Sunday, July 22, 2007

Asia Times Online: Bridging the globalism-nationalism gap

Max Fraad Wolf, writing for Asia Times, has an article on globalism that he says is especially important for Americans.

The past few years offer many conundrums. Some are widely debated, others go unmentioned. This article seeks to highlight an unmentioned attribute of the recent period. Globalization has been producing growing economic integration and interdependence. At the same time, political circumstances are divergent.

Electorates, national moods and rhetoric have been increasingly nationalistic as fortunes converge and correlate. Rising tensions and tariff threats emerge from governments as financial flows and business deals spill across borders. Governments cannot even get along well enough to agree on the next round of economic integration regulation.

The Doha Round negotiations of the World Trade Organization (WTO) are defined by setback, standstill and rancor. Our international economies are moving toward integration and move increasingly in lockstep. Meanwhile, political understandings and discussions are increasingly narrow and hostile. At some point international politics and economics must move toward convergence.

The United States is fundamentally dependent on the rest of the world and the present financial and trade architecture. The US imports 64% of the world's savings and increasing portions of its food, energy, appliances, clothing, toys, vehicles and inputs to production. Foreign nationals, funds, firms and governments have been literally supporting US households, firms and the government with credit.

At present 52% of marketable US Treasury debt obligations are foreign-owned. More than $1 of every $3 lent to Uncle Sam is lent by a foreign government, and 35% of marketable US Treasuries are owned by foreign government institutions. Foreign entities own 20% of US corporate bonds and 14% of US equities.

You would never know it from the political rhetoric and debate in the US. The Securities and Exchange Commission (SEC) is currently terror-baiting numerous firms - disproportionately foreign - on its official website. [1] The United States is fast becoming the worst offender in terms of political policy, statements and actions that ignore interdependence and offer nasty hyperbole. Real tensions with Russia are seen in a mini-cold war light as US pundits and politicians just cannot seem to fathom divergent opinion.

Blocking deals with Middle Eastern and East Asian firms proliferates as US private-equity firms, hedge funds and investment advisers look offshore for growth opportunities. Massive tariffs against Chinese goods are regularly debated in Congress. Some are beginning to refer to rumblings and restrictions with China as a trade war.

A rapidly growing portion of America's goods and services are imported. A rising percentage of American workers are employed in foreign enterprises or in export industries. More than 5% of US private employment is in foreign multinational affiliates operating in the United States. Investment flows into foreign mutual funds have topped the charts for the past several years. Leading US firms operate in more and more foreign lands and are growing and shifting operations offshore.

US multinational enterprises and their affiliates employed more than 31 million offshore workers in 2004. The foreign component of reported corporate earnings has been rising more rapidly than gross domestic product. US corporations earned a reported US$292 billion from offshore activities during the first quarter of 2007. Leading American politicians, pundits and business leaders preach to the world about free trade and unfettered market efficiency.

Economic futures are woven together all over the world. Political goings-on and opinion polls suggest distrust and divergence on subjects of policy conduct and foreign affairs. Angry accusations, disengagement and growing isolationism define US attitudes to the rest of the world. Hostility to foreign "plots", firms, agendas and ideas is not unique to the US.

No one mentions, notices or cares that the US is wholly dependent on these "nefarious" foreign elements for an increasing share of its goods, export markets and financing. US leadership here is worthy of note. The trend is global. Even in Europe - where European Union enlargement offers a counterbalance - attitudes toward outsiders and increased integration are tepid, at best.

Americans are buying ever more of their stuff, borrowing their money and pouring US wealth into their assets. However, they are not to be trusted!

This is not just a US phenomenon. The anger and sense of ability to "go it alone" are pronounced in the US. Russia seems to believe that this is the best option in leading sectors. France has embraced a national-champion conception and Germany contemplates protection for domestic firms against foreign funds. Sovereign wealth funds are viewed with suspicion by many as foreign-government plots.

The depth of US anger and distrust at foreign action is high. Sadly, resentment seems to be broadly growing. Global opinion of the US is extremely poor. The Pew Global Attitude Project 47-nation survey [2] reveals internationally low and falling opinion of the US around the world among allies as well as competitors and rivals.

Foreign conceptions of the US, and especially of America's foreign policy, is highly negative. Strong majorities in 65% of 47 surveyed countries believe the US does not consider their country when making foreign-policy decisions.

Americans are suspicious of and hostile toward traditional allies and rising regional powers. While the Iraq war and "global war on terror" contribute significantly, the depth and breadth of negative opinion signal a bigger problem. The US is not alone. Chinese, Japanese, Korean, Russian, Indian, Pakistani, EU, Middle Eastern and South American citizens view one another with significant suspicion. Foreign suspicions of the US and of one another define the day.

Anger in Latin America has been boiling over in natural-resource debates, elections and street protests. Russian anger and suspicion take the form of increased affection for strong central leadership. Japanese fear of a rising China pushes it even closer to the US. Various factions inside India and Pakistan fear one another, Westernization and various other internal factions. All of this is increasing alongside growing mutual economic dependence.

We see this rising in another form in immigration debates. Anger and xenophobia blend in a heady mix as nations debate immigration policy. This has been a feature of European political debate and has surged in the US. The scope, scale and import of immigrant labor in the US economy is absent from a debate waged purely on theoretical and moral terms. Morality surely deserves a seat at the table in this discussion, but thus far, reality has not been invited to the meeting.

The US Chamber of Commerce senior vice president delivered a speech in Munich on May 5, 2006, that nicely referenced the economic dependence of the US economy on immigrant labor. Fully 34% of cleaning and maintenance jobs, 12% of medical practitioners, 26% of construction jobs, 44% of agricultural labor, and 22% of work in computer science and mathematics were done by immigrant labor.

Economic integration of immigrants is high and rising, but the political debates and policy suggestions operate as though this were not true. It is estimated that 8 million people migrated to the US during the years 2000-05. This represents a record-breaking integration of immigrants into the US economy. There is no parallel political integration. US policy and understanding simply ignore and deny basic economic realities. The politics and economics of immigration are distant and diverging. They must converge.

Across the industrialized world, passions rage about outsourcing. There are good reasons for concern. Public perceptions of risk level and extent can easily be shown to be extremely exaggerated. Politicians grandstand, and laws to protect domestic production are discussed. Policy has yet actually to be changed. Lost in these debates is the massive investment by firms, households and institutional investors in the developing world. US firms and investors believe in and increasingly bet on far more rapid and robust growth in emerging markets.

Most of the world's population - 85% - and all of the world's projected population growth is outside mature industrialized zones. Forecast economic growth potential is even more concentrated in the developing world. This means reallocation of position in the global economy, rising employment, and shifts in design, finance, production, marketing, advertising and tastes.

In short, it means increased outsourcing and insourcing. We have battered down the protectionist walls to developing nations and mandated openness. Our economies are built on integration. Politically we see these developments as threats and debate if we should allow them to happen. We have and continue to organize our economy to ensure these developments occur. No one is seriously challenging that organization. There is a serious disconnect.

Forward movement requires that this gap be bridged. There are two basic ways to lessen the distance between political and economic realities. Economic integration can go in a reverse trajectory, or political integration can be embraced. No doubt some mixture will occur. The nature and mix of accommodation will play a huge shaping role in the economic and political realities of the medium-to-long-term global situation.

Our concern has been growing as the distance between political and economic courses increases. This is one conundrum that is ignored only at great peril.

1. The third-rate analysis and total absence of any pretension to rigor are astonishing. I urge a visit. This truly has to be seen to be believed.
2. Pew Global Attitudes Project (pdf file), 47-Nation Survey, June 28, 2007, pp 20-21.

Max Fraad Wolff is a doctoral candidate in economics at the University of Massachusetts, Amherst, and editor of the website GlobalMacroScope.

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