A Rare Expose’ Regarding Globalization

Those of us who grew up with Samuelson’s ubiquitous economics textbook “learned” that trade between two nations benefits both. Unfortunately, everyone took it for granted that the “benefit,” an increase in GDP, accrues to all. Even Samuelson rather recanted on this toward the end of his life, but many of those who never went beyond his book are believers. They are then easy marks for those with vested interests in promoting the globalist philosophy.

Hence the constant drumbeat in the mainstream media: Globalism is good for you, Trump missed a great opportunity by not participating in TPP, and so on.

I’m still in China as I write this. Recently on the train from Shanghai to Ningbo, I happened to be sitting next to a friendly, talkative man who is the general manager of a Chinese electronics company. Apparently the Trump administration had blocked his firm from doing business with the U.S., and the GM gave me the same line, that Trump is fighting against the natural world order in which everyone benefits from trade.

In light of all this, I was pleased to be tipped off by a reader concerning this article. This passage is refreshing, to say the least:

Take, for instance, Caterpillar. The United States’ 74th largest company has long been a symbol of domestic advanced manufacturing prowess, a firm that leverages American ingenuity to take capitalize on growth around the globe. Since announcing a big bet on the China market in 2010, Caterpillar’s stock has soared 178%. But that success hasn’t translated in to more American jobs, as the firm employs fewer Americans today than eight years ago, according to its latest annual report.

Interesting in that I read this the same day I went past a large Caterpillar building in Shanghai. But how can this seemingly contradictory situation arise? Over the years of writing on these topics, I’ve proposed some thought experiments that explain why.

This was during the time NYT journalist Tom Friedman was telling us that “the world is flat,” his symbol for the benefits of globalism. Yes, Friedman told us, some IT work is being shipped from the U.S. to India, but those Indian coding shops are cooled by Carrier air conditioners, thus creating jobs for American engineers. I countered that engineers are basically a fixed cost for Carrier; selling extra AC units in India is not likely to require the firm to hire many more engineers, if any. And as to U.S. factory workers, well, where is Carrier likely to manufacture those AC units to be sold in India? Roy Beck’s old quip about U.S. firms preferring to do their IT in India instead of Indiana probably applies here.

Ironically, years later Carrier was the first firm that Trump tried to strongarm/sweet talk into keeping jobs in the U.S. The results have been mixed so far, but thank you, Tom Friedman, for the suggestion. 🙂

 

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34 thoughts on “A Rare Expose’ Regarding Globalization

  1. So, here is my thought on this.

    Scenario.

    Nation A: Has surplus agricultural produce.
    Nation B: Has surplus software engineers.

    Nations A and B decide to trade. Easy peesy? Wins for both nations?

    Not quite.

    By not developing its own agricultural capabilities, nation A is now beholden to nation B’s supply. By not developing its own software industry, nation A is now beholden to nation B’s information processing capabilities.

    When they say *diversity is good*, they totally miss the point – *diversity is good as it applies to sovereign nation states having their own unique capabilities in producing everything they need*.

    This means the US needs to have its own manufacturing, its own software engineers (trained in local community colleges if needs be) and its own energy supplies (use own oil and furiously fund research on alternative energy).

    Where does trade come into picture? Several scenarios:

    – Trading should encompass no more than x% (x could be industry specific). This means x% goods are available from trades, and (100-x)% goods are available locally. Appropriate tariffs are introduced to ensure this balance is achieved on an average. This facilitates knowledge sharing and achieves slow and steady progress, and simultaneously, preserves local means of consumption. If relationships turn sour, x could be made 0.

    – Trading should not happen in certain situations at all. We should not trade with hostile nations and engage in trading with nations with totally dissimilar conditions resulting in race to the bottom for the labor. It makes no sense to bring a US worker on the same level as a Bangladesh worker. The opposite should take place (a Bangladesh worker should enjoy the same benefits, perks and lifestyle as a US worker). However, Western Europe is a natural ally because the living conditions are not only similar, but often superior – so a greater trade engagement could take place.

    – All companies operating within the US should be subject to these conditions. Just like China, the government should totally disallow foreign nationals and interests to invest and take over US companies. US companies owned by Americans will be loyal to American population. The *sphere of loyalty could be increased* gradually as the world at large starts adopting American idealism and American culture.

    Eventually, the goal is not to bring everyone to America, but to take America everywhere. If the whole world embraced American ideals while preserving their own unique culture and heritage, the world at large will be a place worth living for future generations.

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      • I believe profit making greed is necessary to achieve human progress.

        USSR, India, and Mao’s China all tried planned economies and failed spectacularly. These things never worked and never will. I remember while growing up, there was 1 company that made TVs in India that was run by the government. The TV cost my parents some 3 months disposable income and took a long time to save for. Now, don’t get me wrong – by contrast, my parents did have a paid for house, and I had a very happy childhood. Having said so, we were *materially poor* than even the poorest of Americans and yet a solid middle class in India.

        At the core, I believe truly exceptional (and extremely greedy) people cause the *whole tide to rise and raise everyone with it*. It didn’t hit me until I immigrated to the US, and studied the US history (especially the industrial expansion era starting with Rockefeller). The actual process behind the shiny and glittery human progress is extremely dirty and filled with greedy assholes who want to line up their pocket. However, they have one essential ingredient that we don’t have: *Dragon energy*!!! (am I alluding to another despicable individual or what!). In all planned economies, dragon energy is reduced to 0 and no progress can ever be made.

        Hence, the right to make profits and maximize profits is very crucial.

        The issue is that the world is way too dissimilar and human condition in the world is abhorrent to say the least. More than half the people don’t have clean water and most people live in abject poverty and don’t know what democracy is. It will take a massive effort to bring the whole world truly to the American standard of living – this not only means a material standard but a freedom where a “filthy” comedian can “roast” the sitting president of the country in public and receive praise in return. Remember that this freedom doesn’t exist even in India – no one sane will pull this stunt in India and expect to live without worry.

        This means that globalization will inherently make the American worker vulnerable. Just like the second law of thermodynamics, globalization will increase entropy, which means it is America that will use the *democratic order* and plunge into the *lawless chaos* that the world at large is.

        Unfortunately, American corporations got too greedy and wanted to exploit the whole world for profits. This gave rise to Gates, Zuckerberg and Bezos who each have a net worth of ~100 billion dollars now. If the pandora’s box was never opened, they could still make profits and be worth ~10 billion dollars instead. Does that change anything for them materially? I don’t think so. However, their ego is simply fixated on a number that is meaningless at this point – what more does Bezos want to achieve? Hire more workers in Bangladesh and increase his NW to 200 billion? For what?

        This is where the government needs to step in and say enough is enough. Unfortunately, the government is just people in the end. Trump is special because despite all his flaws, he is the one person who can actually change the course somewhat, but post Trump, things are grim again. Will we have AI to run the government in future? Food for thought indeed.

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  2. Norm, I’m not sure what it is you are saying here. But let’s talk Caterpillar for a moment. I’ve wondered whether China was a plus or minus to Caterpillar – watching their stock price, for one thing. Are there no Chinese companies making competitive products for Chinese consumption, much less for the world? I see ZoomLion and LonKing (strange translations, it seems). And several big Japanese companies. And several US competitors, and some European competitors. And China always extorts co-production and technology sharing from anyone doing major business in China. So, what *is* the story on Caterpillar and China? Thanks.

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    • I don’t know any more about the Caterpillar situation than you do. I see a lot of construction going on here, and the equipment doesn’t seem to have the Caterpillar name much. What I do know is that the top priority of a CEO is stock price. Short term thinking, unfortunately, but that is how they are judged. So Caterpillar is happy, while the promised benefit to American workers did not materialize, which is my only point.

      Liked by 1 person

  3. Remember also that global trade is not done on a level playing field with respect to currency. Relative currency values are assigned by a fairly small group of traders and bureaucrats, *not* by allowing all currencies to float. The assigned values include long-term and short term risks, but that means that currency values depend on the opinions of the relative strengths and weaknesses of political systems and governments, *not* just the cost of living or the cost of doing business.

    If all global trade was done in a single currency, say, U.S. dollars, and currency trading disappeared, I believe there would be a significantly different set of global trade imbalances.

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  4. Note also that the idea of global trade profits accruing in an imbalanced way was one of the key issues leading to the American Revolution. If “everybody benefits”, and the opportunities for those benefits were accessible in a fairly equal and open manner, the American Revolution would probably have never happened.

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  5. The economics profession backed itself into a hopeless corner in its free trade orthodoxy.
    Step 1. Promise repeatedly that free trade is good for both countries
    Step 2. Insist that the gains are large, but we may have a “distributional problem.”
    Step 3. Reassure everyone with the (extraordinarily unlikely) prospect that winners will compensate losers.
    Step 4. Demur that redistribution is someone else’s problem, having nothing to do with economics.
    Step 5. When inequality and deindustrialization expand to the point political instability and loss of trust in the way we manage globalization, repeat step 1.

    Liked by 1 person

  6. > Even Samuelson rather recanted on this toward the end of his life, but many of those who never went beyond his book are believers. They are then easy marks for those with vested interests in promoting the globalist philosophy.

    I just listened to a podcast with another one-time proponent of globalism who has recanted. You can be listen to the podcast at http://www.wbur.org/onpoint/2018/04/26/us-vs-them-ian-bremmer . The article on that page begins as follows:

    > He was a booster for globalism. Now Ian Bremmer says it’s failed — and he sees trouble ahead. We speak with the author about his new book, “Us Vs. Them: The Failure of Globalism.”

    Following that is an excerpt from the book. I found it worth reading and the podcast very much worth listening to.

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    • @EconAdmin, Bremmer, really? I see him posting annoying and meaningless little bits on LinkedIn. He used to make sense on TV, then he stopped making sense. Now maybe he’s waking up again? Thanks.

      … waitaminute I just clicked on your link and read the transcript. It sounds to me like Bremmer’s idea of a fix is MORE globalism. Unfortunately that fits with what he seems to be suggesting on LinkedIn – though most of his posts there are trivial and meant to be humorous, or something.

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      • > waitaminute I just clicked on your link and read the transcript. It sounds to me like Bremmer’s idea of a fix is MORE globalism. Unfortunately that fits with what he seems to be suggesting on LinkedIn – though most of his posts there are trivial and meant to be humorous, or something.

        That’s not a transcript, it’s an excerpt from his book. I’ll concede that I just scanned it briefly before and, now that I read it more closely, I see much less substance than I heard in the podcast. I don’t see the globalism you speak of, just a mention of needing to deal with the anger in some unspecified way. In any event, I would now just recommend the podcast, not the excerpt.

        I thought it covered some interesting ideas, like that some parts of “globalism” may have benefits such as an overall increase in wealth and that an economically-connected world is likely to have less conflict. Still, he covers the fact that many, perhaps even a majority, of the working middle-class are being left behind in some ways and that we really need to address that seriously or else the problems will get out of control. He also touches on some topics that I agree are problems like Citizen’s United and money in politics. He also mentions the growing deficit for short term goals and how, if anyone takes it on the chin from the cost, it will likely be the poor and middle-class. He gets into some approaches to fixes briefly at about 43:00 into the interview and I don’t hear him say anything about globalism. In any case, it’s good to hear from someone else who appeared to have been a true believer that globalism was an automatic win-win for everyone who admits now that it has problems that must be addressed.

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        • @EconAdmin, I’m listening now, and I guess you’re right, Bremmer really is, apparently, questioning the globalist credo. But he’s only half-way there. He still talks of the middle class as “them”. As long as he doesn’t talk of ALL of his fellow citizens as “us”, he’s an elitist and a jerk and not really in the game in any meaningful way.

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  7. “Trade” means “we buy stuff from them, and they buy stuff from us”.
    The current situation is not “Trade”, because they are not buying stuff from us.
    Trade theory does not apply, because this is not trade.

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  8. 1) Friedman was PAID by NASSCOM in the 90s to write his 2 books on globalization. (Google it).

    2) Carrier makes its A/Cs in Mexico now – US workers don’t benefit.

    3) Caterpillar outsourced its work to an Indian bodyshop, stock plunged (google it)

    4) Toys R’ US + Circuit City also outsourced all their IT work to India. Both are now gone.

    5) If companies do not pay US workers, customers cannot consume their goods and services.

    6) India Incs hire US PR firms in the US to push globalization as good for us, when in fact, stealing US industries can never be good for America or American workers,

    Mr. FriedMAN’s books were pure PR and in fact, a new form of communism. which is what Globalization really is. Americans create the industries, other countries receive them for free. From each according to his abilities, to each according to his needs.

    Liked by 1 person

    • wish I had the money to hire enough analysts to document the geographic revenue portions of all publicly traded companies.

      In every single one I have reviewed over the last 15 years, THE MARKET is America.

      In other words, when you send your jobs, and your work to china, or india and dream that they will become the new world market, but their revenue comes from America, there is no way for anybody to prosper simply because America and its citizens will purchase fewer and fewer items as they earn fewer and fewer dollars, which in turn will mean that india and china will sell fewer and fewer widgets

      Liked by 1 person

      • @vbiersch, it’s not always true that the market is majority America, IBM’s revenues were more than 51% not-USA even thirty years ago. Now that China especially is so much larger, I’ll bet a lot of US companies have 51% not-USA sales, even with protectionism that they all enforce against us. Heck, my father had a little company that was 100% export for over 20 years, though that was a special case.

        Funny but I was just asking this same question about Intel just the other day, trying to understand their surprisingly strong results. I’ll bet more than 51% of their recent sales are leaving the country, even though it might be US companies like Google buying the chips and building distributed data centers.

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        • Lots of moving parts to examine.
          “the market is majority America”/revenues…51% not-USA”, let’s break that down.

          US tax payers PAID for ALL drugs developed between 2010 and 2016. Big pharma bought those patents, AND charge US exorbitant prices for them. US citizen bilked twice: PAID for the research AND paying the highest market price for them. Or quite bluntly, US citizens being bilked as “investors”, and getting NONE of the benefits of it.

          This is the business model for Silicon Valley also.

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  9. We as a country must be self sufficient in the necessities in the event of a war or natural disaster.

    We have given away our technology and ability to provide the essentials for Americans. To lose the luxuries – fruits and veggies out of season, etc. – is unimportant to the average citizen as long as we can still have utilities, basic food, medications (this especially terrifies me that we are importing so much), shelter, clothing, transportation.

    We are the outcast country yet we continue to allow ourselves to be abused by countries and peoples who rely on and demand our generosity to survive. We cannot continue to give to others from outside the US while we have hungry and homeless born citizens.

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    • “We have given away …”
      NAFTA has never been released to the public. “We” have no idea how much has been given away. About the only thing “we” know, is that this isn’t working for most of us.

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      • Federal research funding is going to individuals concurrently employed as full time faculty in the US and a faculty in China. Publications of research results list authors from both places. Travel reports show large expenditure for China travel and presentations to Chinese university audiences. It is logical to assume that the Chinese are benefiting from the technology development paid for by the US taxpayer. In some cases the participating Chinese organization is in a better position to commercialize the research that that in the US.

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        • My contention is with your use of “we”, and not with the fact that US funds are being used to create/subsidize foreign competition. “We”, the broader public, did not choose to do this.

          The bailout crowd are now running TV ads “business can solve big problems”. Their only ability to solve them is to stop creating them, in which they’ve a conflict of interest: “fiduciary responsibility to [record profits for] stockholders”. And an even bigger second conflict: who elected them?!?!

          Overall surmised, they’ve overthrown democracy, evident with having never publicly released NAFTA document. Is it not obvious US’ congress is now House of Lords?

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  10. A diversified self sufficient economy is always safer than a concentrated trade dependent economy. Same principle as do not put all of your 401K in Enron or do not tie your food supply to the price of oil or do not depend on large scale monoculture agriculture. Single point failure you know.

    Liked by 1 person

  11. Since I live in Redneck Country, let me let you in on a few things which are ongoing here. Buying American is big here, if and when possible. Dissing America is met with a big yank on the ESPN cord.

    Silicon Valley has also not endeared themselves to the locals with their push into closed systems on farming equipment. These people spend in the tens of thousands for equipment, then are told they don’t really own it and can’t repair it. It is the company’s proprietary system. The locals are sending the American companies doing this a big FU and are buying other Asian brands, mostly Japanese I think. The push for autonomous cars will also be met here with extreme prejudice.

    It’s not just the China trade which is under scrutiny, it is all business. The deplorables are paying attention and voting with their money too.

    Liked by 1 person

    • Another forgotten segment supporting Buy American is African-Americans. Check it out — black men, especially in the 21-35 range, tend to buy American cars.

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      • Hard to tell these days, Norm. My “American” car, a Chevy, was made in Canada, and my “Korean” car, a Hyundai, was made in the US.
        The only thing I’m sure of, all this “savings” we’re supposed to be seeing in the cost of goods, isn’t saving end users, as average price for a car these days is $32K, which doesn’t reflect the $5 a day Mexican labor cost.

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  12. A separate post for Tom Friedman and his other corporate media PHD in Economics buddies. These people have zero credibility because they spend their time talking to others, just like them, who don’t know how the main street economy really works. Did any of them see the pain that caused Trump’s election? No, they admit they don’t know anybody who actually voted for Trump.

    Out here in the real world we know the world is not flat. The world is round and they didn’t see what was right around the corner. Robert Reich is another democrat party shill who didn’t have a clue. Poverty and unemployment are only a concept to these people. The rest of us snicker at their studies and polls.

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    • They’re taught to only look at/eval the variables relevant to Wall St.
      Two factors not in their calculations,
      – can Wall St survive without healthy middle class or Main St?
      – China’s One Belt initiative.

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  13. P.S.

    I was watching an event sponsored by the Biden Foundation on CSPAN yesterday. These think tank people are ridiculous. Most of the speakers held some economics position in a think tank. They actually admitted that their positions are a product of surveying the policy papers of other think tanks. These jokers are the ones establishing the platform for the next election and they wonder why Trump won. Trump actually knows people who really work for a living.

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    • I don’t know if he knows people who really work for a living, but he did speak their language, “jobs”, right up until the last week. Last week he told the public we need foreign workers to do your jobs. I didn’t see any video of it, but did read there was dead silence, from the public present, as response.

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