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The Global Delusion

The conjunction of intensifying scarcity in energy supplies with accelerating climate change is the other face of globalization. It poses a large question mark over Cohen’s belief that the main problem with globalization is that it is incomplete, for it suggests that completing it may not be feasible. The current phase is only the extension to the wider world of the industrial revolution that began in England a couple of centuries ago, but already it is destabilizing the environmental systems on which all industrial societies depend. Extending the energy-intensive lifestyle of the rich world to the rest of humankind would have an even more destabilizing impact.

At the same time—and contrary to some antiglobalization theorists—there is no prospect of humanity opting to revert to a pre-industrial way of life. Such a choice would run counter to the aspirations of billions of people, and industrialization in China and India has an impetus that no government can resist. In any case it is doubtful that a human population of around eight or nine billion—the figure that is commonly projected for the middle of the present century—could be sustained by pre-industrial methods. Even if the present human population could be supported for a time by such methods, it would only be by devouring what remains of wilderness in the world and further destabilizing global climate systems.

As the reverse side of globalization, environmental crisis could well derail it. If there is a way forward it lies in the intelligent use of science and technology to develop less dangerous sources of energy; but it is a mistake to think that a large change in the way we live can now be avoided. Climate change cannot be prevented, only mitigated, and whatever is done to deal with its effects there is sure to be large-scale disruption and conflict. The defining feature of the industrial civilization that is spreading everywhere is exponential growth; but such growth is eventually self-limiting.

Cohen’s analysis is refreshingly heretical, but like nearly all economists he resists this conclusion. He distinguishes two kinds of economic growth—the “Smithian” variety that reflects Adam Smith’s vision in The Wealth of Nations, in which growth is achieved by utilizing the benefits of the division of labor, and a “Schumpeterian” variety that is driven by continuous technological innovation. In an unexpected lapse into economic orthodoxy Cohen maintains that while growth of the first kind ends by exhausting itself, “Schumpeterian growth is apriori without limit.”

However, while these types of growth differ in important respects, they are similar in requiring large inputs of energy that in present conditions can only come from oil and its derivatives—resources that are not only finite but whose large-scale use has the effect of stoking up greenhouse gases. (The use of nuclear fusion to supply energy would avoid that outcome but there seems no clear prospect that it will be developed anytime soon, and it would not prevent the climate shift that is already underway.) An economy based on technological innovation is better placed than others to respond to these challenges but it cannot detach itself from the material environment of the planet. Both sorts of growth rely on fast-depleting resources and face the ecological backlash of climate change. The irony of globalization runs deeper than Cohen has perceived. Not only is it at present more imaginary than real, it can never be fully achieved.

2.

One of the many valuable features of Suzanne Berger’s book How We Compete is its healthy skepticism regarding claims that different models of economic development ultimately converge. As Berger writes, there is broad agreement on the fundamental forces driving globalization:

a great freeing up of trade and capital flows; deregulation; the shrinking cost of communication and transportation; an [Information Technology] revolution that makes it possible to digitize the boundaries between design, manufacturing and marketing and to locate these functions in different places; and the availability of large numbers of workers and engineers in low-wage countries.

Convergence models assume that once globalization is in place, the only way companies can adapt is by adopting the same business practices. In this view globalization is self-reinforcing. But as Berger notes, it is not a view borne out by history. The global economy that existed prior to World War I was in many respects more open and borderless than the one that exists today. Even so it collapsed, and in a process culminating in the US in the Smoot-Hawley tariff law of 1930 was replaced by the semi-autarchic closed economies of the interwar years. However securely established it may seem, globalization is not irreversible. Indeed, over time its disruptive effects tend to result in deglobalization.

Standard models assume that globalization means that one way of doing business will be imposed on everyone, but this is not supported by Suzanne Berger’s research on many companies in different parts of the world. She writes that the common belief is that “globalization forces everyone onto the same track. But that’s not what our team found.” Drawing on a five-year study by the MIT Industrial Performance Center, Berger presents a wealth of evidence about the different strategies adopted by five hundred international companies to survive and prosper in the global market. The result is a consistently enlightening analysis that explores the many different ways in which companies respond successfully to global competition. The computer company Dell is strongly focused on distribution and outsources all manufacturing of components overseas, for example in India, while Samsung makes almost everything itself; but both are rapidly growing, profitable businesses. General Motors is finding it difficult to adjust to high-wage labor, while Toyota—which has kept production at home or in other advanced countries—is doing well. Faced with similar challenges, companies can thrive or fail in different ways.

Devoting a significant part of her analysis to the dilemmas surrounding outsourcing, Berger concludes that the threat of continuing job losses in the US is at least partly real. Many economists insist that as old jobs are lost, new technologies and industries will appear to replace them. Berger does not entirely reject this view, but suggests that the experience of those who have been laid off and cannot find jobs without accepting large reductions in pay may point to a trend that mainstream economics has missed: “After crying wolf so often, perhaps this time the pessimists about technological advance and employment have really spotted one.” Outsourcing poses a real risk to employees; but Berger believes a “race to the bottom” can be avoided if companies accept that employing cheap labor is not the most effective way of responding to global competition. The activities that succeed over time are those that involve conditions—such as long-term working relations with customers and suppliers and specialized skills—which companies whose main asset is cheap labor cannot match. A company policy of forcing wages down is not a recipe for long-term corporate success.

Berger is clear that acting on their own, companies cannot make all the needed adjustments. Governments have a major part in creating an environment in which businesses can plan for the future, but how governments do this will depend on the type of capitalism they must deal with. As she acknowledges in a lucid discussion, capitalism comes in several varieties reflecting different cultural traditions and political systems. Within this wide variety two different kinds of market economy can be distinguished:

liberal market economies, like Britain’s and the United States’, in which allocation and coordination of resources takes place mainly through markets; and coordinated market economies, like Germany’s and Japan’s, in which negotiation, long-term relationships, and other nonmarket mechanisms are used to resolve the major issues.

These divergent capitalisms are competing and they learn from one another but the result is cross-fertilization, not evolution toward a single model. What works well varies not only from company to company but also from country to country. There is no one set of policies or institutions that can yield prosperity in all societies—or for all companies. The belief that globalization means the triumph of one way of doing business is not only historically false. It is a dangerously mistaken basis for corporate strategy. As Berger puts it, summarizing the results of the years of research conducted by her team:

Succeeding in a world of global competition is a matter of choices, not a matter of searching for the one best way—we discovered no misconception about globalization more dangerous than this illusion of certainty.

The belief that nation-states remain pivotal in global society is one of the central theses of Barry C. Lynn’s powerful polemic, End of the Line. In a wide-ranging and thoroughly researched argument, Lynn challenges the belief that by increasing interdependence among the world’s economies globalization thereby enhances their stability. On the contrary, it is having the effect of reducing stability—not least in the United States. “Fifteen years of turbo-charged ‘globalization’ of industry, unchecked by any American state strategy or vision, has left the American people relying on a global industrial ‘commons,’” Lynn declares, “that is largely out of their control and that is riven by fundamental structural flaws.”

For Lynn the core of globalization is not a global market, which has long existed in many commodities. It is the global organization of production, which now takes place in far-flung networks that no one controls or really understands. A company such as Wal-Mart has become highly successful by outsourcing, buying billions of dollars of goods from China, for example. It “perceives no need even to understand the processes of supply and of production, let alone manage them carefully for the long term.” When production is globally outsourced, more and more companies become trading and retail vehicles, with neither the ability nor the interest needed to manage the process of production. Not only production but management has been devolved, with the result that no one has an overall view. It is this feature of the global economy—lauded by those who value the market for its ability to achieve results no one has planned—that Lynn finds most alarming. Because the global production system transcends national boundaries, no one is responsible for ensuring that it is safe: “Nobody looks for risk in the system…nobody accepts any liability for risk in the system.”

As Lynn notes, the failure to confront the risks of global production is partly owing to the anachronistic revival of classical liberal ideologies in which it is believed that free trade promotes peace. In his celebrated book The Great Illusion, Norman Angell argued that growing economic interdependence made war unprofitable and improbable—a view that had been advanced in the nineteenth century by enthusiasts for free trade such as Richard Cobden. Angell’s tract was published in 1909 and its argument was overturned five years later by the outbreak of the most destructive war in history. But the belief persists that as the economies of different nations become more integrated with one another their political systems will become more democratic, with the result that the world becomes more peaceful.

In practice, increasing global economic integration often works the other way. Lynn observes that because of the strong economic links between the two countries, a democratic upheaval in China would be highly destabilizing for the American economy. If ports in China were shut down or production plants closed—whether by the Chinese government or as a result of popular dissent—the flow of goods to the American economy would be severely disrupted. In such circumstances the US could well find itself propping up the current regime in Beijing: “If anything, to protect our supply lines, we may find ourselves cooperating with Beijing hard-liners to suppress the will of the Chinese people.”

The long supply lines of the global production chain extend into many countries ruled by authoritarian regimes. Any serious threat to these regimes will have global repercussions, and it will not be easy for democratic states to side with dissident movements. Free trade requires stability more than democracy, and this is especially true when production is globally dispersed. At the same time, stability is not ensured in the current state of international affairs. As in the past, states have divergent strategic objectives; they prize their own security highly and will seek to thwart global market forces if they seem to threaten what are seen as vital national interests. It is only reasonable to expect that these differences will sometimes lead to conflict.

Insofar as it is a prescription for policy, End of the Line is a plea for a reassertion of American national interests. Unlike many analysts in America and other countries, Lynn—a senior fellow in the New America Foundation—recognizes that the present global economic regime is not a spontaneous growth. It is largely an artifact of American power, which was constructed in the belief that it would serve American interests. But the system that has been established does not always work to America’s advantage, nor is it self-stabilizing:

The global economy was created by the American state. Absent a clear-minded effort by the United States to manage this system—in ways amenable to the large majority of the peoples around the world who now depend on it—it will slowly fall to pieces.

Lynn’s proposals for policy change are wide-ranging, but their common feature is that they represent a clear shift from the naive faith in the benign effects of global market forces that has shaped American policy since the end of the cold war. Here his analysis is symptomatic of an ongoing shift in opinion. The steadily deteriorating prospect in Iraq and the negative impact of outsourcing are undermining public faith that globalization works overall in the American interest. In conjunction with the spiraling cost of the war, this change in mood could well shift US policies in a more inward-looking direction. Having led the world to globalization, the US may not be far from taking the lead in retreating from it.

Models of economic development that anticipate societies converging in a harmonious universal system have deep roots in Western thinking. It is not surprising that they should have been revived in theories of globalization in the aftermath of the cold war; but they reflect the conditions of the nineteenth century, when the environmental limits of industrial expansion were hardly suspected. They fail to take account of the fact that industrialization on a global scale intensifies scarcity in vital natural resources while triggering a powerful ecological backlash. These developments, which form the other side of globalization, will shape its future course.

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