaround Management Institute
U.S. trade and currency policies stimulated world growth but caused huge trade deficits in the United States and inflation in commodity prices. Developing economies use more oil and metal per dollar of Gross Domestic Product than more mature ones, so as these economies grew, commodity prices soared. Meanwhile, their rising standards of living and population growth created extra demand for foods. The immediate way to slow emerging country growth is to increase our exports and minimize our imports by pushing the dollar lower..
The dollar's forty percent decline from its 2001-2002 peaks has been our greatest source of economic strength. June's export growth was our most rapid in years. Further devaluation would foster our exports and reduce those of other countries by slowing our imports. These actions would slow the growth of demand for commodities, relieving inflationary pressures. For example, more than half the dollar value of China's manufacturing exports consist of raw materials purchased internationally. China's huge trade surplus with the United States both offsets their cumulative trade deficit with the rest of the world and provides China with a net surplus.
Our politicians have demanded that China adjust the value of the remnimbi higher (and devalue dollars) but we have trade deficits with many countries so we need a general devaluation. To help the dollar descend, the Federal Reserve Board should again cut interest rates, which would cause some money to flow out of the United States, reducing demand for dollars. Banks don't want to make more loans so rate cuts would not expand the money supply as they normally would, leading to inflation. Developing country commodity demand is causing inflation, not domestic borrowing. Lower Fed rates would also widen interest spreads and replenish bank capital with earnings.
Longer term, we need a "Marshall Plan" for research and development spending. China and India now graduate more than five times as many engineers as we do. At this rate, by 2011 ninety percent of all the engineers in the world will be in Asia. If Asia combines the largest pool of technical brainpower with the largest pool of low cost labor, our trade deficits will become irreversibly larger and Asia's continued rapid growth will drive global commodity prices higher, triggering inflation everywhere.
Bob Lutz, head of global product development at General Motors
The U.S. economy has remained remarkably resilient over the years, often in the face of dire predictions. However, I do feel that there are very alarming signs that we should heed, including the decline in industrial activity, and the nation's focus on the lowest possible consumer prices for goods. That focus, of course, favors imports from low-wage countries, often also those that keep their currencies low in value (making their products cheaper). Much of the erosion of U.S. cost-competitiveness has been driven by exchange rates, not a lack of quality or productivity in the United States.
When American producers of goods-from sneakers to airplane parts-compare the cost of importing products from a low-wage and low-currency country to producing in the U.S., they typically make a rational decision that the product should be imported. This may have been very beneficial for consumer prices but has resulted in an undeniable hollowing out of our traditional manufacturing base. Whenever I read that the U.S. is still the world's largest manufacturer of goods, I find myself asking, "like what, for example?"
The trade deficit shows we're importing vastly more than we're exporting. We're like the family using its credit card to maintain a lifestyle that it is not really earning with the wages and salaries generated by its members.
The decline of the dollar gives us an opportunity to reestablish competitive manufacturing in the United States. While the opportunity exists, it would behoove us to push for more industrial exports, instead of more agricultural exports, where we've always led. The maintenance of the United States as the world economic power is by no means guaranteed, but with the right policy and direction from political leadership, the game is not lost and can, in fact, be won.
Marissa Mayer, vice president of search products and user experience at Google
In order to remain an economic leader, the Unites States must attract and hone the best talent, training leaders who are worldly enough to understand a global economy. But our restrictive immigration policies are in danger of stifling that process.
At Google, I founded and help run two programs for managers. (Similar programs exist at many other successful companies). In two years, we train people with bachelors or masters degrees and less than three years of experience to be great product managers or product marketers and eventually take on management positions. This is our sixth year of offering the associate program, and a number of leaders have emerged to run large projects such as our personalized homepage, iGoogle.
Today, Google is a global company with more than fifty offices worldwide, more than half of our web traffic coming from outside the U.S., and roughly a third of our employees located outside the U.S. To really understand Google-and lead the company as we become even more global-associates need to understand how our offices work around the world. We have associates all over-Mountain View, Seattle, New York, London, Zurich, Tokyo, Beijing, Seoul, Sao Paulo. We would like to rotate them among different countries as part of their training. To make this happen, we need immigration policies that allow us to easily bring people to the United States for a year or two and more permanently as their careers progress.
John Snow, former Treasury Secretary under George W. Bush, and now chairman of Cerberus Capital Management
The U.S. remains the leader of the global economy. A half-century of openness has brought rising living standards not only here, but also to places around the globe embracing similar policies, with more people rising out of poverty over the last 35 years than ever before in history.
Americans succeed in the global marketplace because we are the most productive and creative people on earth, and our economic system, based on the rule of law, has welcomed investment and rewarded success. Even now, U.S. exports are a key pillar holding up a shaky economy.
This has not happened by chance. For two generations a bipartisan consensus worked to open up trade and investment. I was proud to have worked to pass NAFTA, where President Clinton's call to "embrace change" articulated so well how trade brought more of an opportunity than a threat.
The consensus has now given way to election year politics, and trade is a favorite bogeyman. The call to dismantle NAFTA, the most successful market on earth, and the rebuff of our friends in Columbia and elsewhere, smacks of economic isolationism.
But as former Prime Minister Tony Blair declared, debating globalization is like debating whether autumn should follow summer. There's no such debate in China and India, he observed, because they are too busy seizing its possibilities. And so must we.
Larry Lindsey, CEO of The Lindsey Group, an economic forecasting firm, and former economic advisor to President Bush
While America has gained economically from globalization, the biggest gainers have been the hundreds of millions of people in the developing countries, notably China and India, who have joined the global middle class. But the United States has not promoted free trade only for its economic benefits. Beginning with the Marshall Plan and the Kennedy Round of tariff reductions, American trade policy has been based on the belief that prosperity is the best guarantee of peace and the most promising avenue to advance freedom around the world. Our decision to enter into an broad free trade relationship with China after the fall of the Berlin Wall followed this pattern. The current calls for protectionism would reverse an American security strategy that began with Harry Truman and has been followed by Presidents of both political parties ever since.
To prosper, we must make America the best place in the world in which to do business, invest, and create jobs. This means moderate taxation. America already has one of the highest corporate tax rates in the world, and some of the election proposals would sharply increase the taxation of entrepreneurs and people in high-tech, finance and engineering, the skills most in demand in the global market place.
Bart van Ark, chief economist of the Conference Board
The global economy requires competitive and open markets for an efficient allocation of goods, services, labor and capital. This is more important than ever, as access to capital becomes more difficult, commodities become more in demand, and natural resources become more costly. Efficient markets require transparent prices and an open exchange of information, which will need to be promoted by business and regulators, and will require international dialog.
Peter Wallison, fellow at the American Enterprise Institute
The U.S. Constitution created the world's first free trade zone when it prohibited the states from imposing duties or otherwise restricting trade with one another. The free movement of goods and people among the states, the framers of the Constitution had concluded, would create a more perfect union. And so it has. More prosperous, too.
What if the Constitution had instead permitted industrial states like New York, Illinois and Ohio to prevent the outsourcing of jobs to the more agrarian southern states of Texas, Georgia, and Oregon? The northern states probably would have kept their industries, but their sales down South would have suffered because people there would be producing low-value agricultural products and thus be unable to afford more expensive manufactured goods. Wages in the industrial states would have been suppressed by poor sales and by the influx of southerners looking for better-paying jobs. So the northern states would probably have sought to prevent migration from their agrarian neighbors.
If this sounds vaguely familiar, it should. It's what the world would look like if the anti-globalization policies advocated by Barack Obama and Hillary Clinton in the primaries were ultimately adopted. These sound like economic issues but they have a moral core. Despite the growth in India and China-the result of opening their economies to trade-billions of people still live in poverty because they do not have the skills to produce high-value products. If the opponents of NAFTA and other trade pacts succeed in the next election, they will not only keep these people in poverty but ultimately suppress the wages of the very Americans they are appealing to. For every job that could be performed as well at a lower wage in Mexico, India or Nigeria, there is a person in that country who is not learning a marketable skill, a person in that country who wants desperately to get into the United States, a U.S. wage earner who is not meeting his potential and a U.S. consumer who is paying more than necessary for a product. How is it that the framers in 1789 knew more about economics and morality than some of today's politicians?
Isabel Sawhill, co-director of the Center for Children and Families at the Brookings Institution.
A nation that neglects its young is, arguably, a nation without much of a future. The choice is ours. We need to invest more, and more smartly, in the education and training of the current workforce and the next generation, to provide excellent early education for every disadvantaged child, dramatically improve the quality of teaching, and establish national standards for what all children should know. To fund these goals, we need to gradually reallocate public spending from the elderly to the young. Almost half of current federal spending is dedicated to the elderly, and seniors could absorb virtually all federal revenues in just a few decades. We need to rein in the growth of Social Security and Medicare in order to invest in early childhood education and health programs, some of which have a track record that would make a venture capitalist drool.
Diane Swonk, chief economist of Mesirow Financial
Globalization has become an easy scapegoat in an economy that is evolving too quickly for many to adjust. Rapid technological change and the ensuing surge in productivity have cost the United States more manufacturing jobs than all our free trade pacts. Then consider the skills required to operate the complex machinery that now makes up the average production line.
In the move from an industrial to a knowledge-based economy, wealth has pooled at the top of the income ladder. (Something similar happened when we shifted away from agriculture). The recent housing market bust has only exacerbated the reality of growing income inequalities in the U.S, and the sense in middle income households that they are being left behind.
If you add in the impact of those who were born since 1980, it's hardly surprising that populism is on the rise. These are the same kids who drove their BMWs to protest World Trade talks in Seattle in 1998, and ironically, drive Toyota Prius' as they bemoan corporate layoffs and outsourcing today. I can't say I blame them, given the mistrust surrounding multinationals and the Bush Administration, the main proponents of free trade. The bright spot is their propensity to stay in school. The tendency to achieve higher levels of education than their parents will help reverse the decline in living standards their families may have experienced, and education also could enlighten them on the benefits of globalization, especially for the world's poor.
Jim O'Neill, head of global economic research at Goldman Sachs
The bizarrely common idea that the United States is a victim of globalization is simply wrong. U.S. exports are growing at 11%, taking inflation into account. If you exclude oil, exports are bigger than imports and that gap is widening sharply. When I started analyzing trade data 27 years ago, I was taught that U.S. exports are-and always will be-only half of imports (this figure includes oil). Today, exports are 75% of imports. If exports continue to grow as quickly as they did this spring, the boom will contribute about three points to real Gross Domestic Product this year. This growth has prevented a formal recession and is helping many sectors of the economy, from agriculture to heavy manufacturing. Unfortunately, export industries are not the biggest employers, but I would say that their high productivity demonstrates the enduring success of the United States.
Jeremy Siegel, finance professor at the Wharton School of Business
Our economic slowdown stems from two sources: the housing crisis, which has "Made in America" stamped all over it, and the oil crisis, which has hit us badly because we import over 60% of our oil consumption.
All developed countries have lost manufacturing jobs over the past 30 years. The United States has lost 5.5 million factory jobs and gained nearly ten times as many non-manufacturing jobs. Unemployment is lower and our standard of living is up 75% since manufacturing employment peaked in 1979.
But we cannot deny the huge changes taking place. The explosive growth of the developing world means that the U.S. share of the world economy will shrink dramatically over the next several decades. At the same time, we are entering a demographic shift. As tens of millions baby boomers enter retirement, the developing nations are destined to provide a good portion of the young labor we need. Instead of fearing change, we must take advantage of it. American brand names still resonate strongly in the developing countries where huge consumer markets are opening up. Our non-petroleum trade deficit is at a six-year low and we run a trade. We still run a trade surplus in our service sector, which includes telecommunications, finance, insurance, travel, and consulting. And the United States attracts foreigners in higher education and research, who are drawn to the "out of the box" thinking that has long been a hallmark of U.S. economic development.
Mark Zandi, chief economist of forecasting firm Moody's Economy.com
Globalization is a boon to the American economy. This has been clear during the past year, when soaring exports have powered more than half of our struggling economy's growth. By my calculation, the export boom has created close to 1 million jobs. Without those jobs, unemployment would now be well over 6%.
Our farmers are producing crops that are in hot demand across the globe. The high-tech industry is faring well selling its sophisticated wares to emerging economies. American universities are attracting the world's best and brightest. American movies, music and sports are popular everywhere, and tourist spots are enjoying a surge of foreign travelers.
Foreign investors are avid buyers of everything from U.S. Treasury bonds to Manhattan real estate, a reality to embrace, not decry. Their interests are becoming intimately tied to our own, and their prosperity is increasingly dependent on how well our economy performs-a good reason to peacefully work out our differences, both economic and political.
Mohamed el-Erian, co-CEO of bond specialist PIMCO, is author of "When Markets Collide: Investment Strategies for an Era of Global Economic Change" (McGraw Hill, 2008).
Ironically, globalization is especially vulnerable to critique because its benefits are spread widely, and its critics focus on concentrated areas (like autos), which obscure the overall positive impact. Globalization has allowed billions of people to enjoy a higher standard of living, and lifted millions from absolute poverty. Attacks on globalization distract attention from the real problems, which will require more-rather than less-cross-border interaction to solve. Today's crisis highlights the need to strengthen the institutions that support globalization. At a minimum, the United States should use the IMF/World Bank meetings this October to urge changing the makeup of the G-7 (now Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) perhaps replacing Italy and Canada with China and India. The current grouping represents yesterday's world and has lost its relevance.
Nariman Behvavesh is chief economist of Global Insight, a forecasting firm.
The impact of globalization is very similar to that of a new technology: some jobs are destroyed, more jobs are created and consumers benefit hugely from lower prices.
The U.S. economy is currently larger than the next three largest-Japan, Germany and China-combined. This picture will not necessarily change in a dramatic way over the next forty to fifty years—if we make the right kinds of investments, especially in our "human capital." Over the past century, the United States has been evolving away from industries that require manual labor to those that require high skills and high levels of education. Manufacturing accounted for 40% of the economy in 1950, but accounts for only 12% now. Sectors like business and health services account for about 80%. The change has much more to do with new technology than the rise of China and India ( or before them, in the 1960s, Japan).
Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management
The real losers of globalization are Europe and Japan. Over the past decade, the U.S. share in the global economy has remained stable at just under 30% and the United States has contributed nearly 25% to global growth. Meanwhile, anemic growth in Japan and Western Europe has steadily eroded their share of the pie. Their poor economic performance is especially disappointing this year because it has left the global economy flying on one engine - emerging markets. Instead of buffering the slowdown in the US, as many hoped, both the European and Japanese economies have been contracting this summer, even as the United States continues to eke out some growth. The trend seems clear: Europe and Japan expand more slowly than the United States during its booms, and slow even more during its sluggish periods. This means that the United States has a much better chance of avoiding an extended recession than Europe and Japan, where labor markets and management mindsets are more rigid.
Edward Gresser, director of the Project on Trade and Global Markets at the Progressive Policy Institute
Last week's sports highlights - the Water Cube, the Bird's Nest, China's 51 gold medals - were not accidents. They reflect the deep economic trends of a decade in which our competitors have raised their game and we haven't. Former US Trade Representative Charlene Barshefsky explains it well: "The integration of East Asia, sparked by China's reemergence, has created a far more competitive Asian economy, fusing Japanese, Korean, Taiwan, Hong Kong and Singapore finance and technology with Chinese infrastructure, manpower reserves and low cost. India's rise is only beginning. Logistics industries and telecom networks and IT are more sophisticated each year….The result is a global economy that already is larger, growing faster, more integrated than ever before - and in which structural change is likely to accelerate."
In this environment the public is right to feel anxious - especially given our own performance. Our low science and engineering graduation rates suggest eroding technological leadership. Our poor-quality roads, airports, and telecom connections make us less efficient than we should be. Our public investment in science is too low, our use of energy too profligate, and a decade of supply-side tax-cutting has drained government coffers without producing growth.
We should use dispute rights in the World Trade Organization to hold trade partners to their obligations-just as they do us. But we shouldn't confuse strong competition with "unfair" competition. Instead, we need to look hard at ourselves, admit our weaknesses and start fixing them now.
