I was speaking the other day with an acquaintance who was very impressed with how president-elect Trump made a tax-break deal to keep close to 1,000 jobs at Carrier in Indiana.
“This is how you fight globalization,” he said
I wasn’t in the mood to argue, so I didn’t point out that the $7 million tax break hardly compares to the $65 million Carrier would have saved in the Mexico move, so obviously the change of heart was a PR decision not a business one. Or that jobs are created and lost in the US all the time, which is how we keep our economy dynamic and competitive.
But what did catch my attention was this guy’s certainty that (1) globalization was a bad thing, and that (2) it could be stopped by something as temporary as a few tax concessions to corporations. Like a lot of people, he sees globalization mostly as a euphemism for large multi-nationals outsourcing American jobs overseas so that business owners save money by increasingly turning small town America into one large unemployment line.
The reality, though, is that globalization is not stoppable and it is not the problem. It is the inevitable result of the past couple thousand years, and at a macro scale it is providing huge economic opportunities.
Think of our history in terms of the movement of goods, developing trade, along with the exchange of technology and ideas. At one time our world view was tribal; the equivalent of the town you live in. As we developed better forms of transportation, as well as an appreciation of greater diversity in food, tools, and goods, we were able to trade on a regional basis, and then on a national scale, and eventually internationally, and overseas.
Today raw materials, products, foods, skilled people, and innovative ideas are all moving swiftly around the world. With modern communications technology, the skilled people and innovative ideas don’t even need to be physically transported; they just need to be engaged.
The impact on world poverty has been immense. While a few hundred, or even a few thousand American workers have periodically seen their jobs off-shored, millions in other countries have seen their living conditions transformed. Keep in mind that, as a World Bank research study has shown, “global inequality is far greater than inequality within any country, even the most unequal ones. The gap between a poor person in India or Sub-Saharan Africa and the Western upper-class is an abyss.”
The global economy helps to bridge that abyss. As Robyn Meredith pointed out ten years ago in the book The Elephant and the Dragon, globalization lifted 200 million in India and China out of abject poverty in the 1990s as globalization took off, while tens of millions more were catapulted far ahead into the middle class.
What about my company? What about me?
So what about that Carrier deal? you may be asking. Why isn’t that a good thing for the US, even if globalization as a whole may be benefiting the rest of the world? Why shouldn’t my company get a deal like that if it keeps our jobs here?
Well, there’s several parts to this. First, your employer – let’s call it ABC Widgets – is almost certainly intimately enmeshed with globalization in a host of ways. We can imagine the scenario. You may be most concerned with specific jobs, but your employer is likely to be getting raw materials from overseas. Several European and African nations are big customers, as is China. The chief industrial engineer at ABC Widgets is a Belgian, educated in London, who is applying operational innovations originally developed in Germany. The chief technology officer is from India, educated in Illinois. The small fleet of trucks used to deliver the widgets to various shipping points is from a Japanese auto manufacturer via a cost-effective multi-year lease deal, but of course those trucks are not built in Japan; they use some Japanese parts and electronics, with machine assemblies from Mexico, all compiled and finished in a large plant in the United States. The free flow of goods, people and ideas across borders is what makes it possible for ABC Widgets to function.
In addition, it’s important to question why ABC Widgets is considering moving many of your jobs out of the country.
- Are the owners trying to save on worker salaries in order to put more money in their pocket? Then they are greedy, and they will screw you over sooner or later, one way or another, and any temporary move to keep your job here is just delaying the knife in your back.
- Is the company struggling because of mismanagement, and they’re desperate to cut costs? A tax break isn’t going to fix incompetence at the top, so your company is going down no matter what.
- Is it to keep your company competitive? If so, while in the short term an incentive deal may keep you in your job for another few years, in the long run it may mean that ABC Widgets has failed to remain operationally comparable to other firms in the same sector that got the jump on offshoring some roles and replacing others with new technology. If ABC is investing in the status quo while the competition is investing in the future, that’s a slow corporate suicide.
- Or has the marketplace fundamentally changed? Sometimes you realize it is 1913 and you are working for a buggy whip factory. The whips may be of excellent quality and offer the best value for the dollar, but the world is changing. Therefore both you and the company need to change what you do and how you do it.
In other words, after this exercise it may be obvious that either your job or your company is destined to end. That a couple of politicians shaking hands for the cameras will not actually save either. And that you need to do something to begin the next phase of your work life.
Easy for you to say
Well, maybe it is easy for me to say. But while it is frustrating to watch your job, and the jobs of your colleagues, eliminated by new technology or sent overseas, you can’t let that anger stop you from making clear-headed decisions on what steps to take. Or, more importantly, you can’t let the anxiety that it may happen to you in the future distract you from acting now to learn new skills, change careers, and generally be more proactive about your professional life.
“The rage is rational but the reaction is not,” says the economist Richard Baldwin, President of the Centre for Economic Policy Research in London, about angry people making short-sighted and foolish decisions in response to changing job profiles in their industry. He especially has in mind the tendency to blame trade deals and immigration. “It’s a misdiagnosis of the problem. What you end up with is trying to treat a 21st-century problem with 20th-century tools, and you get all sorts of unintended effects. In any case, it just won’t work. We shouldn’t try and protect jobs; we should protect workers.”
This means retraining, finding new roles in the transformed industry, adapting to the reality of what is happening.
It will be very difficult to get most Americans to agree on that “reality of what is happening,” however. The current political polarization, coupled with the general economic illiteracy of many of our workers, means that there is no agreement on the basic facts, let alone the possible courses of action.
I’ve written on the disconnectbetween, on the one hand, campaign rhetoric about how China is “kicking our ass” in the manufacturing sector and how the US is lagging far behind the world, when, on the other hand, in reality the US is doing about as well as possible as a global manufacturing powerhouse and is expected to be the top manufacturing nation – above China – by 2020.
Part of this disconnect is because if you, or someone close to you, loses a job, the personal is projected as universal. Part of it is also the distortion lens that politics is placing on things.
“People pick a partisan team, and they often filter information through their loyalty to that team,” observes Alana Semuels in The Atlantic. “When the information coming in contradicts their team’s beliefs, they have trouble accepting it. Time and again, people evaluate their own economic situations differently depending on who is president.”
This has a lot of economists worried, because the populist movements rising up in various locations, most notably in Brexit and the election of Trump, often embrace assumptions and intentions at odds with the knowledge and counsel of experts.
This is of special concern to Nobel Prize winning economist Joseph E. Stiglitz, who fears that the healthy economy Obama is bequeathing Trump will be destroyed by the policies Trump is promising to unleash. There are various laws of normal economics, Stiglitz explains, and Trump’s intentions, including around issues related to globalization, are likely to not turn out as he has promised.
“The laws of economics don’t bend to political rhetoric,” points out Stiglitz.
In any case, globalization is a reality. It is a primary driver of global business. As put by my colleague Ira Kalish, Deloitte’s Chief Global Economist, the second half of this decade will see “an evolution in consumer buying behaviors; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy.” These are all happening on a world-wide scale, and they all affect each other.
The world today is a complex, interconnected economic web. It is providing benefits for all, with huge benefits for those who need it the most. We should recognize that the US profits overall from global trade, but admit at the same time that some specifically will do worse. “While trade makes countries better off, the benefits from trade are unequally spread across individuals and time,” Mark Carney, Governor of the Bank of England, recently pointed out. This is unfortunate but inevitable, and we need to take action to make sure these workers have a refreshed future.
This will require a commitment of time and resources. “The US effort on worker retraining has been too small and poorly focused,” writes Edward Alden, Senior Fellow at the Council on Foreign Relations. “Other advanced economies invest more in worker adjustment and use more innovative programs to try to minimize unemployment.” We need to do better, putting our efforts where they are needed.
Originally published on LinkedIn on 28 December 2016.