“The growth model China has relied on for the last 30 years – one predicated on low-cost exports to the rest of the world and investment in resource-intensive heavy manufacturing – is unlikely to serve it well in the next 30 years.”
– Gary Locke

“In this 21st century world, some of our country’s most significant exports extend beyond goods and services. They also include innovation, knowledge, discovery, and healing.”
– Kathleen Sebelius

John here. This Friday, writing day finds me in Grand Lake Stream, Maine; but fortunately for me, this week’s letter has been written by my associate Patrick Watson, giving me a week off. Patrick takes up where I left off last week, when we discussed the uneven distribution of the benefits of globalization. That globalization has in fact been positive for humanity and for our country is incontestable – you would have to ignore mountains of data to dispute that fact – but there is no doubt that the benefits have not accrued equally to everyone, leaving large swathes of the US population (and many in the rest of the world) feeling like they weren’t invited to the party, but have been forced instead to watch through the windows at all the other participants enjoying themselves.

This week Patrick discusses another aspect of globalization, one that has a direct bearing on questions of equity. He explores the technologies that allowed globalization to take hold and the new technologies that are actually allowing production to “re-shore.” I mentioned that topic in passing last week, and it turned out that one of my readers heads an organization that is focused on assisting companies in re-shoring their production back to the US. He tells me that 250,000 jobs have already returned to the US. Patrick tells us an interesting story about how this trend will continue to unfold.


By way of introduction, Patrick first came to work for me in 1988 and has worked for me at various companies off and on over the years since then. He probably has the dubious distinction of having read more of my writing than any other person. More relevant, perhaps, he is a very accomplished researcher and portfolio manager. I was truly excited when the opportunity developed for him to come to work for us at Mauldin Economics. He is actually here with me in Maine, doing the final edits on his letter in the next cabin. So without further ado, let’s turn this over to Patrick.

Globalization On Its Head
If we had to describe the last 50 years of economic history in one word, globalization would be high on the list. Thousands of small, independent economies around the world fused into one nearly seamless whole. The things we use every day – food, clothing, vehicles, furniture, electronic devices, even the materials that compose our homes – now come from far and wide. We don’t even notice. International trade over vast distances is now so normal that we forget it wasn’t always so.

Here’s how far globalization has gone: In cities and towns all over the United States, weekend farmers markets have sprung up, selling fruits and vegetables whose main attraction is that they are local. Eating food grown in your own region is now exotic and unusual. Our global diet served up at conventional grocery stores means our bodies and brains have been globalized, too.

Globalization ramped up slowly for a century or so before entering a new phase in the 1960s. I was born in 1964, so the explosion of the global economy roughly spans my lifetime. Mine is the first globalized generation. But if I reach 100, I suspect I will see children of a de-globalized generation.
That’s my theory: We are going full circle.

Humanity spent the last 50 years globalizing. Now, thanks to certain technologies, that whole process is going in reverse. I think historians will mark the 2008 financial crisis as the turning point:  Peak Globalization.

I don’t say this because I want a de-globalized world. What any of us want or don’t want is irrelevant. I believe the transition will happen whether any of us want it or not.

It will not happen in a linear fashion, though. The process that brought us to this point had starts, stops, and slowdowns. Reverse globalization will have ups and downs, too, but a new set of technologies will keep pushing it forward.

I’ll tell you about those technologies in a minute. First, let’s review what brought us to this point.

Low-Tech Boxes
Behold, the box that changed the world. Blessed are those who purchase its contents.


Thousands of steel shipping containers like this one cross the seas daily, carrying the merchandise you see in Walmart and Home Depot. They are the red blood cells of the globalized consumer economy. It would not long survive without them.

Back in the ancient Pre-Container Era, loading and unloading cargo ships was a time-consuming, labor-intensive process. Swarms of dockworkers labored around the clock carrying man-sized loads on and off ships. At the destination seaport, they would disperse goods to railroad boxcars and perhaps later onto trucks before those goods reached end users. The process was slow and inefficient, though it had the advantage of providing many jobs.

Those jobs started disappearing in the 1960s, thanks largely to Malcom McLean.

McLean, owner of a North Carolina trucking firm, had the idea of separating a truck’s cargo space from the wheels and chassis, then loading the boxes onto ships. He converted two World War II tanker ships for this purpose and in 1956 took his first containerized cargo from Newark to Houston.

The idea itself wasn’t new. The U.S. Army had shipped supplies for the Korea conflict in similar containers, but McLean saw containers’ civilian potential. In 1960 he renamed his company Sea-Land Service Inc. and began refitting docks with the specialized cranes we now see in every port. Dockworker unions were not pleased, to say the least, but they couldn’t slow down progress.

Seeing the value of standardization, McLean licensed his patents royalty-free to competitors worldwide. By the end of the 1960s container ships were crossing every ocean. Sea-Land had a thriving business taking military supplies from the US to Vietnam.


Would world trade have grown as it did without containers and container ships? Certainly not. Reduced shipping time and labor savings gave emerging-market countries a chance to compete in high-volume, low-margin products. These low-tech boxes really did change the world economy. Globalization would look quite different without them.

Big Ole Jet Airliner
Engineers envisioned jet engines in the 1920s, but working models didn’t appear until the tail end of World War II. The world’s first production commercial jetliner, the de Havilland Comet, took off in 1949. Pan American World Airways began regular Boeing 707 service in 1956 – the same year McLean’s first container ships sailed.

Jet planes didn’t just fly faster; their higher cruising altitude made them more fuel-efficient and longer-range. Prior to the 707, you could not fly nonstop from the US to Japan, or from Europe to the US West Coast.

Think how valuable nonstop transcontinental flight is to business travelers – like John Mauldin, for instance. He can board a plane in Dallas, deliver a speech in London or Hong Kong, and be back home within three days. Such trips are tiring and stressful, but possible. They were impossible fifty years ago.
Now, multiply by millions of businesspeople traveling the globe to build alliances, make growth plans, and develop new products. Yes, they did all these things before jetliners existed, but they did them much faster afterward. The first wide-bodied 747 flights in 1970 brought travel costs down even further, opening the door for mass international tourism.

Just as important, the mere knowledge that they could reach the other side of the world so easily changed people’s thinking. They saw new possibilities and dreamed bigger dreams. Those dreams evolved into the millions of transoceanic trading relationships we now call globalization. Would it have happened in a propeller-driven world? Maybe – but it would look different.

Another key technology helped people see the other side of the world even if they couldn’t fly there. Communications satellites let broadcasters beam live television signals around the globe. The satellites emerged at about the same time as shipping containers and jetliners.


The Soviet Union launched Sputnik 1, the first artificial satellite, in 1957. All it did was emit pinging sounds, but progress followed quickly. In 1958 a US satellite called Project SCORE carried tape-recorded Christmas greetings from President Eisenhower to people around the world. Another US satellite, Syncom 3, was the first to achieve geostationary orbit and retransmit live signals. It enabled broadcast of the 1964 Tokyo Olympics to television viewers in the United States.

In one sense, this was nothing new. Americans had seen images from abroad before. Hollywood studios routinely filmed features in exotic locations. Newsreels had brought World War II to the home front. But the old reels conveyed events weeks or months in the past. Seeing events “live” was a quantum leap.

Just five years after Syncom 3 was launched, people around the world watched Neil Armstrong set foot on the moon. It was a seminal moment – and not only because humans had walked on the moon. For the first time, humanity watched history unfold together. This brought to people everywhere a profound change in perspective. “The world is watching” had been a figure of speech until then. Suddenly it was actually possible. If we could see globally, then it was reasonable to think we could live, work, play, and trade globally, too.

Doing all those things, whether globally or locally, costs money. A financial technology helped distribute capital around the world: the mutual fund. It didn’t go well at first. Problems in the Great Depression led to the Investment Company Act of 1940. The industry had better luck in the 1950s bull market, but was still relatively small.

In the 1960s Bernard Cornfeld popularized mutual funds via his ill-fated Investors Overseas Services, Ltd. The company would later collapse, but not before his thousands of door-to-door salespeople taught small investors how to participate in financial markets. By 1970 the US had almost 400 mutual funds with $48 billion in combined assets. John Bogle launched the Vanguard Group and the first index funds in 1976.


Mutual funds grew even faster after 1978, when Congress added an obscure “section 401(k)” to the Internal Revenue Code. Benefits consultant Ted Benna saw that the provision allowed for a tax-advantaged retirement savings plan. Mutual funds were a natural fit with his 401(k) plan. Even better, they gave CFOs everywhere a way to get defined-benefit plan liabilities off the corporate balance sheet. They eagerly seized it.

Much of the cash flowing into mutual funds during this era found its way into multinational companies, who used it to develop new products for international distribution. It was more wind in the sails of globalization. The giant 1980s–1990s bull market both demonstrated and reinforced the worldwide economic growth wave.

What would our economy look like today if not for shipping containers, jetliners, satellites, and mutual funds? Would globalization have happened anyway? Probably, but it would not have looked the same.

When I say these innovations were critical, I don’t claim they were sufficient. All kinds of other events contributed, too: trade agreements, central bank actions, tax and regulatory policies, and more. They all went into the historical blender and gave us what we have now. Omit one key ingredient and the result might have been quite different.

Energy Untanked
Fifty years from now, what new technologies will have proven to be as critical as the ones we just reviewed? Which of today’s nascent innovations will be revolutionary?

We can only speculate – and John will do plenty of that in his forthcoming book. Meanwhile, I have four candidates to consider. The first one is renewable energy.


Solar, wind, and other non-fossil-fuel sources have become political footballs. They appear in debates about climate change, government subsidies, environmental regulation, and other touchy subjects. That’s unfortunate, because they aren’t inherently political. They are technologies we should judge on their own terms. Economically speaking, are they better alternatives or not?

“Better” is relative. Fossil fuels are the lowest-cost option in most of the US, in part because we’ve made a huge investment in their infrastructure. We have supertankers, port facilities, pipeline networks, railroads, storage farms, power lines, gasoline pumps, and so on. All of them serve one purpose: moving fuel from the place where it is produced to the place where it is consumed.

This apparatus works surprisingly well, considering that it hasn’t advanced a great deal in recent decades. It also points to the great weakness of fossil fuels: We must move them in order to use them. Transporting fuel to wherever it is needed (and keeping adequate amounts available at all times) is expensive and inefficient.

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