The dynamics of globalization are not just economic. They are also affect- ing the political dynamic within the United States. Take, for example, the issue of voting against your economic interests, as described best by author and Kansan Thomas Frank.
The political and the economic come together very clearly in Tom Frank’s book, What’s the Matter with Kansas?, in which Frank poses the question, “Why are Kansans voting against their economic interests?”
when they vote for Republicans who are probusiness and, presumably, anti- labor. It is not Tom Frank’s politics that is of value to investors, nor is it the solutions he and other like-minded individuals have offered. Rather, it is the conflict among the worker, the consumer, and the voter that needs a word or two.
Since most American workers are a much higher cost factor than, say, a Chinese worker,1 it behooves the global enterprise to fire the higher-cost U.S. worker and hire the lower-cost Chinese worker. In doing so, the company is better able to compete more effectively by offering higher-quality products at a (necessarily) competitive price. Therefore, one has to wonder why a Kansas voter would elect a probusiness politi-
cian, for example, when that same politician is likely to support legisla- tion and regulation that would benefit business to the detriment of the worker, the very same (or is it insane?) person who elected the official in the first place!
The answers can be found in the brilliance of the Republican Party jug- gernaut that emerged in the mid-1990s2and what I call the Political Trinity (introduced in the previous chapter on government). But for our current purposes, the personal trinity—worker, consumer, voter—presents the dilemma of the day for your average American citizen: “What matters to me more—having high-quality, low-cost goods or having a higher-paying job?” And, “Who should I vote for who will serve my needs best?” The an- swer is—you guessed it—it all depends.
This is a fluid and complex issue and not the central theme of this book. But it does highlight an important dichotomy that globalization has wrought: The benefits of globalization are not without issues. In the United States, for example:
■ Consumers benefit from the low costs and high quality that can result from globalization.
■ Workers lose as real wage and benefit gains are minimized.
■ Companies benefit as lower-cost production results in better profit margins.
■ Companies also benefit from the opportunity that access to other countries’ markets affords.
■ Companies struggle, however, with global competitors.
Another example of the challenges posed by globalization is its impact on those countries (mostly European) that have remained firmly in the grip of a social compact with their citizen workers. Consider the following ex- cerpts from what the economics editor for the Financial Times, Martin Wolf, had to say in his October 19, 2005, lead article of the four-part se- ries, “Globalization and the European Union.” In his segment titled, “A Bigger Playing Field Needs New Goal Posts,” Wolf states:
What is called globalization describes the parallel emergence of three new forces. The first is the information and communica- tion revolution. The second is the worldwide movement from planned economies to market economies and from self-reliance to integration within the global economy. The third—closely connected to the first two—is the entry into the world economy of vast new sources of hard-working and highly motivated, but cheap, labor.
To this we add the following excerpts from the 2004 annual report of the International Monetary Fund:
Euro area authorities faced many policy challenges, Directors noted. In particular, economic growth had come to a virtual stand- still since the last quarter of 2002, with net exports and investment declining, and unemployment on the rise. Moreover, challenges loomed, with the aging of the population and slowing of labor force growth becoming an increasing drag on potential output growth, fiscal sustainability, and old-age income security. EU en- largement, while of benefit to all concerned, would also be a source of new challenges. Directors advised that meeting these challenges successfully would require a sustained shift toward more forward-looking national policies and the vigorous imple- mentation of structural reforms. While adversity had begun to in- duce such forward-looking policies, notably on the structural side, the Board noted that it was essential that these potentially promis- ing steps be sustained once difficulties recede.
Directors considered that the weakness of area-wide activity reflected a number of shocks as well as structural rigidities and policy lapses. The shocks included the bursting equity bubble, low business and consumer confidence, reduced external demand, the correction of the euro to longer-run equilibrium levels, and geopo- litical uncertainties. Rigidities in labor markets and lesser reliance on market-based financing had, in some measure, contained the ef- fects of the shocks, but they had also slowed both the post-bubble and intra-area adjustments. As a result, the area-wide stagnation was expected to be overcome only gradually, with growth remain- ing subpar well into 2004.
Lastly, in addressing the euro area, the Organization for Economic Co- operation and Development (OECD) Economic Outlook No. 77 of May 2005 stated:
The recovery has lost momentum since mid-2004, but it should resume in 2006. Growth is projected to drop from just below 2 percent in 2004 to 11/4 percent in 2005 before recovering to around 2 percent in 2006, with final domestic demand firming.
The output gap will remain negative and the unemployment rate high at over 81/2percent. Once the impact of the oil price hike pe- ters out, headline inflation should fall to 11/4 percent. Another hike in oil prices or a further appreciation of the euro could sap
the recovery further. With inflation declining and a large output gap prevailing in 2006, there is room to ease monetary policy, even though liquidity will have to be withdrawn again once the recovery is firming towards the end of the projection period. The euro area lacks resilience against adverse shocks amid slow trend growth—less than 2 percent per annum. Both are shaped by structural factors. Structural policies should aim at completing the European internal market, boosting labor market perfor- mance, and encouraging innovation. Fiscal policy should be rooted in long-term sustainability goals. [See Table 5.1.]
When compared to the United States, the differences are significant. (See Table 5.2.)
No matter how you slice it, the data strongly suggests that those countries (that’s you, Europe) that have “structural rigidities” (code for a high social compact) are likely to experience an erosion in their gross domestic product (GDP) performance. This is not to say that one style of capitalism is better than the other. Nor is it to suggest that the two ma- jor competing versions (American versus Social Democrat) are the only ones. Moreover, the euro area is a vast and complex mix of countries
TABLE 5.1 Euro Area Demand and Output Current Prices
(Billions Percentage Changes, Volume of Euros) (1999 Prices)
2001 2002 2003 2004 2005 2006 Private Consumption 3,928.3 0.7 1.1 1.2 1.3 1.7 Government Consumption 1,372.5 3.1 1.7 1.7 1.0 2.0 Gross Fixed Investment 1,442.0 –2.2 –0.4 1.9 2.0 3.0
Public 181.2 2.3 0.4 1.5 2.4 2.2
Residential 372.4 –0.9 0.9 1.6 1.0 1.7
Nonresidential 888.5 –3.7 –1.1 2.2 2.3 3.8
Final Domestic Demand 6,742.8 0.6 0.9 1.4 1.4 2.0
Stockbuilding –14.6 –0.1 0.3 0.3 0.1 0.0
Total Domestic Demand 6,728.2 0.5 1.3 1.8 1.5 2.1
Net Exports 122.1 0.5 –0.6 0.1 –0.3 0.0
GDP at Market Prices 6,850.3 0.9 0.6 1.8 1.2 2.0 Source:Organization for Economic Cooperation and Development.
TABLE 5.2 Nominal Gross Domestic Product (GDP) in the 1990s (Percentage Change from Previous Year) Average
1980–1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
United States 7.6% 3.3% 5.7% 5.0% 6.2% 4.6% 5.7% 6.2% 5.3% 6.0%
Euro Area 8.7 7.4 5.6 2.7 5.2 5.2 3.5 4.0 4.6 3.9
European Union 8.8 7.0 5.2 3.1 5.4 5.3 4.0 4.4 4.8 4.2
Total OECD 10.7 7.0 6.3 5.5 7.6 7.5 7.3 7.2 5.8 5.7
Fourth Quarter
2000 2001 2002 2003 2004 2005 2006 2004 2005 2006
United States 5.9% 3.2% 3.5% 4.9% 6.6% 6.1% 5.7% 6.4% 5.9% 5.7%
Euro Area 5.1 4.1 3.4 2.6 3.8 2.8 3.7 3.4 3.1 4.1
European Union 5.2 4.2 3.7 3.1 4.0 3.0 3.9 3.6 3.3 4.2
Total OECD 6.7 4.0 4.2 4.3 5.5 4.6 4.8 5.2 4.6 4.9
Source:Organization for Economic Cooperation and Development.
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and cultures that require a more detailed investigation into the inter- country factors at work. Nevertheless, the overriding conclusion is that those countries that do not adapt to the forces wrought by globalization will suffer the consequences of lower growth and a greater burden on their citizens. And that will not lead to any good.