Tuesday, October 31, 2006

America: Globalization's Loser?

By Heraclitus

Der Spiegel has an interesting series of excerpts from a best-selling book in Germany,
World War for Wealth: The Global Grab for Power and Prosperity," by Gabor Steingart, an editor of Der Spiegel. This particular article is especially interesting to Americans; it argues that the United States is in decline globally. Steingart focuses on the economic reality in the United States, and in particular shrinking incomes and, of course, the massage trade deficit, which includes individual trade deficits even with less developed countries like Russia and the Ukraine. Steingart identifies three key features of the US that have helped it rise to power but which have also set the stage for its disintegration, especially in the economic global market. The three traits are "a high concentration of optimism and daring," a "radically global" outlook that has defined the country from its inception, and the fact that "the United States is the only nation on earth that can do business globally in its own currency." But from these apparent strengths or virtues come the following weaknesses or vulnerabilities.

But there is a flip side to the coin. First, Americans are so optimistic that they often blur the line between optimism and naivete. Public, private and corporate debt far exceeds any previously known dimensions. Forever piously trusting in a future rosier than the present, millions of households are borrowing so much money that they end up endangering the very future they're looking forward to. The lower and middle classes have practically given up on putting aside any savings. They're going into the 21st century like a poverty-stricken, Third World family, living from hand to mouth without any financial reserves whatsoever.

Second, globalization is striking back. The United States has promoted the worldwide exchange of commodities like no other nation, and the result is that their local industry has begun to be eroded. Some production sectors -- such as the furniture industry, consumer electronics, many automobile part suppliers, and now computer manufacturers -- have left the country for good. In the recent past, free trade has primarily benefited the very rival states that are now mounting an economic offensive on the United States -- and which have cut off a large slice of America's global market share for themselves.

Third, the dollar doesn't just strengthen the United States; it also makes it vulnerable. The government has pumped its currency into the world economy so vigorously that the dollar can now be brought to the point of collapse by external forces - such as those in Beijing, for example. Former US President Bill Clinton spoke of a "strategic partnership." Current President George W. Bush would later speak of a "strategic rivalry." They meant the same thing. There's a form of dependence that obliges economic actors to cooperate in normal times. But when times change, there is the temptation to engage in a show of strength.

Incidentally, I'm not persuaded that China is the next global superpower. As readers probably know, for years now, if not decades, Chinese parents have been aborting female fetuses and giving birth to males--not exclusively, of course, but often enough that there is a major imbalance in the population between young males and young females. Large numbers of young men who have no chance of marrying are not good for a society. Expect crime and a generally destabilizing surge of discontent from them. And second, Chinese society is disproportionately elderly, and will only become more so over the next few decades (check out this animated pyramid tracking the population change in China between 1950 and 2050). So China will have major internal problems to deal with over the next half century, even if it can rid itself of its current class of kleptocratic overlords.

I don't know enough about economics to pronounce on the validity of his argument or arguments, but Steingart's piece is worth reading in full. Among other things, he makes a strong case that globalization, a set of trends that emerged in the 1970's, has been steadily eroding the American middle class and making the American working class poorer, even as it makes the wealthiest one-fifth of the country richer than ever, and thereby accelerates the fragmenting of American society into economic classes. You've probably heard that argument before, but Steingart makes it especially clearly and concisely.

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