One of the most abused terms in the presidential election campaign is ‘globalization.’ It appears to explain the frustrations of all kinds of voters, most notably manufacturing workers who have seen their jobs disappear and retirees who have seen their pensions erode. Unfortunately the term is not very well defined by those who use it, so let’s take a look at what it really means. First, globalization is nothing new. All the seafaring and trading peoples of the past, from the ancient Greeks, Phoenicians and Venetians to the Portuguese, Dutch and English, have done business with the world as they knew it, and tried to expand that world by exploring previously unknown lands. Yet it sounds like somewhere in the 1990s globalization has gotten a new meaning, commonly defined by its effects rather than by its causes. And when attempts are made to identify those causes they usually result in the listing of a hodgepodge of unequal phenomena, such as the collapse of communism opening up the ‘second world’ for business and the emergence of the Internet. But how are those things related, and are there more causes?
The large-scale international re-allocation of capital and labor started in the late 1960s and early 1970s, when the so called ‘Crisis of Fordism’ exhibited a diminished interest of workers in advanced, western economies to do unskilled manufacturing work. Companies found solutions in two very different directions, namely either by moving their manufacturing operations to ‘third world’ countries with little regulation and as yet undeveloped, cheap labor forces, eager to take on the transplanted tasks, or by automation and later by computerization, making unskilled labor redundant. But while these developments were taking place another, less visible, process changed the way the value of the individual firm was determined. In the 1960s a corporation’s most important assets were tangibles, such as raw materials, finished product, real estate and cash. By the 1990s the most important assets had become intangible and knowledge-based, e.g. innovativeness and success in strategic alliances. Intangible assets are mobile, and the Internet allowed corporations to mobilize them anywhere in the world.
The transformation of the firm into a knowledge-based system added a new dimension to the global re-allocation of capital and labor. Now not only unskilled manufacturing jobs continued to disappear to South-America and countries like China, Vietnam and Indonesia, but also higher skilled jobs in more recently emerged computerized service industries started disappearing to countries like India with more sophisticated workforces, multiplying the original effect of first-wave globalization.
Obviously the livelihood of various segments of the American workforce has been negatively affected by these developments, and the question is what can be done about it. Globalization cannot be reversed, and it is unimaginable that any government, Democratic or Republican, would prohibit corporations to make investment and locational decisions as they see fit.
A solution can be found in developing a highly skilled workforce through better access to community colleges, something the Obama administration has started, and social redistribution of labor and income. The latter would affect corporate profits and executive pay and will be hard to achieve.