Globalism and 1776

In 1776, two events occurred that helped define, and limit, what we now call "globalism."

The first event is one we're all familiar with, the United States Declaration of Independence, which formally launched the American Revolution. Thirteen former British colonies declared their independence from colonialism, an early form of globalism they no longer found acceptable.

The British colonization of the Americas was part of European colonialism. The colonizing countries exerted authority over territories and indigenous cultures around the world to exploit them for economic gain. While there was some mutual commerce, the primary goal was to extract valuable resources from the dependent colonies—using force when necessary.

The second event affecting globalism in 1776 was the publication of Adam Smith's "The Wealth of Nations." This thick tome, which I read in Ben Rogge's "Economic Thought" class at Wabash College, is considered the bible of modern capitalism. Unfortunately, it has been misinterpreted to justify the virulent form of globalism that has ravaged the U.S. economy the past 35 years.

Let me explain.

Smith illuminated a number of basic economic principles. These natural laws of productivity and growth had long existed; his contribution was to discern them, state them clearly and give practical examples.

One popular example is the concept of specialization and division of labor, which is the essence of the modern assembly line. Each worker does a specific thing, in a specific way, in a specific order. The result is an exponential increase in output and quality control. Now large numbers of low cost rifle parts could be made so precisely as to be interchangeable in manufacturing and repair.

Smith also talked about the concept of comparative advantage.

Each nation has its advantages. A nation with a lot of gold will, given the opportunity, become a leading exporter in gold. That same nation may lack in agricultural resources and therefore be happy to trade its gold for wheat from a nation with an agricultural comparative advantage. This scenario assumes free and open trade. It also is the best argument against tariffs. Why add to the cost of something you can't economically produce yourself, especially when you have surpluses you'd like to sell the other nation?

If it were only that simple.

Economic productivity is not the only consideration. Among others, there are political and military priorities. For example, there are certain industries and resources every nation needs to cultivate to be self-sustaining in times of famine or war. If your sole source of supply is a country you later engage in war, you've got a problem.

But I'm jumping ahead a little bit. When Smith talked about comparative advantage, he didn't mean one gained through mistreatment of workers or environments—a false advantage.

Here are examples of false advantages:
  • A country has a low cost of labor because it forces everyone, including children and the elderly, to work for extremely low wages.
  • A country has a labor control advantage because it has no worker or other civil rights, no effective labor unions or rule of law.
  • A country has a technology advantage because instead of investing billions in research and development, it steals the tech from countries who have already made that investment.
  • A country has an environmental advantage because it has no costly environmental protection laws. It willingly rapes its land and poisons its people to be able to produce cheaper goods.
  • A country has a policy advantage when the government owns or controls industries and diverts public funds to falsely prop up those industries—rather than invest in its people's improved standard of living.
  • A country has a exchange rate advantage when it manipulates its currency to keep prices low, while impoverishing its citizens who can't afford basic commodities.

We're all guilty of economic predation. We like cheaper prices, even if a "cheaper" smartphone is $800 (instead of twice that if produced today in the U.S.). We argue that "developing" countries should be cut some slack and, besides, their people are making more than before. Let them catch up to us, then impose higher standards. That kind of logic would imply slavery was necessary to help jumpstart the early U.S. economy. While there might have been some short-term advantages, I think we'd all agree the longterm effects of slavery were morally offensive and costly on many levels.

But what about the decimation of U.S. markets and industries as production has been offshored to artificially low cost countries? Not an issue, some would say. Look at the stock market. Companies with a global footprint, especially if headquartered overseas, are doing quite well, thank you. As for the American workers who've lost jobs, that's because they didn't keep themselves up to date. The answer is better skills and attitudes. So that's how you compete on an unlevel playing field?

Here's what really happens, and I'll give you an example close to home.

In the early 2000s I spent $100k studying computer science, acquiring IT certifications and gaining new skills and experience. Around that time the H-1B visa program was greatly expanded. India, which had invested millions of dollars recruiting and educating IT workers, dumped thousands of these exports on the U.S. market. That's a lot of people with advanced training and PhDs willing to work for very low wages. Opportunities for domestic IT workers dried up. I survived by becoming a technical writer and was competitive because written English was not a strength of the imported Indian workers.

If that weren't bad enough, the next employment wrinkle was even worse. Although the H-1B visa program remains in force, many Indian IT entrepreneurs eventually decided to operate in India, where like China, lower wages and less restrictive environmental conditions offered cost advantages.

True story: I was in an office where an entire staff was being laid off. An Indian company was hired to provide the backend support to the company's mainframe systems. To add insult to economic injury, the staff had to train their replacements if they wanted to receive the full layoff package they'd been offered. I'll never forget overhearing early morning and late afternoon conversations as a longtime mainframer tried to explain the intricacies of various subroutines to her counterpart in Bangalore. Her sense of frustration and betrayal was palpable.

Again, what's the harm, other than a few troglodytes being kicked to the side?

A lot of "rank and file" type workers stopped going into IT, especially in areas like software development that require many years and dollars of investment to build the necessary skills. Why take the financial risk?

Fast forward to the 2010s and now there's a shortage of coders. There are coding camps everywhere. Many of them are free! But there's just one problem. Back in the 1960s IBM did a series of studies and developed tests to identify the unique aptitude required to create algorithms and software. Today the validity of these tests is questioned, although nothing better has been found to replace them.

Anyway you measure it, only a small percentage of people have the aptitude to become programmers or "coders." It's not and IQ thing. It's not the ability to learn languages and memorize the grammar of software. It's about abstract thinking, such as identifying patterns, seeing connections and reverse engineering. It's about critical observation and a rare form of creativity. And that's the starting point. What follows is years of training and experience to learn how to write efficient and secure code. Most of that learning takes place on the job.

Bottom line, the IT equivalent of Mao's Great Leap Forward is bound to fail. These same industries should be investing tomorrow's IT workers—training onsite or by investing in well designed vocational schools. That's the most important R&D U.S. IT leaders can be encouraging right now.

So what about globalism? Is there a version of it that works without screwing everyone except multinational stockholders?

With 20/20 hindsight, we should have made the developing world rise to our level of worker and environmental protection as a prerequisite to free trade. That would not have happened voluntarily. Nor without cost to all parties involved. But it would have been the right kind of investment to secure a better future for everyone. Today the way to achieve that outcome is tariffs.

There are two kinds of tariffs. Dumb tariffs have no strategic purpose and are intended to prop up a country that refuses to improve itself. Smart tariffs are limited in scope and duration, and they are meant to prod a country into doing the right thing.

If a country sells cheap products because it spends nothing on environmental protections, while we do and therefore our costs are greater, then slap a tariff on the offending country's goods and services. And leave it on until their investment in environmental controls matches ours. Without the economic incentive of tariffs, how else are you going to motivate countries to protect their environments?

Do the same thing to counter every other false advantage a country throws at us. Yes, the transition will be painful on both sides. Goods and services will cost more in the short run. But in the long run the citizens of both countries will benefit. In the U.S., the core industries responsible for maintaining our middle class and national security with thrive once again.

In the meantime, we need to redefine what an "education" means. We must limit higher education to those on a professional or academic track, while expanding a solid vocational training system at the secondary level. We need to weed out the ripoff "schools" and student loan factories impoverishing young people. This will require a massive commitment at every level of the economy.

In 1776, American rejected colonialism in favor of national sovereignty. And Adam Smith gave the world a clear explanation of how to achieve economic prosperity. Somewhere along the way both lessons have been forgotten.

Like the European colonialists, we've built a false economic foundation by exploiting developing countries that were all too eager to exploit their own people. We then misapplied the concept of comparative advantage to pursue lower prices at any cost. In so doing we've impoverished own our people, save for the stockholders of multinational companies who benefit at the expense of working classes around the world.

The answer is not to take from the rich and give to the poor. That didn't work in Cuba or Venezuela, and it won't work anywhere else.

The answer is to invest in true fair trade and use whatever tools are necessary to achieve it. Only then will Adam Smith's principle of comparative advantage work to the benefit of all.

The answer is to invest our people: healthcare, vocational education and life skills. And most important, a sense of personal responsibility. As Oprah says, "Anything you can imagine, you can create."

British Colonization of the Americas
Comparative Advantage
Colonialism
Division of Labor
Globalism
Great Leap Forward
H-1B Visa
IBM Programmer Aptitude Test
Slavery in the United States
U.S. Declaration of Independence
Wabash College
Wealth of Nations

Comments? Send to: tedkseastrom@gmail.com

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