Globalization 2.0, as Roach calls it, is moving much faster than the original version did. Some of this is due to technology, but trade agreements like NAFTA are important, too. The barriers nations dropped to speed trade and economic growth also turbocharged the rate at which workers found themselves displaced.
Is this displacement an insurmountable problem? Maybe not, but we won’t solve it until we recognize that it exists. Many economists and policy makers do not. Here’s Roach again:
Sadly, the economics profession has failed to grasp the inherent problems with globalization. In fixating on an antiquated theory, they have all but ignored the here and now of a mounting worker backlash. Yet the breadth and speed of Globalization 2.0 demand new approaches to cushion the blows of this disruption.
Ouch. That hurts, but it’s important. Maybe the economists are right that globalization will eventually bring us all to nirvana. Gene Roddenberry’s Star Trek world, conceived in the 1970s, is one in which “replicators” can manufacture anything virtually cost-free, which means that all human needs are taken care of, leaving people to wonder what their purpose in life is. For Roddenberry, that purpose was simply to go where no human had gone before. A wonderful vision of the future, but even he situated it 300 years in the future.
The decidedly uncertain and clearly unknowable future is not much comfort to those who experience disruption here and now. The future doesn’t pay this week’s bills. In a democracy – which for now we still have – the Unprotected, the Disrupted, those who’ve experienced the dark side of globalization, won’t simply sit back and wait for better times. They’re hurting now, and they’re not hurting quietly. They can’t afford to wait.
The religious devotion to transcending borders and imposing common standards is causing globalization to jump the shark. It’s a movement that flies in the face of human nature. We are social creatures who naturally arrange ourselves into families, neighborhoods, cities, states, and nations. We respect laws and standards more readily when they are created and enforced at the lowest possible level of that hierarchy.
Globalism seeks to bypass all this natural law with top-down rules, often negotiated in secret and then presented for rubber-stamp legislative approval in one monster-sized, take-it-or-leave-it package. (In the US we make that process sound nicer by calling it “fast track” – the authority granted the President by the Congress to negotiate international agreements that Congress can approve or deny but cannot amend or filibuster.)
Thus economic integration as defined in modern trade agreements is incompatible with national sovereignty as defined by populist politicians and voters. Make no mistake about it: The Brexit vote was very close. The issue was not decided by a broad consensus, and the second thoughts and regrets are beginning to surface. On this side of the pond we tend to think of Brexit as an overwhelming movement when, in fact, it just barely succeeded. Many of our own US presidential elections have been quite close, if you look at the actual vote count as opposed to the Electoral College count. In European countries, parties quite often fail to win enough votes to achieve a majority, and coalitions among competing parties, often with differing ideologies, have to be cobbled together in order to run a country. That’s democracy for you.
We must find comfort in the words of Winston Churchill: “Democracy is the worst form of government, except for all those other forms that have been tried….”
Free & Fair
I recently ran across a policy paper from the German Marshall Fund of the United States. Grandly titled “Defending a Fraying Order: The Imperative of Closer U.S. – Europe – Japan Cooperation,” it seeks to defend the present trade paradigm. The authors do a good job, but in the process they describe the problem.
Consider this section. (I bolded a few key phrases.)
The global economy is no longer about making a product in one country, and shipping and selling it somewhere else. It is about complex supply chains that weave together activities all over the globe, supported by investment, technology, and skills that know no borders.
Creating an even playing field is no longer just about reducing external tariffs and quotas, but about coordinating and sometimes revising what have traditionally been seen as domestic policies to “stabilize” agriculture, promote national culture and identity, encourage innovation, protect health and safety, and ensure citizens a certain minimum quality of life.
Critics of the Trans-Pacific Partnership (TPP) argue it is no mere “trade” deal, and they are right: more accurately, it is a package of integrated economic policies that will increasingly fuse several national economies into a single marketplace.
Where to begin? Countries don’t share the same experiences or perspectives. That is what makes them different countries. George Friedman always distinguishes between nations and states. A nation is a people with a common language, history, and culture. A state is simply a government. Forcing people of different nations to share one state, or separating them into multiple states, is what causes conflict and sometimes war.
“Free trade” deals are no longer simple documents. The Trans-Pacific Partnership (TPP) weighs in at 5,544 pages. It’s a boatload of rules and regulations. I know there is talk that this deal was negotiated in secret, but that is far from the truth. You and I weren’t asked for input, but lots of people were, let me assure you. I can guarantee you that rice farmers in Texas and California were pressing their congressmen and others for access to the lucrative Japanese market, and Japanese rice farmers were trying to figure out how to limit the damage. For the record, Japan imports about 10% of its rice from the US, most of which they turn around and export as foreign aid or use for animal food. It is not that Japanese rice is that much better; indeed, the fact that US rice is so close in quality makes Japanese farmers nervous. And US rice is 1/3 to 1/2 the cost of Japanese rice.
Of course Japanese companies want access to US markets, where they can compete quite well, thank you, against US firms. And those US firms want to keep the protections and prices they have. This tit for tat has gone back and forth in hundreds of industries in the 12 countries involved in the TPP. I can guarantee you that wheat farmers or corn farmers or cattle or hog producers have a different view of the whole process than US rice farmers do. And their views are different again from those of equipment manufacturers or software developers, or pick any of 1,000 industries. Rice farmers in Japan have to negotiate terms of trade with other national industries, and do you think New Zealand avocado farms or sheep farmers or movie firms have any less interest in the process?
Every country is worried about US companies coming in and overwhelming their businesses, and the US is worried about “unfair” competition – that is, competitors in other countries producing products that are cheaper or better. Often, the higher cost of products here is attributable to the regulations that we impose on our own industries. So we want other countries to abide by our regulations (and they want us to abide by theirs).
The problem with global deals like TPP and its US-European counterpart, TTIP, is that while they may be good for the economies as a whole, citizens will find that “good” very unevenly distributed, which is why Trump calls such agreements “a job and independence threat.” After supporting the TPP for several years, Clinton now says she will not sign. Both candidates are responding to the very real problems generated by the uneven distribution of globalization’s benefits over the last 30 years.
We are actually in the process of re-shoring manufacturing back to the United States. But just because factories are coming back doesn’t mean jobs are – a factory that relies on robots has an advantage if it is near its markets. When Foxconn in China is installing robots in a factory and reducing the number of workers there from 110,000 to 50,000, you know the labor arbitrage game is coming to an end. And that is just one factory.
I have persuaded my friend Marin Katusa, one of the smartest and most successful natural resource investors I know, to reproduce in a special report for Outside the Box the highlights of a long conversation we had in Las Vegas a few weeks ago. He absolutely astounded in describing the changes that are coming to the mining and oil-drilling world – and I thought I was relatively up to date. The number of workers that will be employed in those industries in 10 years will be an order of magnitude smaller, yet production will dramatically increase.
Self-driving trucks and cars will clearly have an impact on truck and taxi drivers. But think of the impact on insurance companies. Estimates are that revenues will drop by as much as 75% over the coming decades. And we won’t need as many small local businesses to repair vehicles after accidents. A score of related industries will all see disintermediation. And that’s just one industry.
The changes that occurred as the workplace shifted from the family farm to urban manufacturing took place over decades and generations. While the shift was uncomfortable for many people, there was time to adapt to the changes.
It is almost a cliché to say that today things are changing ever faster. But most of the changes that are producing social angst have happened in the last 30 years – that is, within the productive lifetime of most people. Adapting to such rapid and unrelenting change has been harder. A surprising reversal of trend in mortality statistics is that white middle-aged males are now dying at an increasing rate due to drug and alcohol abuse and depression.
Clearly, disintermediation – the elimination of middlemen and the displacement of labor – is doing more than just making voters angry. It is stealing away the hopes of significant subsets of entire generations. When your well-paying job goes away and you can’t find a replacement, the loss hits your sense of self-worth along with your bank account.
As whole new industries develop, the advancing wave of technology will continue to create jobs, but generally not jobs that will require old skills. Humans have always had to adapt, but the speed at which we must adapt is accelerating. In the past, it has been the young who have done most of the adapting as they have learned new skills for new jobs. In the future the young will still be part of the adaptation process; but, more and more, those in their 40s and 50s and 60s will be called upon to change as well.
The Protected class is right to feel uncomfortable. The anger of the Unprotected is not just an election-year, flash-in-the-pan phenomenon; it is a movement sure to grow in direct proportion to the extent that the wall of protection crumbles for more and more people.
The presidential candidates offer radically different methodologies to restore protection. But they are fighting the last war, with the tools of the last war. The impulse of both major political parties is to protect their constituents from unwanted change. Unfortunately, protection from change for a few comes at the price of limited choices and reduced freedom for everyone. In an increasingly globalized world, the regulators are increasingly becoming prison guards. The FCC wants to regulate the Internet as a utility. It’s just one of thousands of regulatory bodies that wants to increase its power because some constituency is lobbying for protection from its competitors or for the promotion of its pet project or cause.
In a future that’s not very far off, the only way to truly protect yourself will be to learn to continually adapt.
And it’s not just workers that must learn to surf inevitable change; it’s businesses, too. Elon Musk may be a visionary, and his gigafactory to make batteries may revolutionize that whole industry, but I will make you a side bet: Whatever the first set of batteries that comes out of that factory looks like, the entire process of battery design and production will continue to change dramatically, and by 2030 Elon’s factory will be obsolete. The only way he will survive is by adapting and staying on the bleeding edge of innovation, obsoleting his own factory if necessary. Think Kodak and Blockbuster and 100 other firms that failed to adapt. But those firms were composed of people who made plans for the future, plans that had to change.
There is much more to say about all this, and I will continue to write about it in the coming year.
Maine, New York, Montana, and Iceland
Wednesday I dive into a rather hectic two weeks (for somebody who was intending to stay home for the summer). I go on our regular Maine economics-fishing trip for the 10th time, come back to New York for a few days, then head out to Montana, where I actually get to research a chapter of my new book with five young rocket scientists whom good friend Darrell Cain has gathered to expand my mind. Then I come back to Dallas for a day before heading out to Iceland to learn about the future of energy and natural resources. I’ve never been to Iceland, and I’m looking forward to talking to people there about what it was like to go through their crisis, comparing their remarks with the conversations I’ve had with people in Greece and Cyprus. I will report back.
About two summers ago I met Marc Chaikin, the founder of Chaikin Analytics, who spent a few hours in a quiet hole-in-the-wall pub, showing me the latest version of his stock and fund analytical software. We can politely call Marc a veteran of the markets who has used a variety of methodologies to buy, sell, and trade stocks (he started trading in 1965 and has had a rather storied Wall Street career). He actually developed some of the techniques and indicators that most technical traders use today. He has forgotten more than I’ll ever know about analyzing stocks.
In the latest generation of his software, he has married the merits of fundamental analysis with the numerous techniques of technical trading to generate entry and exit signals for equities. I’m impressed by what he has done, though trading stocks is not something I do. I have spent my career learning to analyze money managers, a completely different skill set. Marc has wanted to partner with my firm, but I truly had no way to evaluate his work in comparison to all the other systems that are out there.
So he agreed to give my analyst team his software and training and turn them loose. Given that they have access to just about any other system they want to use, they are in a far better position than I am to understand the relative merits of trading technologies. Two years later, they are enthusiastic users of Chaikin Analytics and use it to analyze the trades and recommendations of our writing team, giving them feedback and insight into their own ideas. Marc’s system has been integrated into our routine due-diligence process for vetting and evaluating potential investments.
Mauldin Economics Publisher Ed D’Agostino and our team are going to be doing a webinar with Marc week after next; and if you are involved in the stock market, I would encourage you to tune in to his presentation. You can register for the webinar here.
This will be the 10th year that my son Trey and I have journeyed to Leen’s Lodge in Grand Lake Stream, Maine, to participate in Camp Kotok. Around 50 economist types, analysts, and media gather to spend three or four days fishing, eating fabulous food (owner Charles Driza serves up gourmet dinners), and perhaps indulging in an adult beverage or two. Everybody brings more wine and other such beverages that any of us can possibly drink.
A typical day involves getting up, eating a big breakfast with more calories than I usually consume in a day, getting out on the lake, and trying to find someplace where the fish are biting. Then around noon we all gather, and the guides clean fish and cook for us. Then we go back out and fish some more, then clean up a bit and assemble in the late afternoon for more conversation and food. Some of the local guides provide music, and poker games generally start up as the evening develops. You know the old line about how you look around the table and wonder who the patsy is? I figured out the answer to that question after a few years and generally try to refrain from donating my money to people who already have a lot more than I do. I wouldn’t mind so much, but they keep reminding me how much they beat me up in years past.
Trey was only 12 when we first went to Maine, and he has grown up with many of these fishing friends. I go back and look at some of the pictures from summers past, and it’s hard to believe not only how much Trey has grown but how fast he’s grown. The first time we went to Camp Kotok seems like only yesterday. We still have a friendly competition to see who catches the most fish. He generally skunks me. We fished from canoes for the first few years, as that is the classic Maine guide experience; but I much prefer the larger boat that our current guide provides, and we generally invite a guest to broaden the conversation. One of the limits on the number of people who can come to the event is that we actually utilize about every guide in the area. They tell us Camp Kotok is the event with the biggest economic impact on the county, which is actually the poorest county in the US. As logging and paper mills close, jobs become scarce. Some of the guides are from the local Passamaquoddy tribe, and we actually fish on their lakes and lands at times.
When David Kotok, who organizes the event, first approached me about coming, I was somewhat skeptical, as I don’t really fish much and Grand Lake Stream is one of the few places in the US that you just can’t get to in one day. Trey and I have to fly into New York, then fly to Bangor the following day, and then drive a few hours. People ask me how far north it is, and the best answer I can give is that when you are out on the lake, you’re picking up cell signal from Bell Canada. Which is actually good, because when you get back to the lodge there is no signal. There is internet, but with everybody trying to get on, it gets slo-o-o-ow.
This year’s drive to the camp will be special, because my good friend Neil Howe, philosopher and generational expert, as well as my associate Patrick Watson, will be in the car with us.
The weekend is conducted under Chatham House rules, which means that everybody opens up and throws out their most outrageous ideas, looking for pushback and comment. It becomes a pretty freewheeling discussion. If you want to quote anybody, you have to ask permission.
And now it really is time to hit the send button. I will spend the next few days with my iPad, taking practice exams for yet another regulatory license that I have to have for my new venture. My intention now is to take the test Monday afternoon and have it out of the way before I take off on my travels. Which means I now get to sit in front of a computer for about 12 hours, getting up to speed. But I do get to look forward to Maine, so I doubt that anyone will feel sorry for me. Have a great week.
John Mauldin is editor of Mauldin Economics' Outside The Box.
This article was originally published at Mauldin Economics.