A global gale is battering the wealthy, stable civilizations of the industrialized world.
This wind is called globalization. From Japan to the United States to Western Europe, each nation is putting up its own defenses in hopes that the societies they have carefully built since World War II won’t be blown away.
Globalization is the revolution that enables any entrepreneur to use money, technology, communications, management and labor located anywhere in the world to make things anywhere he wants and sell them anywhere there are customers.
Globalization has benefits in abundance–a cornucopia of new and cheaper goods and services from around the world, princely salaries for highly trained workers who can manipulate the information economy, and especially the chance for a decent life for millions of workers in poorer nations.
Yet all this carries a high price, much of it being paid by the people and societies of the rich industrialized nations– the so-called First World.
The force itself may be economic, but it can have powerful social and political fallout. It can shutter factories, devastate industrial regions and uproot the lives of workers.
Mostly, it is a threat that the longest sustained increase in living standards in history is coming to an end.
In a world in which every factory, worker and country must meet ever-lower costs, the old high-cost standard of living that most citizens of the rich world enjoy may no longer be possible.
“This postwar comfort has gone, forever,” summed up Norbert Walter, chief economist for Deutsche Bank in Frankfurt.
In its place may be coming a world in which the poorer nations will prosper, as will the technological elite of the rich world, while the rest of the First World will get poorer.
Indeed, as the growing gap in American incomes shows, this is already happening.
“Globalization reduces the inequality of income between nations, but increases income inequality within nations,” said Denis Kessler, vice president of the Patronat, the French employers’ association.
Globalization is a handy term for the forces that are turning the world economy upside down. These include technology with its offshoot automation, the information society, aging populations and the addition of 2.6 billion people to the global work force with the fall of communism and the conversion of China to semi-capitalism.
This is unprecedented and to most people who liked the old postwar system scary. Around the world, thoughtful people fear for the very future of democracy and civil society.
“Either democracy has to be tamed for the sake of the market, or the market has to be tamed for the sake of democracy,” British political scientist David Marquand wrote recently. “Globally and nationally, we shall sooner or later have to choose between the free market and the free society.”
Marquand may overstate the case, but his stark words reflect the fears that are propelling the debate.
“We don’t want global anarchy,” said Jacques Attali, former president of the European Bank for Reconstruction and Development. “It’s too dangerous for democracy.”
Even in an election year, politicians hate to talk about globalization because they know that the forces it is unleashing may be beyond the control of any national government. For many governments, the price to be paid–in lower wages, welfare cuts, social security squeezes–is only now becoming visible.
In the United States, globalization usually is seen as a force of nature like the weather–an economic fact of life that can only be endured, not controlled. The forces hit the U.S. first, and much of the damage–falling wages, stagnant family incomes, the growth of temp jobs–was done before Americans realized what was happening.
The result is seen around the world as “the American hire-and-fire economy.” This phrase summarizes what most non-Americans–even those who envy the American economy’s job-creating ability–think of U.S. society today, and they want as little to do with it as possible.
Each wealthy nation has used its half-century of prosperity to build the kind of society it wanted. Each built a different society, but each enriched the vast majority of its population.
Now all this is in danger, and each country is coping in its own way:
– In Germany, the prized Social Market Economy has begun to unravel. Competition from low-cost, low-wage countries is gnawing at Germany’s hugely popular but expensive welfare state. The same pressures threaten to unbalance the cooperation between big government, big business and big labor that has underwritten that nation’s glittering postwar success story.
“We have to reconstruct this system, but we don’t want to abolish it,” said Claus Friedrich Hofman, a counselor at the German Labor Ministry. “It has worked very well for 50 years. All this is a very risky thing. We’re experimenting with a whole society.”
– In France, government guidance and state-owned industry have played an honored role since the 17th Century. Now privatization is the order of the day–a force in many other countries, too, but one that cuts to the heart of the French way of running an economy.
“We have to balance the prosperity of our industry and the prosperity of our culture,” a French government official said. “Nobody in Europe wants to dismantle our system for the sake of economic efficiency.”
– Japan is coming off a four-year slowdown. Japanese companies are beginning to export manufacturing and jobs to low-wage countries in Southeast Asia. The nation’s banking system is in disarray, and there have been attempts to cut back the power of the bureaucracy that, more than the elected officials, runs the Japanese economy. Even the famous institution of lifetime employment is in question.
Japanese officials foresee more trouble. Foreign experts, who have been listening to official pessimism in Tokyo for years, are skeptical. Some think that the seemingly illogical Japanese solution–a closed society in a global economy–may win in the end.
“I raise hell about a lot of the barriers here,” said Robert M. Orr Jr., government relations director in Japan for Motorola Inc., “but I look out my window, and I say, `They haven’t done too badly.’ “
Some of the more extreme products of the last half-century– 32-hour work weeks and six-week vacations in Europe, lifetime jobs in Japan–would strike most Americans as unrealistic, even coddling. Classical economists would argue that the foundations of these economies–big government, welfare states, sometimes closed markets–are often unwise.
Yet the fact remains that the major countries, using these tools, created some of the most successful societies in history, and their people and governments hate to see them go.
Is this inevitable? Americans wedded to the free market say yes. Many Europeans, if not the Japanese, much admire the American achievement in creating some 9 million new jobs in this decade while European job growth has been nearly stagnant and unemployment in the European Union is 11 percent, twice the U.S. level.
But for every European businessman demanding higher returns to shareholders and a cutback in the welfare state, there are other Europeans arguing that the price of the American model is too high to pay.
“For the first time, Europe is a satisfied society,” said Dietmar Herz, a professor at the Ludwig-Maximilian University in Munich. “That’s why the status quo is so precious to Europe. If we have to build our society on the American model, it would be the most wrenching change of the European social system in 50 years.”
Now globalization demands that every country, factory and worker earn its way in the world. No one owes Germany, Japan or the United States a living. In this competitive world, how can these softer and more expensive benefits of civilization be kept?
Each country has made its own choice in how to spread the pain. The Americans have created millions of jobs, but many for low wages; despite a cut in the poverty rate, nearly 14 percent of all Americans still live in poverty. The Europeans keep their poverty levels at half the U.S. rate by propping up wages and paying billions of dollars in welfare to support their army of unemployed workers. The Japanese protect their industry and their jobs by sealing off their consumers from cheaper foreign goods.
“We have 18 million unemployed persons while the United States has 6 million unemployed,” said Hugo Paeman, the EU’s ambassador to Washington.
“But 12 million Americans with work are under the poverty line, while our unemployed are paid for doing nothing, but are paid above the poverty line.”
Japan, at the moment, has the best of both worlds and is trying to figure out how to keep it. Its unemployment is at record levels but is only 3.5 percent. Millions of Japanese workers, however, are estimated to belong to the “window tribe”–unneeded employees who, as the Japanese say, “sit by the window” and do nothing or, more commonly, are shuffled off by big corporations into meaningless jobs in subsidiaries.
It can do this through a maze of trade barriers, which protect its economy from foreign competition that would either force mass layoffs, as it has in more open economies, or dry up the huge trade surpluses which pay for this waste.
“It’s a private sector welfare state, largely financed by foreigners,” Motorola’s Orr said. “I’m amazed how many people in Japanese companies are not doing anything. I’m really not convinced that the rest of the world is prepared to stop this.”
Social peace and the status quo depend on American workers’ accepting insecurity and shrinking paychecks, on European taxpayers’ supporting their jobless compatriots and on the world’s willingness to let Japan block foreign imports and investment.
All these systems burgeoned in the postwar boom and need boom-time incomes to keep going. As German diplomat Karl Schon said, “These systems were great for sharing the wealth. They’re not so good for sharing sacrifice.”
The race for economic power in a global economy has only just begun, and no one knows who will win or lose.
The United States has the same advantage it has had since World War II: the world’s biggest and most powerful unified economy. More open to globalization and more fatalistic about its costs, the U.S. also has gone through more restructuring already and accepted more of the pain than other countries. Also, communication is the key to the global economy, and the shared language of this worldwide conversation is English.
Americans have seen globalization as inevitable, with a brief period of pain before the benefits of higher living standards arrive. But questions are growing–in the U.S. as well as among its allies–as to how long this time gap will last, and whether the pain is worth it.
“The fact remains that technological change, free trade, migration and other forces . . . create losers as well as winners,” economist Ethan B. Kapstein wrote in Foreign Affairs magazine.
Businessmen and economists, including some who once championed re-engineering and other cost-cutting strategies to meet the challenges of globalization, are having second thoughts.
Stephen Roach, chief economist of Morgan Stanley in New York, wrote in a newsletter that his former support for the American approach to globalization was a mistake. The growth in U.S. productivity and the profits of its companies have “been built on slash-and-burn restructuring strategies that have put extraordinary pressures on the work force. This approach is not a permanent solution. . . . Some form of worker backlash is an inevitable byproduct.”
America’s allies see the United States creating millions of jobs while the inequality of American life grows, and are debating what kind of society they themselves want.
Japan, for one, is already battening down its hatches against the storm–in effect, trying to control and shape globalization and turn it to its own advantage.
Japan already has trillions of dollars in savings, a vibrant and interconnected manufacturing sector and a government determined to keep Japan strong. Armed with these weapons, Japan appears poised to take advantage of the riches of globalization while keeping its costs at bay.
“Our economists tell us that globalization is a wonderful thing,” said Chalmers Johnson, a Japan expert at the University of California. “The Japanese face up to it, but they don’t think it’s a wonderful thing. Instead, they try to do everything they can to control it.”
Europeans are looking inward, building their European Union, and have not thought deeply about the challenges and threats of the greater world economy.
So far, Europeans see the new global economy giving them a choice between efficiency and productivity on one hand and stability and affluence on the other.
“There must be a middle way” between the hard-nosed, market-driven American way and the increasingly expensive but cuddlier European way, said German Economics Ministry director Klaus Buenger. “There must be a way between.”
“But workers here are scared, just like in the United States,” said Albert Schunk, international director for IG Metall, a German union. “There’s a saying here, that what happened yesterday in America comes tomorrow to Europe, unavoidably.”
If a truly global economy is coming, only parts of it are here now.
Such an economy would be a globe-girdling version of the American economy–a place where money, goods, jobs and people move as easily from country to country as they do now from, say, Illinois to Ohio.
Money flows like the trade winds–$1.3 trillion of it every day through the money markets of the world, 50 times more than is needed to finance all the world’s trade and investment.
But this money cannot be freely used. Almost every country restricts foreign investment in some industries, such as defense, and many forbid foreigners to buy land or purchase control of local industries.
World trade amounts to more than $6.1 trillion in goods and services each year. But it would be billions more without the tariffs, quotas, inspections and other barriers that every country erects. It is still a lot easier for an Illinois manufacturer to sell his goods in California than in Japan.
If jobs move freely, people don’t. An Illinois worker who loses his job can go to Texas or Michigan in search of a new one, but–
because of language, law and family–he can’t chase his old job to Indonesia or Guatemala. Even in a globalized era, less than 2 percent of the world’s people live outside their native countries, and most of these expatriates are refugees.
Because globalization is far from complete, experts debate just what is to blame for the turmoil inside the mature industrial nations. In some countries, welfare states may have become too fat and expensive to maintain.
But other experts argue that globalization doesn’t have to be complete to have an impact. An employer doesn’t have to actually move jobs to Asia to persuade those left behind to take pay cuts, they say. The mere possibility that he can do it is enough to do the trick.
“The possibility creates the reality,” Deutschebank’s Walter said.
“This easy movement (of jobs) isn’t here yet,” IG Metall’s Schunk said. “The problem is that the threat can be played.”
Autoworkers at Germany’s Daimler-Benz accepted previously taboo changes, such as Saturday shifts, after their company opened more plants abroad, including one at Tuscaloosa, Ala.
“You wouldn’t believe how useful the example of Tuscaloosa was in discussions with our workers here,” said Juergen Mueller, senior manager for economic policy research at Daimler-Benz’ headquarters in Stuttgart.
In other words, low standards accepted by American workers to meet global competition are being used now by German companies to force the same standards on their workers–a perfect example of globalization’s power to jump borders.
“The Americanization of Europe,” Munich’s Herz calls it, and it’s on the way.
Next: Japan fights back.
