[This is Chapter
Three of Murphey’s book The Emerging Crisis of Economic Displacement.]
Chapter Three
A WORLDWIDE COMPETITIVE MARKET
I recently bought a new Remington electric
razor to replace the Braun I had been using.
Now when I open the top to brush out the whiskers I see "made in
The answer is said to be that most
things still are, but that the internationalization of the economy is
increasing steadily. In his book on
Some economists would seem to
contradict this. Paul Krugman in 1994
said that "international trade is of only limited importance to the
world's large economies."[6] At a Federal Reserve symposium that same year
he said "the
Forces producing a global economy
The factors that are bringing about a worldwide
competitive economy are found mainly in communications, transportation, the
growth of a world capital market, and the increasing role of multinational
corporations.
Communications
Economist Murray Weidenbaum says
"the global marketplace has rapidly shifted from just being a simpleminded
buzzword to complex reality... The issue has been decided by technology. The combination of fax machines, universal
telephone service (including cellular), low-cost, high-speed copiers and
computers, and speedy jet airline service enables money, goods, services, and
people to cross most borders rapidly and often instantly."[10]
The specifics are worth noting:
.
Business Week's 1994 examination of "The Information
Revolution" told of "optoelectronics," which produces "a
felicitous marriage of light and electricity." Fiber optics are a key to current
telecommunications. "Sophisticated
lasers transform electrical representations of conversations, faxes, or data
into pulses of light" that are later reconverted into electricity. The result: "Today's most capable fiber
telephone lines can carry a gigabit or two of information -- roughly an Encyclopedia
Britannica -- in a second. That's a
10,000-fold improvement on copper."[11] The competitive, organizational basis for
implementing this technology is coming into place worldwide; a news report in
early 1997 tells how almost 70 countries that include the United States have
agreed to "allow the highly competitive telecommunications giants of the
United States and Europe to enter each others' markets, and [to] permit them to
invade many Third World markets where phone service has been controlled by
inefficient, state-run monopolies."[12]
.
Satellites are also central.
Wriston writes that "the single most powerful development in global
communities has been the satellite."
He says "satellites now bind the world... in an electronic
infrastructure that carries news, money, and data anywhere on the planet at the
speed of light."[13] Within the next ten years, 1,700 additional
satellites, growing ever cheaper, are expected to be placed into orbit, mostly
to serve "the global cellular phone and paging markets." There is a project called "Iridium"
to "blanket the world with satellite wireless telephone service."[14] We have already seen how Bill Gates and Craig
McCaw intend to employ 840 satellites to facilitate worldwide Internet service.
.
Interactive video cameras are making "telemedicine"
possible. In
.
Library collections are being digitized "for delivery over the
Internet to local, national, and even global audiences." Major communications companies are lending financial
and other help to create what Kenneth E.
Dowlin in his 1984 book called "the electronic library."[16]
How can the world not see increasing
economic integration as all of this (and much more) goes forward?
Transportation
Without inexpensive modern
transportation, it would be necessary to continue the old pattern of
manufacturing goods at a place near to either the resources or the
consumer. Today, however, capital
investment can flow toward the places of cheapest production wherever they are,
because the products can be taken to market at extremely low cost. With both miniaturization and the new
materials sciences, products will also become less heavy and bulky, reducing
the old barriers imposed by transport.
Many products in the information age will even be "incorporeal,"
needing no physical transportation at all.
Speaking in the context of the shift
toward low-wage production, Greider casts light on the changes in
transportation: "The cost of transporting things between distant markets
has always been the practical obstacle to successful [wage] arbitrage, but modern
technologies have greatly reduced these costs, even for moving entire
factories. Transportation is a trivial
factor alongside the potential gains...."[17]
The world capital
market
World capital flows have become
massive and virtually instantaneous. Weidenbaum
tells how "a bank was moved from one country to another via a fax
machine" on the first day of
Wriston speaks of a "huge
movement of money capital that far exceeds world trade." Writing in 1992, he says the foreign exchange
market is growing past $500 billion a day; but William Greider, writing just
five years later in 1997, refers to the "ferocious" growth of
national currency trading and says the volume "now exceeds $1.2 trillion
a day" [emphasis added].[19] It is "a market," Wriston says,
"of a size, depth, and speed never before seen on earth."[20] Fred Block in Postindustrial Possibilities
also finds the word "huge" appropriate, speaking of "an
extraordinarily high degree of freedom for international capital flows. Huge pools of savings can almost
instantaneously be transferred from one country to another."[21] The Hudson Institute tells how "recently
both capital and labor markets have become globally integrated...Today,
individual Americans routinely buy mutual funds investing in the Japanese stock
market, and Japanese investors pour billions of dollars into American real
estate and the U.S. Treasury bond market."[22] Robert Reich says the idea of a
"national stock exchange" is becoming questionable in light of
"twenty-four-hour electronic-trading networks linking
What difference does all this
make? Perhaps first and foremost, it
allows "maximizing the return on capital without regard to national
identity," to use Greider's words, resulting in a higher return on
capital.[25] The expression is that "money is the
mother's milk of politics," but money is of such commonplace importance to
business that one hardly thinks to mention it.
A worldwide capital market allows investments to flow toward every
perceived profit opportunity. This
greatly accelerates the growth of a global market. Businesses are freed from dependence on the
"factor endowments" of a particular country and from dependence on
local sources of money.[26]
Multinational
corporations
World trade is increasingly
conducted by enormous corporations whose stock ownership, key employees,
headquarters, subsidiaries, places of manufacture, and markets are so
spread-out among countries that it is difficult if not impossible, other than
by an arbitrary, superficial criterion, to assign a national identity. A sign of the times: a shipping label for the
products of one electronics company says, "Made in one or more of the
following countries:
In defense procurement, the American government uses the superficial
criterion of place-of-incorporation in determining whether a company is
"American." In world trade,
manipulation is used to make products appear either American or foreign,
according to whatever is desired. Robert
Reich speaks of "the armies of foreign workers now employed by so-called
American corporations." He tells
of accelerated overseas investment by
American firms, and their purchase of foreign companies. Indeed, companies find it desirable to lose
their national identities, taking on a multicultural look as they hire
executives from many countries.[28] Alfred Balk says that "both ‘the notion
of "American" technology' and the idea of ‘uniquely American'
corporate identities have become meaningless."[29]
Reich cites
Michael Hodges says "the
national origins of multinational corporations are increasingly less relevant
as a determinant of the location of their most significant and productive
activities." He mentions Robert
Reich's oft-quoted question: "Who is Us?"[31] This is illustrated graphically by Laura Katz
Olson when she says "Airbus Industrie, which is owned by a consortium of
European governments, uses engines made by
An interesting thing about
multinational corporations is the interplay of their relation to
technology. Paul Kennedy tells how
"the main creators and controllers of technology have increasingly become
large, multinational corporations...."[33] But technology is making the enormous
economies of scale that lead to large firms less important. Cohen and Zysman point out how "automated
production technologies permit shorter production runs, [which in turn] should
permit shall firms... to design and develop products that can be manufactured
in competition with large firms."[34] It is almost certainly because of this that
large corporations are more and more becoming loose webs of many small entities
which represent a variety of entrepreneurial centers. Robert Reich says "America's core
corporation... is, increasingly, a facade, behind which teems an array of
decentralized groups and subgroups continuously contracting with similarly
diffuse working units all over the world."[35]
Pressure to be the lowest-cost
producer with the lowest-cost labor
I will discuss this point more fully in
Chapter 8 when we explore the causes of worker displacement. For the present, it is sufficient to notice
that the growing worldwide competitive market involves an unrelenting pressure
on firms to be the lowest-cost producer of quality goods or services, since to
be otherwise is to invite failure in the competitive struggle to survive; and
further to notice that this causes great pressure to use the lowest-cost
labor. Business Week mentions
Kodak as an example. "The core
photography business is brutal, marked by growing capacity and falling
prices. Just to keep profits flat, Kodak
needs to cut manufacturing costs substantially every year...." Kodak sees at least 599 competing firms
around the world in the area of optical storage technology.[36]
The search for the lowest-cost labor
is made possible by the ready availability of workforces all over the world,
workforces made accessible by the ability of capital to flow to them (and to
some extent by the growing ease of national migration). Their products may then be transported or
communicated inexpensively and quickly.
Both skilled and unskilled labor already exist in large pools throughout
the world, as is apparent when we are told that there are 350,000 Chinese
engineers -- paid an average of $105 a month! -- with hundreds of thousands
more in prospect.[37] But often business won't need an engineer: as
high-tech jobs become more "user-friendly," they will be done by
less-skilled people.[38] This all amounts to a vast increase in the
pool of workers available to a firm. It
also means that workers anywhere are in increasing competition with workers
everywhere. (If this doesn't yet seem to
comport with your observation of daily life, wait a while; as with all of this,
we are in the beginning stages.)
Economists cite the fundamental rule
of supply-and-demand in agreeing that the long-term tendency will be a decline
in wages in the well-paying advanced economies and a rise in wages for workers
elsewhere. This will not, however, be
anything like a balanced trend, since the
The undercutting of wages in the
advanced economies by low-pay world labor will, however, be a phenomenon only
of the near- and medium-term. Only
slightly further removed is the reality that non-labor-intensive and extremely
low-cost production using a combination of computers and science will out-compete
even low-pay international labor. The
dirt-cheap Chinese engineers may find little demand for their services. Rifkin says "the cost advantage of cheap
third-world labor is becoming increasingly less important in the overall
production mix... [T]he advantage of
human labor over machines is fast diminishing...."[39] This doesn't mean the workers of the
developed nations will get their jobs back or that their wages will be restored
to previous levels. It means that work
itself will become increasingly obsolete.
If this is a shock to readers who are not already immersed in the
existing literature, read on patiently; we will discuss the coming developments
in much greater detail later.
A gap between words and conduct: a prevalent
worldwide free-trade ideology, combined with much national industrial policy
Since World War II, and especially since
the collapse of the
The free trade position with its
stress on openness and mobility is what is most apparently consistent with the
new developments in communications, transportation, a world capital market, and
business organization. This will almost
certainly change, however, when the new technology's displacement of firms,
industries and workers comes to match the marvels of innovation as a primary
reality facing the world's peoples.
Then, as we will see later, those peoples will be forced to "look
inward" to assure themselves a mode of survival. In that scenario, an unadapted ideology of
free trade will not appear nearly so beneficent and all-rewarding as it seems
today. Ideological emphases are often
ephemeral, and today's stress on free trade will certainly be, given the forces
at work. One of the purposes of this
book is to show how the ideology must be changed if it is not to become
obsolete and at the same time rejected by the great preponderance of the
world's peoples, including by most Americans.
Free trade proponents complain about
the amount of government intervention and will be among the first to agree
that, even at present and during the free trade emphasis of the post-World War
II period, the world is not and has not been as committed to free trade as the
rhetoric would cause us to believe. This
is true of the
.
. The continental European nations. A news report in 1991 told how the European
Community was spending $100 million subsidizing farmers.[43] Robert Kuttner said in that same year that
"the European Community practices a mix of managed and free markets and is
not at all reluctant to support farm prices, subsidize new commercial
technologies, and condition free entry...."[44] Airbus Industrie, Boeing's largest competitor,
was organized thirty years ago as "a government-financed consortium of
German, French, British and Spanish companies," according to Greider, who
adds that Europe uses "elaborate local-content rules... designed to
insulate European enterprises from glutted global markets." The EC placed a quota on Japanese VCRs, even
those made in
.
.
.
.
.
. The
. The
What are we to think of this gap
between philosophy and action? Are all
of these countries, and many others besides, renegades acting badly when they
should know better?
Something to notice in all of this
is that -- even in the relative absence of the gigantic forces that are
beginning to impact on the world economy -- each of these nations has long put
aside free trade ideological pressures enough "to do what it has to
do." That is precisely what the
German economic thinker Friedrich List urged
This should give market theorists
pause. If mankind universally perceives
the need to deviate from the theory, they should question whether the theory
really is sufficient, even though it unquestionably sees much that is valuable. The body of thinking argues rightly that "each
party to a voluntary transaction benefits, as the party perceives it, or else
the party wouldn't be willing to enter into the transaction." I will discuss the "theory of the
transaction" -- and its strengths and problems -- later. For now I would just have us note that almost
everybody has seen that, in terms of practicality to themselves, the theory
doesn't fully meet their needs.
As mentioned above, the global
competitive pressures for ever-lower costs will force enormous worldwide
displacement. Each people will be driven
to rely on their particular political structures to assure all their citizens'
participation in economic life, since the market by itself will not be able to
give that assurance. This will cause
what will ostensibly be massive departures from free trade theory. That perspective, however, won't be fully on
the mark. If the theory is adjusted, as
it must be, to address the new realities, the gap between theory and practice
won't be there. Instead of criticizing
governments for "protectionist" programs and "industrial
policies," and damning those policies as derelictions, we will find it
worthwhile to acknowledge each government's need to take the measures it finds
essential to look after the interests of its own citizens. Even over the past century and a half or so
it would have been wisest to have seen free trade in a different light than
pure free trade theory does: to see it as something that has much to contribute
if in a given case it serves the needs of a people. That would have reflected a much better
understanding of the measures all peoples have felt a need to adopt. An open competitive market would then be seen
to occupy a certain sphere that is supremely important but that isn't the only
sphere. Ultimately, free trade theory,
to be most sound, will have to come to that understanding.
The decline (and future reassertion)
of national sovereignty
The present forces in the world
economy press hard for the erosion of national identity and national
sovereignty. In the near future,
however, the measures needed to overcome the displacement of workers and whole
economies will necessarily put the nation-state, and perhaps some regional
confederations, at center stage. So it
is important to understand the issue of national sovereignty as a matter of
flux and reflux.
The flux: the move
away from national identity and sovereignty
Kevin Phillips tells how in 1992 the
As with my point about the gap
between action and free trade philosophy, it is worth noting with this
disavowal of national loyalties that it is not because the individuals involved
are either bad or misdirected people, even though a given nation's patriots
will think their values are straying.
Everything about the global economy -- future necessities aside -- would
create this mindset. When a product is
designed one place, built another from components coming from several
countries, financed internationally, marketed everywhere, and involves effort
by people of several different countries, it is dysfunctional for those
involved to embrace any seeming "provincialism." As the trends continue, Reich says,
"there will be no national products or technologies, no national
corporations, no national industries.
There will no longer be national economies, at least as we have come to
understand that concept...."[66] Greider adds: "What is forming now is
an economic system of interdependence designed to ignore the prerogatives of
nations."[67] No wonder Paul Kennedy can say that
"these global changes call into question the usefulness of the
nation-state itself."[68]
This flight from nationality shows
up in several ways:
.
Increasingly, money and people are making themselves invisible to
national governments. Greider says
"big money hides itself in the global economy... [O]ffshore banking centers
allow [escape from] national taxation and the surveillance of government
regulators... Tax havens are merely a flagrant example of a much larger and
exceedingly complicated political agenda -- the politics of escape." He points to the decontrol of world capital movements
during the past thirty years by one nation after another.[69] Robert Frank and Philip Cook tell how
"if one country's tax rates get too high, its top performers can simply
emigrate."[70]
.
Multinational corporations can use a variety of techniques to optimize
their advantage vis a vis governments.
William Winpisinger tells how with intra-company transfers
"accounting procedures are employed to show profits in countries with low
or no taxes, and to show losses in countries with high taxes. Some multinationals avoid paying taxes almost
everywhere in the world."[71]
.
Economic "blackmail" between governments and firms is
commonplace.
.
In such a context, there is inevitably a decline in governmental
regulatory standards beyond the simple philosophical call for
"deregulation" by those who see unimpeded enterprise as most
innovative. Rifkin points out that under
the various international trade agreements such as