The Globalization Gap

The Fly-over Zone

“The fly-over zone” is David Stockman’s term for the middle portion of the United States; the vast expanse roughly bounded by the Appalachian and the Sierra Nevada mountains. Stockman holds that people in the fly-over zone think differently from those on the coasts.[1] The election results from last November tend to agree.

In my view, Globalization, with its economic and social repercussions, provide insight as to why the fly-over folks think so differently from those on the coasts. In essence, Globalization has benefited Americans whose income relies on professional services and intangibles over the last several decades. Those who depend on tangibles, again speaking generally, have done considerably less than well.

 International trade, especially in consumer goods, and large-scale migration from less economically developed nations to more developed countries are two primary factors driving polarization of opinion about Globalization here in America, as well as in the European Union.

Free Trade

Global free trade is fundamental to increased and increasing global standards of living. Since the end of World War II, international economic history records a succession of moves to facilitate multinational trade by removing tariffs and other barriers to trade. One result is truly multinational companies, like GE or Nestle. Another is globalized value chains, even for small companies. Companies and consumers everywhere benefit from the lowest prices available anywhere in the world.

But it isn’t all good. Employees in some nations suffer as lower cost competitors abroad take business and jobs. Some nations import much more than they export, resulting in escalating debt. Some nations use access to resources as an economic means to political ends, like the recent Russian cuts in natural gas supplies to Europe or the OPEC oil embargo in the 1970s.

So, the benefits of free trade are widely spread, but difficult to recognize or quantify. The negatives, on the other hand, are localized and specific – those who have lost their livelihoods to free trade are not happy. And that unhappiness has resulted in political resistance to new trade pacts and movements in several countries to revise or rescind existing agreements.[2]

Migration

In 2013, author and investment banker Dan Alpert[3] wrote:

“The past twenty years have seen a transformation of the global economy unlike any ever witnessed. In the time it takes to raise a child and pack her off to college, the world order that existed in the early 1990s has disappeared. Some three billion people who once lived in sleepy or sclerotic statist economies are now part of the global economy. Many compete directly with workers in the United States, Europe and Japan in a world bound together by lightning – fast communications. Countries that were once poor now find themselves with huge large surpluses of wealth. And the rich countries of the world, while still rich, struggle with monumental levels of debt – both private and public – and unsettling questions about whether they can compete globally”

Alpert’s thesis is that the world suffers from gross over-supply of labor, capital and productive capacity. Capital moves readily across national borders seeking higher returns – meaning productive investment opportunities. When excess productive capacity exists, businesses don’t invest in more. Excess labor, looking for work and stimulated by numerous local wars and conflicts, continues to migrate from developing world countries toward developed countries.

The circumstances that Alpert describes do exist and significantly define world economies and the businesses that drive those economies. These conditions will continue until fundamental global imbalances change. That change may be gradual, spanning years, or quite rapidly, like the economic equivalent of an earthquake.

Chguck - Juneau AKThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Container ship graphic licensed via www.dreamstime.com


[1] David Stockman was former President Reagan’s budget director. He now writes extensively, especially on political / economic affairs.

[2] For more on this, see “Trade, at what price?” in The Economist, April 2nd – 8th 2016 edition, page 27

[3] Dan Alpert’s The Age of Oversupply, Penguin Group (USA) LLC (2014) is offers much more on this.