America's Middle Class Has Become Globalization's Loser
By Gabor Steingart
Der Spiegel
Tuesday 24 October 2006
At the beginning of the 21st century, the United States is still
a superpower. But it's a superpower facing competition from beyond
its borders as well as internal difficulties. Its lower and middle
classes are turning out to be the losers of globalization.
There are essentially three exclusive characteristics whose
simultaneous development have served as the foundations of the
United States's success up until now - and they only appear in this
particular combination in America. They are not only the country's
biggest strengths, but also its greatest weaknesses. It's worth
scrutinizing them more closely.
First, nowhere in the world can you find such a high concentration
of optimism and daring. America is the country that strives hardest
for what is new - not just since yesterday (like Eastern Europeans)
and not just for the last three decades (like the Chinese); rather
from the very instant settlers began arriving. Unabashed curiosity
seems to be hardwired into the nation's genetic code.
The steady influx of the adventurous and hard-working - which helped
increase the country's labor force by about 44 million people since
1980 alone and continues today - ensures a constant replenishment of
daring. After all, it's not just the additional people that make the
difference. The mere addition of 17 million people into Germany
following reunification in 1990 - newcomers more concerned with
preserving their guaranteed rights than with making the
extraordinary effort necessary for success - did nothing to foster
the kind of daring you see in the United States. Indeed, the result
was exactly the opposite, and it has been a painful lesson for
Germany.
Second, the United States is radically global. Its very origins - in
the rebellious citizens from every country in the world who
assembled on the territory that is now the United States - mark its
people as true children of the world. Former German Chancellor
Helmut Schmidt calls the founding fathers of the United States a
"vital elite," one that continues to pass down its genes to this
very day. Their language is dominant, having marginalized Spanish
and French during the second half of the past century. Their
everyday culture - from the T-shirt and rock 'n' roll to e-mail -
has peacefully colonized half the world. And from the very
beginning, US corporations were eager to venture abroad in order to
trade and set up production sites in other countries. Multinational
corporations may not have been a US invention, but they became its
specialty.
Third, the United States is the only nation on earth that can do
business globally in its own currency. Indeed, the dollar has
established itself as the world's currency. Whoever wants to own it
has to purchase it in the United States. All important decisions
about the quantity of cash that circulates or the setting of
interest rates are made within the nation's borders, which
guarantees a maximum degree of national independence. It's American
blood that flows through the veins of the global economy. Almost
half of all business deals are closed using dollars as the currency,
and two-thirds of all currency reserves are held in dollars. Charles
de Gaulle, who was president of France after World War II, admired
this "exorbitant privilege" even then.
The Trial of Strength
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.
Make no mistake about it: at the start of the new century, the
United States is still a superpower. But it is a superpower that
faces tough competition from outside and difficulties within. The
feedback effects involved in globalization are especially intense
for the US economy - so much so that large parts of the US workforce
are now
standing with their backs against the wall.
The rise of Asia has only led to a relative decline of the US
national economy. At least so far. But for many blue- and
white-collar workers, this decline is already absolute because they
have less of everything than they used to. They possess less money,
they are shown less respect in society and their chances for
climbing up the social ladder have deteriorated dramatically.
They're the losers in the world war for wealth. But while that may
be their fate, they cannot be faulted for it. And it's certainly not
a private affair. Every nation has to face uncomfortable questions
when an ever-larger part of its citizenry is delinked from the
nation's overall wealth. This is all the more true of a society that
has made the pursuit of happiness a fundamental right.
On Oct. 28, 1998, the US Congress established a commission that
brought together highly respected experts to examine the effects of
the country's trade deficit and the withering away of industrial
labor. Donald Rumsfeld, the current US defense secretary, then-US
Trade Representative Robert Zoellick, Anne Krueger, the number two
at the International Monetary Fund (IMF) and Massachusetts Institute
of Technology (MIT) Professor Lester Thurow provided their
assessment of the situation at the behest of the president.
Things were going swimmingly for the Americans until the end of the
1970s, the commission report concluded. Family incomes grew
virtually at the same rate in all sections of the population during
the first three decades after World War II, with those of the poor
growing slightly faster. The lowest fifth of US society saw a 120
percent increase in incomes, the second fifth 101 percent, the third
107 percent, the fourth 114 percent and the fifth 94 percent. It was
as if the American dream had manifested itself in statistics.
But then the trend reversed, and not just in the United States.
Japan had awakened, and global trade had shifted directions.
Capitalists left their home turf and went looking for suitable
locations to invest in. Direct investment abroad - which had been
more or less in harmony with exports until then - rose dramatically.
Until then, investment abroad had served mainly to boost the export
of German, US or French products. But then factories themselves
began to be relocated, mainly to cut manufacturing costs. Production
for the world market became increasingly global itself, which led to
a redistribution of capital and labor. Global production increased
by a solid 100 percent between 1985 and 1995. But direct investment
abroad increased by 400 percent during the same time period.
Capital's new mobility began to make the other factor of production,
labor, restless, too.
Producing All Over the World
The new jobs were created elsewhere, which had to have an effect on
family income in the United States. Within the next two decades, the
income of the lowest fifth sank by 1.4 percent. The second fifth
still managed to gain by 6.2 percent, the third by 11.1 percent and
the fourth by 19 percent. At the tip of the pyramid - where the
promoters and planners of globalization reside, and those who profit
most from it - income gains climbed by 42 percent.
The US national economy clearly bears the signs of this break with
its golden age, when the country produced prosperity for almost
everyone. Until the 1970s, the productive core of the country burned
with such a fiery light that it illuminated the entire world. The
United States provided dollars and products for everyone. The
American empire's nuclear power helped in the reconstruction of
war-torn Europe and Japan. The United States was the world's
greatest net exporter and greatest creditor for four decades.
Everything went just the way the economy textbooks said it should:
The world's wealthiest nation pumped money and products into the
poorer states. The United States used the energy from its own
productive core to make other countries glow or at least glimmer. It
was indisputably the world's center of power, a source of energy
that radiated out in all directions.
US capital was at home everywhere in the world, even without
military backing. Many experienced this state of affairs as a
blessing, some as a curse. Either way, it was good business for the
United States: At the peak of its economic power, the West's leading
nation disposed of assets abroad whose net value amounted to 13
percent of its GNP. To put it differently: The country's productive
core had expanded so dramatically that it opened up branches and
subsidiaries all over the world.
What Remains
This undoubtedly superior United States doesn't exist anymore. As
a center of power, it is still more powerful than others, but for
some years now that energy has been flowing in the opposite
direction. Today, Asian, Latin American and European nations are
also playing a role in the United States's productive core. The
world's greatest exporter became its greatest importer. The most
important creditor became the most important debtor. Today,
foreigners dispose of assets in the United States with a net value
of $2.5 trillion, or 21 percent of gross domestic product. Nine
percent of shares, 17 percent of corporate bonds and 24 percent of
government bonds are held by foreigners.
Neither laziness nor the obvious American penchant for consumerism
can be blamed for this changed reality in America. US industry - or
at least what little is left of it - is responsible. In the span of
only a few decades, US industry has shrunken to half what it once
was. It makes up only 17 percent of the country's GDP, compared to
26 percent in Europe.
Every important national economy in the world now exports products
to the United States without purchasing an equivalent amount of US
goods in return. The US trade deficit with China was about $200
billion dollars in 2005; it was a solid $80 billion with Japan; and
more than $120 billion with Europe. The United States can't even
achieve a surplus in its trade with less developed national
economies like those of Ukraine and Russia. Everyday,
container-laden ships arrive in the United States - and after they
unload their wares at American ports, many return home empty.
Those looking for something good to say about the superpower won't
find it in the trade balance. The growing imbalance can't be
attributed to natural resources or the import of parts for
manufacturing firms. Oil imports, for example, don't make as
significant a difference to the trade balance as is often assumed:
They account for only $160 billion dollars, a comparably small sum.
Instead, it's the top products of a developed national economy that
the United States is importing from everywhere in the world - cars,
computers, TV sets, game consoles - without being able to sell as
many of its own products on the world market.