Globalization's downside at Hell's Gate....
As any thoughtful leftist knows, the culprit is globalization, the very same phenomenon that has done more to end poverty in the world than all the well-intentioned aid programs have ever done. Millions of Chinese and Indian workers have ridden the production of stuff for world markets to a level of affluence undreamt of only a decade or so ago. Millions of Russians and residents of former satellite nations are increasingly prosperous and free to travel and spend.
So far, so good. But globalization has also exacerbated inequality in many Western countries, including most especially America. Managerial skills can now be marketed internationally, and fetch higher prices. The dealmaker who could make his tens of thousands merging one U.S. company with another can now make tens of millions putting together larger, cross-border mergers. The wealth manager who could cater to clients in New York, Chicago, and Los Angeles can now add rich Indians to her client list. In short, the talented are now writing on bigger slates, and their rewards have risen commensurately.
The news is less good for the woman sewing t-shirts or making trainers. She is the collateral damage of globalization. She did all that was asked of her: worked hard, paid her taxes, saw her children off to school every day. Not her fault that millions of $1-per-day Chinese were more than willing to compete with her, and that Walmart snapped up their products, triggering a massive shift of wealth from the U.S. to China, and from producers to consumers.
The global impact on American unions is more complex, but the trend is similar:
Equally disadvantaged, but somewhat less entitled to our sympathy, are the unionized workers in the manufacturing sector who in a closed economy could extract high wages from employers willing and able to pass on the higher costs. The extent to which globalization put an end to that ride on the backs of consumers is shown by the recent settlement agreed to by the United Auto Workers union and the car makers. New hires are to receive about half the hourly wage of old timers, gradually bringing the costs of American manufacturers down to those of Japanese and other auto makers—and now lower-cost China is dipping its toe into the U.S. auto market.
The only group not directly affected by globalization is public sector workers. Policemen, firemen, clerks in the office that issues drivers’ licenses have no fear of foreign competition. Because their unions are also large contributors to the campaigns of the politicians who sit across the table from them in wage negotiations, they pretty much could get the wage and pension packages they sought.
But that party, too, is coming to an end, an indirect effect of globalization. Hard-pressed voters, their real incomes stuck at years-ago levels, are no longer willing to pay the taxes needed to support the life styles and large pensions of public sector workers. In Wisconsin, Republican governor Scott Walker faced down his Democratic opposition and massed demonstrations to reform the public sector bargaining process and start to get public sector compensation under control. Ohio Republican governor John Kasich did the same, and Democratic governors Andrew Cuomo (New York) and Jerry Brown (California) are moving in that direction. These moves will help relieve the burden on taxpayers, but they will also reduce the number of relatively high-paying jobs in America, and the compensation of those who survive the staffing cuts.
The World Bank's Doing Business rankings, as of June 2011, show the US in the top 10 as to ease of doing business, getting credit, protecting investors and enforcing contracts, but 13th in ease of starting a business and lower in the teens in most other categories. To start business, the top 5 are New Zealand, Australia, Canada, Singapore & Hong Kong; also ahead are economic superpowers ARMENIA, GEORGIA, BELARUS, and RWANDA.
Worse, financial maven David Smick writes, we may well be headed towards "global financial apocalypse":
Today the world’s public and private debt exceeds an incredible 300 percent of GDP. We are at risk of succumbing to an ugly, downward, global mark-to-market in asset prices. Yet the discussion in Washington fails to reflect the immensity of the threat.
Some money managers have a theory that this mark-to-market process has been under way for some time. Stage One was the 1990s Asian crisis. Global financial markets concluded that Asia’s debt was dangerously high and its banks’ balance sheets not reflective of reality. Global traders pounced. Interest rates soared, equity markets plummeted, banks failed, and currencies collapsed.
Stage Two is happening in Europe today.
Stage Three will eventually hit the United States. Washington policy-makers seem confident America’s public debt risk is years away. They believe that the U.S. economy, with the dollar the reserve currency, enjoys some immunity from these concerns. The central bank, moreover, can buy bonds to keep interest rates from rising in response to growing debt. Yet these are risky assumptions.
Europe's current strategy, coupling austerity with debt relief, is failing:
If only life were that simple! Global indebtedness, according to Zoakos, has actually increased by 17 percent since the beginning of 2008. Nations have enacted generous bailout and stimulus programs while growth has averaged an anemic 1.2 percent.
With the world having fallen into a giant liquidity trap, monetary policy has been ineffective. Because of the growing slack in the economy as the developing world joins in the global slowdown, the central bankers couldn’t inflate their way out of today’s debt problem through bond purchases even if they wanted to.
What the Greek situation has shown (debt 120 percent of GDP before the crisis and 170 percent today after reforms) is that austerity without a strategy for vigorous economic growth is a recipe for failure. But Washington’s political environment is so poisonous, bipartisan fiscal compromise seems impossible.
America, Smick concludes, needs "radical" reform on growth & debt policies, to avert disaster. The Germans estimate that a Euro-bank bailout will exceed $1.4 TRILLION. Gordon Chang chimes in that China's predatory trade policies make it part of the global trade & monetary imbalances problem, and not a source of the solution.
Historian Niall Ferguson adds another scary factor: the Internet marketplace multiples volatility exponentially, imposing severe economic & social strains on global polities. Put simply, vast changes happen too rapidly for economic & social systems to adjust. After offering salient examples, he warns:
Computing power has grown exponentially. So has the human network. But the brain of Homo sapiens remains pretty much the same organ that evolved in the heads of African hunter-gatherers 200,000 years ago. And that brain has a tendency to swing in its mood, from greed to fear and from love to hate.
The reality may be that by joining us all together and deluging us with data, the Netlords have ushered in a new Age of Volatility, in which our primeval emotions are combined and amplified as never before.
We are LinkedIn, but StressedOut. And that “cloud” of downloadable data may yet turn out to be a thundercloud.
In The Daily Telegraph Janet Daley sees the end of true European democracy, as European Union bureaucrats override tax & budget preferences of votes in member countries. Christopher Caldwell details how Europe is imploding, with stark numbers. And there is a new factor--Asia:
At last week’s meetings, Europe invited a new player into its finance crisis: China. Europeans have talked about “levering up” their $625 billion European Financial Stability Facility (EFSF), established last year to prevent a Greek contagion. It has been topped up and tapped into since and now has only about half its original lending power. In order to obtain the funds necessary to shore up Italy’s bond market, the Europeans reckon they need to more than double the size of the EFSF. Levering up means using the money they have in the EFSF as security to raise even more on the capital markets. In the present depressed state of the world economy, “the capital markets” means China. With an astonishing lack of sangfroid, Klaus Regeling, the head of the EFSF, landed in Beijing on Thursday afternoon to press his case. He must have headed straight for the airport the moment the agreement was signed.
Years ago, China might have fallen for the trick that Europe intends to pull, basically trying to get money for Greece and Italy by waving around the triple-A credit rating of Germany and other countries that have stocked the EFSF. But today it is likely that China will insist on guarantees that it be paid before European taxpayers in any default scenario. In an interview with the Financial Times the day after the agreement, Li Daokui, a member of the central bank monetary policy committee, gave evidence of a real canniness. “The last thing China wants,” he said, “is to throw away the country’s wealth and be seen as just a source of dumb money.” Li indicated that the Chinese might ask European leaders to refrain from criticizing Chinese economic policy as part of the deal.
Perhaps Europe has reached the point where its only route out of bankruptcy is this kind of vassalage.
Caldwell notes that Europe will have great difficulty getting the two forms of growth it desperately needs: robust GDP & population growth. As for the Chinese, they are not sentimentalists.
As if all that were not enough, try this: an estimated 20 million tons of debris set afloat by the March monster tsunami that struck Japan, is drifting towards the President's home state of Hawaii, due to arrive in a couple of years.
Bottom Line. What goes up eventually comes down, and what went way up is now crashing way down. The worst problem we face is that we are beset with several mega-crises, any one of which would be daunting in and of itself. Think multi-front wars against militant Islam, near-collapse of the banking system, collapse of the housing market, yawning budgetary gaps, and increasingly rapid changes whose proliferation & acceleration are overwhelming the ability of humans and human society to adjust. Together, they may break us, by exceeding our ability to handle massive economic & social dislocation over a long period of time.
Letter from the Capitol, LFTC, Economy, Conservative Politics
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