Global Squeeze: The Coming Crisis for First-World Nations
Richard C. Longworth
[ I recently posted part one of a look back at Richard Longworth’s 1998 book Global Squeeze, which correctly predicted massive job displacement from China’s entry into the global trading system, describes how developing world countries would move up the value chain, predicts the erosion of middle-class standards of living, the rise of the gig economy, and the deterioration in race relations. He puts his finger on the nationalism vs. globalism debate and anticipated populist revolt. After exchanging a few emails, Longworth graciously agreed to do is own post-mortem of the book and share some thoughts on what’s happened since, including some replies to points I raised. Here’s Longworth’s take – Aaron. ]
No writer can object when one of his books, written in the last century, is exhumed in this millennium and judged to have been a sharp-eyed guide to the future, a global-era version of the Prophecies of Nostradamus. Aaron Renn recently lavished this sort of belated, if not quite posthumous, praise on me and my 1998 book, Global Squeeze. I read this with swelling self-regard right up to the last paragraph, when he announced that he planned a second instalment unmasking me as a sinner after all, a flawed prophet afflicted with cognitive dissonance, which seems to be a mental disorder peculiar to pundits who follow their facts into a blind alley.
Aaron has very kindly asked me to wrestle with this topic myself. I’m grateful for the opportunity, which I plan to use for some thoughts on globalization itself, on its evolution in the twenty years since my book, and on the mindset I brought to this book and a later one on the impact of globalization on the American Midwest, and on my more recent work on global cities at the Chicago Council on Global Affairs. In the process, I’ll try to provide some guidance for all of us caught in the titanic struggle, made vivid by the election of Donald Trump as president, between globalization and its populist backlash.
As I understand it, Aaron indicts me for trying to have it both ways. In both books, I reported on the agonies that this new economy was causing, in the First World Nations and in the Midwest, and on the probable economic, political and social fallout. As Aaron said, I seemed to get most of this right: in other words, I foresaw the backlash that would lead to Trump’s election and, in Europe, to Brexit and the other populist rebellions. Given this, he wonders how I can oppose the nostrums of Trump and the Brexiteers. Even more, how can I continue to see virtue in the global economy and, indeed, justify my work at the Chicago Council, which by definition believes in an American openness to the world and a responsible American leadership in that world?
Good questions. Here are my answers.
The quick and easy answer is that I am a reporter, neither policy-maker nor ideologue. I go out and talk with people, write down what they say, try to get my facts right, and present an accurate description of what I see and hear. This is what reporters do and, so far as it goes, is justification enough.
But there’s more to it than that. All my reporting has been framed by the fact – indisputable but still controversial – that the global economy is here. It’s a given. It’s a reality. It’s not going to go away, short of nuclear war or some other catastrophe. We can’t be for it or against it: that’s like being for or against a hurricane. All we can do it deal with it. In both books and in my work since then, I’ve been consistent that we’re not dealing with it very well.
I’ve also been consistent that, in a democratic society, we have to make this new global economy work for most people or neither globalization nor democracy with survive. In Global Squeeze, I wrote:
Can the global economy and democracy coexist? Not unless democratic governments can channel globalization to the benefit of their citizens…Democracy, or majority rule, will become government of, by and for the losers. This means the triumph of the politics of resentment and envy, which is no basis for a decent society.
I wrote this in 1998. Two decades later, the politics of resentment have indeed triumphed. The anti-globalists, promising change, instead seek to resurrect the past, which is gone. I may have been right about this, but it’s no consolation.
So yes, I insist on globalization, because it’s all we’ve got. It simply has to work. Does this make me a “globalist,” as Aaron suggests? Well, yes, because I’d sure like to seed our economy work. Does it also make me a “populist,” deploring the cruel impact of globalization on American workers? Again, yes, because I hate to see the majority of people impoverished by this economy.
So it turns out that I’m a global populist! How’s that for cognitive dissonance?
Which raises a key issue. Globalism and populism are too often presented as opposing poles, and mutually exclusive. The same with nationalism and globalism. This is wrong. This takes two imperatives – the need for a vibrant economy and the need to spread the benefits of that economy – and makes them irreconcilable. It assumes that both are inflexible and extreme.
An extreme globalism would throw the masses into poverty without a second thought, to serve the market. An extreme nationalism is fascism. An extreme populism would be an autarkic society enforced by peasants with pitchforks. All are caricatures, but it’s the framework within which too much of our national and international debate takes place. By forcing voters to choose between two extremes, we guarantee a bad choice either way.
Eschew extremes. As a foreign correspondent, I’ve seen extremes in action. I was in Western Europe when the wreckage of World War II was still stark. I lived in the Soviet Union, which took an altruistic idea to its murderous extreme. So I support both market capitalism and democracy, having seen up close that the alternatives don’t work, and have supported anything that promised to make them both work. When they didn’t seem to be working very well, I said so.
The solution is political leadership. Because of technology, globalization exists, but the way it works depends on political decision-making. A good reporter earns his pay by looking at this leadership and what it does.
As Aaron pointed out in his review, I’ve seen the damage that unfettered trade can and has wreaked. This was more controversial then than it is now, when everybody except trade economists accepts that NAFTA and the opening to China inflicted unnecessary damage. Again, this is the result of a good idea taken to extremes. Obviously, I don’t oppose trade. I lived in a postwar world that got rich (at least our Western part of it) partially through trade. But trade too often is sanctified and anyone who questions it is a protectionist. I see it as a useful tool, like lower taxes or balanced budgets, that can help an economy in the proper circumstances but can be shelved at other times with no great loss.
So now I’m both a free trader and a protectionist. More cognitive dissonance, for sure. I can live with it.
More dissonance. Globalization is eroding the sovereignty that nations have enjoyed for more than 300 years. This isn’t going to be reversed. But is it easy, or painless? The attachment to nation is real, and it’s under attack. Both views have validity. Is there a middle ground, between extremes?
This nation desperately needs immigrants, skilled and unskilled. No one who lives in Chicago can doubt the sheer economic and social verve contributed by its Mexican immigrants. But immigration also is a cultural insult to people who have lost so much and now see the arrival of immigrants as a challenge to their very identity. Those who favor immigration have the facts but those who oppose it have the emotion, and the votes. Again, attention must be paid to both.
The Chicago Council and I focus a lot of our work on global cities, which are increasingly becoming not only the drivers of globalization but the economic hubs of the nation. In so doing, these cities have sucked much of the vitality out of their hinterlands. The vote for Trump was in part an anti-urban howl from those hinterlands. Does their plight deserve attention? Of course. But should the cities, with the fate of the world’s economy in their hands, put on the brakes? Obviously not.
Aaron sees today’s dysfunction as a failure of the elites who run our society, and feels I am too respectful of these elites. I grew up in postwar America and watched Europe’s revival inside the structures that became the European Union, both projects driven by a few visionaries who could fit around a lunch table. So yes, I have an admiration for the elites who produced this era.
In a note to me, Aaron asks, “what does someone who believes in elite-led government do when the elite lacks the virtue necessary to lead? This situation creates powerful cognitive dissonance” (that neurosis again!).
Well, “elite-led government” is just another word for leadership. Any leadership by definition is an elite. Again, the solution is go with what works. If one set of leaders fails, the solution is to get another, not to declare anarchy.
I began Global Squeeze with the words that have become my mantra for looking and judging the success of societies:
What is the purpose of an economy? If it is not solely for the well-being of the people who live within it, what is an economy for?
Aaron sees this as nationalism. I see this as an obvious condition for a market democracy. No economy persists except by the consent of the governed. When this consent is withdrawn, all else collapses.
I’ve seen this happen in other countries. I don’t want it to happen here. If this is cognitive dissonance, I’ll take it.
Buy Global Squeeze: The Coming Crisis for First-World Nations on Amazon.com.
No question asked here why US suffered more job losses than industrialized countries. This means it is a US policy problem.
Please also see article in NYT about why transportation is key issue in upward mobi8lity. US has less upward mobility than Pakistan! Gee why is that?
Eric M (American Dirt) says
It could have something to do with the metrics used for assessing upward mobility. If mobility in the US were as miserable as certain theorists would like to claim it is, immigration to this country would have plunged by now. Globally, people are opportunists. If “land of opportunity” were an outdated American myth, people would be flocking to a nation-state where such opportunity is a reality.
Isn’t it possible–or even probable–that mobility in the US is quite strong, but, judging from our large income disparity (relatively high Gini coefficient) and generally good purchasing power, the rungs of the ladder are simply that much more broadly spaced, giving the appearance of poor mobility? This rings true particularly in comparison to low Gini nations like Denmark, where it is a luxury for a middle class household to own two cars, and most twentysomethings cannot afford to eat at a sit-down restaurant more than a few times a year.
US immigration is dominated by family based immigration.
Those who are educated here and stay are part of the overproduced elite in poor countries. Their poor countries do not have large economies and lots of jobs for educated people. US is heading in that direction, so skilled immigration will dry up here. Look at Canada. its “staples” led economy is so small 40 % of skilled immigrants leave within 10 years of arrival.
Canada’s Resource Curse: Too Much of a Good Thing
Our Economy Is Obsessed with Efficiency and Terrible at Everything Else
The Creativity Crisis
The World’s First Poor Rich Country
Here is a paper about the family-based immigration domination.
Here is mentioned an example:
“Of the 990,553 foreign nationals admitted to the United States in FY2013 as lawful permanent residents (LPRs), 649,763, or 66%, were admitted on the basis of family ties. Of these family-based immigrants admitted in FY2013, 68% were admitted as immediate relatives of U.S. citizens.
U.S. Family-Based Immigration Policy
This has nothing to say about why nothing done to help first rust belt-that was when job losses attributed to “globalization:” happened within US borders. I am referring to the first rust belt-created in NE when manufacturing decamped to other parts of US!
“The region’s early industrial cities lost out first to the fast-industrializing Midwest and then to the cheaper, nonunionized South. At the time, such losses were not treated as a national problem. Today, however, urban shrinkage is drawing the attention of planners, policymakers, and the general public, and is beginning to be addressed.
New England and the Subtracted City
About current inadequacy!
http://www.industryweek.com/ workforce/why-americas- manufacturing-job-loss- greater-other-industrialized- countries
Why is America’s Manufacturing Job Loss Greater than Other Industrialized Countries?
Americans should blame others less and look at mirror!
Chris Barnett says
One economist’s view:
Manufacturing has continued to grow, and the sector itself remains a large, important, and growing sector of the U.S. economy. Employment in manufacturing has stagnated for some time, primarily due to growth in productivity of manufacturing production processes.
Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade, and domesticdemand. Overwhelmingly, the largest impact is productivity.
Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the
productivity of American factories.
Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but
the effect is modest, accounting for a 1.2 percent increase in jobs beyond what we would expect if consumer demand for domestically manufactured goods was flat.
Exports lead to higher levels of domestic production and employment, while imports reduce domestic production and employment. The difference between these, or net exports, has been negative since
1980, and has contributed to roughly 13.4 percent of job losses in the U.S. in the last decade. Our estimate is almost exactly that reported by the more respected research centers in the nation.
Manufacturing production remains robust. Productivity growth is the largest contributor to job displacement over the past several decades. This leads to a domestic policy consideration.
Several analysts have made recommendations regarding manufacturing promotion. We lean heavily upon Houseman 2014 for a balanced set of concerns. Exchange rates clearly play a part of the role of manufacturing import substitution and employment displacement. Any nonmarket factor which influences dollar valuation should be diligently opposed by international trade agencies and agreements.
U.S. national corporate income tax rates are the highest of the OECD nations, and clearly impose a disincentive for transnational corporate location in the U.S. The government should consider
lowering barriers to headquarter and manufacturing facility location through a reduction of federal corporate tax rates.
Sustainable manufacturing employment growth requires high levels of human capital. The nation and individual states should actively support education reforms at the secondary and tertiary level that prepare students for employment opportunities in manufacturing, which will be large due to job turnover among the baby boom share of the manufacturing labor force (see Hicks and Devaraj 2014). Human capital interventions should also begin at the pre-K level, focusing on skills that enable acquisition of the mathematical and cognitive skills required of the modern manufacturing workforce.
Check out what Clayton Christensen has been saying:
Listen to his talk:
Gartner Symposium ITExpo
Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy
But, US state and local governments favor big over small to their loss.
Shortchanging Small Business: How Big Businesses Dominate State Economic Development Incentives
“Examples of cities and states throwing money at corporations are almost too numerous to count. ”
“All told, state and local government subsidies to corporations total an estimated$80 billion a year. By contrast, federal community development block grants (CDBG)spending totals just over $3 billion a year.”
Can Community Wealth Building Redefine City Economic Development?
Problem is handouts to companies do not work anymore, because companies now cutting back on investment and innovation (and job growth) as Christensen of HBS has made it a mission to point out.
Clayton M. Christensen: The New Church of Finance: Deeply held belief systems and complex codes must be changed
But Europe and especially Germany support SMEs.
SME financing under the EFSI – agreements approved by the European Investment Fund
Great article – however I take issue with statements like the following: “This nation desperately needs immigrants, skilled and unskilled.” and “Globalization is eroding the sovereignty that nations have enjoyed for more than 300 years. This isn’t going to be reversed.”
The problem with the first starts with the word “desperately.” The arguments for immigration tend to be out dated and based on a different time and in reality it is the immigrants that are desperate. There also need to be clarification about refuges, immigrants and migrants. All three are different and will change the meaning of the the way the term immigration is used.
The second sentence makes the assumption that globalization is a law – not a chosen policy. I can just as easy come up with a bunch of scenarios that reduce globalization that are not catastrophic disasters but choices.
In my opinion there are many complicated cause and effects – and thanks for your article trying to put some nuance into this discussion.
US Immigration systems is a mess:
What Can the U.S. Learn from Canada’s Immigration Policy?
But I think US should not use immigration to mask the underlying problem-the lousy k-12 ed standards-both for the poor and for even the middle class! There is a critical weakness in STEM education.
The Decline of American Education
globalization should not have harmed US workers.
“There was no iron rule that said leaders could not make up for the wages the middle lost to globalization, the risk they suddenly bore from financialization, or the jobs they lost to technologization. How could they have rebalanced the scales against all three of these forces? Very easily.”
What Does a Leader Make?
Poor leaders make demagogues. Great leaders make lives worth living.
America’s problem is obsession with “saving costs”
The Creativity Crisis
How Extreme Capitalism Ate Creativity, and What to Do About It
Our Economy Is Obsessed with Efficiency and Terrible at Everything Else
It’s a few years old now, but I recommend False Dawn by John Gray, a former Thatcherite, who looks at the logic of late stage capitalism and how it will create these problems.
He is a bit of a Gloomy Gus who doesn’t believe much in grand schemes of “progress” be they theological or political 🙂
Win: A really interesting analysis in the February 23 essay on leaders versus demagogues. I think it underestimates the deliberate role of class warfare, and the alternative path he briefly discusses at the beginning seem to be “just so” statements that are not very convincing even if they could have been vigorously implemented. But thanks, I will read more!