Elections and the Fear of Global Change
Who would have thought that an issue too hard to explain in a sound bite would become the main axis along which the American presidential election is fought? Donald Trump’s railings against China or Mexico shrewdly put a political face on that issue: globalization. Trump was smart enough to see what other politicians astoundingly missed: how the perception of globalization negatively affects the personal lives of many Americans.
Politics is the art of perception. Ed Koch, the late mayor of New York, once recalled, while campaigning on the Coney Island Boardwalk in Brooklyn, an elderly woman who approached him and implored that he “make it like it was.”
America today is richer than it has ever been and is in the healthiest economic condition of any major global economy, yet many Americans don’t see it that way. Like Ed Koch’s elderly constituent, they want it to be like it used to be. And globalization gets caught up in that “used to be.” Global economic growth is counterintuitive -- people view global economics as a zero-sum game. If another country has grown wealthier, then it stands to reason that your country is now poorer.
The facts, however, suggest the opposite. China has become significantly wealthier over the past 40 years, as we all know, but so has the United States. In 1980, the United States had a gross domestic product of $2.8 trillion, while China’s was only $302 billion. By 2014 the U.S. economy had grown to $17.348 trillion, and the Chinese economy grew to $10.430 trillion. The U.S. economy, as we can see, grew at pace during that period. Of course, China’s rate of growth during the same time was much quicker, but they had much more room to grow. China needed to build steel mills and highways, and electrify their rural areas. The United States did this a long time ago. The point is that the United States did not get poorer as China grew -- quite the opposite.
Compounding the illusion that global growth is a zero-sum game is the reality that some people have lost their jobs to globalization. But the operative word here is some. In the political game of perception, Donald Trump has managed, with his attacks on China, Japan, and Mexico, to make globalization the simplistic scapegoat for most of the job losses in American manufacturing. However, as reported by Bloomberg two years ago, this was not the case then, nor is it the case now.
“The U.S. had become the second-most-competitive manufacturing location among the 25 largest manufacturing exporters worldwide. While that news is welcome, most of the lost U.S. manufacturing jobs in recent decades aren’t coming back. In 1970, more than a quarter of U.S. employees worked in manufacturing. By 2010, only one in 10 did.
“The growth in imports from China had a role in that decline -- contributing, perhaps to as much as one-quarter of the employment drop-off from 1991 to 2007, according to an analysis by David Autor and his colleagues at the Massachusetts Institute of Technology. But the U.S. jobs slide began well before China’s rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology.”
Take for example all the people that used to make cameras and film in upstate New York; does anyone buy a Brownie camera or film anymore? Or look at companies that used to print newspapers and books that are now facing severe competition from e-readers. And then there is the U.S. automobile industry. In 2015 the United States manufactured 12,000,000 vehicles, double the quantity of the early 1950s, when there were no imports. Yet those 2015 production numbers were achieved with the same number of workers as in 1953, approximately 900,000. A key difference appears to be automation. In 2014, 58 percent of all industrial robots ordered in North America went to the automobile industry.
Rapidly declining employment in the coal industry is another example where technological change is the main factor, while climate change and now even China are being blamed. In a masterful but irrational readjustment of facts, Donald Trump once tweeted, “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.”
The decline in employment in the coal industry is partly due to climate change, but the main culprit is innovation in energy production. Due to innovations in fracking, natural gas is not only now much more competitive for use as an energy source in manufacturing, it is also cleaner. Coal, like Kodak’s old Brownie camera, is being innovated out of business.
In 1960, Harvard professor Theodore Levitt wrote an essay in the Harvard Business Review titled “Marketing Myopia.” In the essay, Levitt refers to the destruction of buggy whip industries due to the advent of the automobile. This analogy has now entered the economic lexicon. Although Professor Levitt’s point was that if the buggy whip industry was attuned to their market they would have understood and re-adjusted to change, in terms of the employees there was a benefit in that change that does not exist today. The buggy whip employees found better jobs relatively easily in the rapidly growing automobile industry. The same could be said throughout that period in American history, when millions left the farm for the cities because they were able to find better jobs in various forms of manufacturing with relative ease. Change was not frightening then, because new industrial jobs replaced the old occupations.
The difference today isn’t globalization alone; it is that change for many people looks frightening and not positive. In the age of human capital, industrialized economies -- whether it's in the United States, Germany, Japan, or China -- will rely less and less on manufacturing. The agility needed to be able to go from factory work to the gig economy, or tech, or entrepreneurialism, or services, is much more difficult than it was to go from the buggy whip factory to the automobile factory. And instead of leading by proposing realistic ideas on how the government can help with that change, Trump is playing on the fear of change.