Globalization: Suicide by Comparative Advantage

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Suicide by comparative advantageDo you remember voting for globalization? I don’t.

I do remember reading about comparative advantage in Adam Smith’s Wealth of Nations and thinking how globalization would most likely seek out the lowest universal cost input-labor. Ross Perot told us all that the North American Free Trade Agreement would kill American jobs. He lost the election and a whole bunch of American families also lost their jobs due to NAFTA. I also remember the gutting of many small vendors throughout the US auto industry as more auto plants moved abroad to take advantage of the competitive advantage of host countries and turn it to their advantage when exporting cars back to the USA.

I also understand that change is in the nature of things. We’ve all been there or will be there sometime in our lives. However, during this political season, a silent anger has risen to the surface and it’s aimed at the political class who seemed to have been voluntarily compliant in supporting economic and regulatory changes that benefit only the new global power class. There is Trump who wants to build fences and make America great again and Sanders who offers up a socialist platform that would accommodate the unintended negative consequences of globalization. Indeed, there is a broad consensus that the well-being of US citizens has been abandoned by their elected officials who are supposed to be representing the national interest.

Change is always harmful to some and an opportunity for others. In fact, change and entropy are underlying principles of the Universe in which we live. The potential technology that is coming down the road in the next few decades will be disruptive and any thinking person should be wondering what kind of social-economic system is going to evolve. And there is no doubt that globalization is the shot across the bow.

Progressive thinkers feel that globalization will create new economies, new markets, and higher standards of living for all members of the human race. Others see globalization as replacing democracy and creating a global oligopoly that is founded for the benefit of the new “power elite” who inhabit the halls of international institutions and big multinational corporations. When you think about it, we hear more about the policies of the International Monetary fund (IMF), the World Bank and the Bank of International Settlements (BIS) these days than we do of individual governments or even the United Nations.

The IMF is the lender of last resort and offers economic assistance in exchange for compliance to its loan demands, which often impact local governments and societies. Do you know who funds the IMF and how its leaders are chosen? The World Bank is another quasi-governmental lending institution that also helps to “regulate” (a.k.a. “help”) global economies. Who owns the World Bank and how are its leaders chosen? The Bank of International Settlements, based in the secret land of the Swiss gnomes, is setting international monetary policy and central bank policy as well as international regulatory banking policies called the Basel III agreement. Check this out if you don’t believe me, the BIS is-in reality-the global club for the World’s Central bankers. Who owns the BIS and how do they choose their leaders?

Money is power, which needs some sort of counter-balance to protect against potential abuse of that power but there are no checks and balances on these emerging institutions of economic globalization.  To me, it’s still incredulous that the US Supreme Court has voted to uphold the United We Stand ruling that allows big business to fund electoral campaigns with little restriction. Now, big international money can influence the democratic elections in the USA and probably around the world- if you believe politicians are corruptible.

But, despite all the negatives, the idea of globalization and a world of openness and improving standards of living for all is very seductive when compared with a world of trade wars, vast differences in opportunities and standards of living and a world of envy and hatred. In fact, I hold hope that all of us will see the need to change the way we view each other: not as competition in a Darwinian sense but as fellow travelers in a world of potential and constant evolution; where all of us benefit when all boats rise on the tide of cooperation and empathy. I don’t mean to present a naïve picture of peace and love rather one of mutual respect and cooperation for mutual benefits.

NAFTA data shows some definite benefits

I know, we are all data “numb” and hear conflicting “truths” all the time. The following information offers some “facts” that support the benefits of the NAFTA “experiment.”

  1. Quadrupled Trade

During the period 1993-2015, trade between the three members (Canada, USA and Mexico) quadrupled, from $297 billion to $1.14 trillion. That boosted economic growth, profits, and jobs for all three countries. It also lowered prices for consumers. (Source: Top Trading Partners, U.S. Census. Canada-Mexico Relations, Government of Canada.) During that time, the United States increased its exports of goods from $142 billion to $517 billion. That’s a third of its total exports. Canada increased by $280 billion and Mexico by $236 billion.

  1. Lowered Consumer Prices

NAFTA lowers food prices and oil imports. Food imports totaled $39.4 billion in 2013, up from $28.9 billion in 2009 and it lowered the prices of fresh vegetables, chocolate, fresh fruit (except bananas) and beef the most. (Source: USTR, NAFTA Imports)

  1. Increased Economic Growth

NAFTA boosted U.S. economic growth by as much as .5% a year.  The sectors that benefited the most were agriculture, automobiles, and services.

U.S. farm exports to Canada and Mexico grew 156%. That’s compared to a 65% increase to the rest of the world. To put this into perspective, farm exports to Canada and Mexico alone were greater than exports to the next six largest markets combined. Total farm exports were $39.4 billion in 2015.) NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for U.S.-grown beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest export destination for corn, soybeans and oils. (Source: U.S. Foreign Agricultural Service, NAFTA).NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to a peak of $106.8 billion in 2007. However, the recession hit financial services hard, so services haven’t quite recovered. By 2009, they had only risen to $63.5 billion. By 2012, service exports had improved to $88.6 billion. (Source: USTR, Quantification of NAFTA BenefitsNAFTA)

  1. Created Jobs

NAFTA exports created nearly 5 million new U.S. jobs.  Most of those jobs went to 17 states, but all states saw some increases. U.S. manufacturers added more than 800,000 jobs between 1993 and 1997. That’s because manufacturers exported $487 billion in 2014, generating nearly $40,000 in export revenue for each factory worker. (Source: “NAFTA Triumphant: Assessing Two Decades of Gains,” U.S. Chamber of Commerce, October 27, 2015).

  1. Increased Foreign Direct Investment

Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $452 billion in 2012. This helps boost profits of U.S. businesses by giving them more opportunities to develop, and markets to explore. (Laid off US workers would probably argue this “benefit”. Moreover, how much of those investment dollars were repatriated and paid US taxes?)

  1. Reduced Government Spending

NAFTA allowed all firms in member countries to bid on government contracts. This created a level-playing field for all companies within its borders. It also helps to cut government budget deficits by allowing more competition and lower-cost bids.

The above information was provided by entities that may have a pro globalization agenda, which is what globalization can easily create because it is seen as a positive concept. However, there is anecdotal evidence that much damage has also been done to those unlucky enough to become “victims” of NAFTA. However, the paradox is that while NAFTA, free trade and globalization are seen as egalitarian and empathetic constructs, there are negatives.

The tendency is to proclaim that it is up the individual to meet the challenges of adapting to change and I would be the first to agree as I have been there myself. However, what if the reality is -for many reasons- there will be many fellow citizens who will be left behind and unable to make the necessary changes.  We cannot just throw those people away….or can we? There is too little discussion about those less adaptable who are in the path of the avalanche of the coming changes ahead, and this leads to the heart of this editorial.

There are massive changes underway and most of us see them or feel them on the horizon. Readers of Metaops Magazine are leaders of others whose lives-including their own-may be greatly impacted by the changes that technology will impact in terms of comparative advantages and the possible Luddite backlash that it may bring to our social-political-economic system. I have no doubt that there will be nobody left untouched by the coming changes. Globalization is the foundation on which the future is being built and with it will come the consequences that are now forming a central issue in the US political arena. Hopefully, the dialogue is about to begin.

As a long time consultant, I know that making changes starts with accepting that there is a problem or a challenge that must be taken on. Today, I see the only thing being proactive is the opaque interests of global forces seeking comparative advantage for the few. But if the unintended consequences such as the dilution of democracy are not open to public discussion and inclusion of all parties, the insidious transfer of power to move beyond any recognizable democratic control and will stoke the fires of fear and hatred.

Intended or not, the consolidation of undemocratic power does not bode well for the future. As responsible leaders, we in business and as citizens need to start thinking about where globalization and technology are taking us and start identifying the ways to have a controlled and balanced globalization policy. However, as I read those hopeful words, I realize that it’s much more probable that the solution to those problems will happen as a result of unintended consequences and the reactions they provoke; in which case, all bets are off.

 

Additional Reading

Globalization….Down but Not Out

Globalization: Suicide by Comparative Advantage

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