The beginnings of a continentalized global economy
Your faithful blogger was surprised to find himself representing part of the environmental blogosphere in a New York Times article on Sunday, “Shipping Costs Start to Crimp Globalization.” It’s very much worth reading, and prior to writing the article the reporter, Larry Rohter, talked with me about my first installment in this series, “Globalization death watch, Part I.”
In his article, after noting the recent collapse of global trade talks, Rohter writes:
Some critics of globalization are encouraged by those developments, which they see as a welcome check on the process. On environmentalist blogs, some are even gleefully promoting a “globalization death watch.”
Now, look at the dictionary.com definition of “gleeful“:
full of exultant joy; merry; delighted.
Well, maybe the births of my sons called forth such feeling, but I’m not usually full of exultant joy, particularly when I think about global crises.
However, Larry Rohter may be forgiven his choice of words, considering the title of the blog post. I and, if I may be so bold as to speak for some other environmental bloggers, others think that the decline, even death of globalization would be a good thing. But just as the rise of globalization led to much suffering, so will its decline, and that’s certainly not something to be “gleeful” about. To paraphrase Barack Obama’s pithy phrase about getting out of Iraq, “we’ve got to be as careful getting out as we were careless getting in.”
I’d like to go over some of the points Rohter highlights, and then explain later in the post why there is a better alternative to globalization.
Rohter summarizes the changes this way:
Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex.
To which New York Times environmental blogger Andy Revkin responded, “Maybe the world is not as flat, or small, as it once seemed” (he doesn’t seem gleeful about this).
Economists are neither exuberant nor joyful about this state of affairs, some assuring us that globalization won’t be reversed, with others claiming that “companies looking to keep prices low will have to move some production closer to consumers.” In fact, Jeffrey Sachs refutes the idea of the death of globalization, stating that, “It would be a mistake, a misinterpretation, to think that a huge rollback or reversal of fundamental trends is under way. Distance and trade costs do matter, but we are still in a globalized era” … or a flat one …
It seems that large, heavy products, like steel or furniture, will be the first to be relocalized, for example, from China back to North Carolina; eating avocados in January might become less likely. Some economists talk about the “neighborhood effect”:
Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible.
Other economists warn that relocalization might not help the United States.
Economists are most comfortable thinking about a global economy, because in their worldview political limits, such as boundaries between countries, can only interfere with the smooth functioning of the market. Therefore, the market in its most perfect incarnation would be global and unfettered (there are some exceptions, Dani Rodrik being a good example).
The problem is that production systems, such as manufacturing, services, and agriculture, work best as regional systems, not global systems. We normally think about the world as a set of continental or subcontinental regions, such as Europe, North America, Latin America, etc. These regions, which are often continental in size — think Africa, for instance — or subcontinental regions — such as the Indian subcontinent, China, or the former Soviet Union — have always been, and will always be, “natural” economic systems, simply because that is how the planet’s tectonic plates have deployed the various continental pieces at this moment in time.
Which leads me to try to coin a new word, “continentalization,” to label a group of ideas that would serve as an alternative to “globalization” (I know, even more syllables). In a world of 10 or so regional economies, each should have a thriving manufacturing and machinery economy. Each should have a renewable energy system, based on its particular geography, a modern rail system knitting it together, and democratic processes binding it together. Each region would have to have free trade within its boundaries (and fair trade outside). And each region would have its own population of engineers, scientists, and skilled production workers that are needed to create the technological innovation that will be used to make the transition to a sustainable economy.
Continentalization is the natural state of economic affairs because it is very important for all the parts of the economic system to be close to each other. Think of an office, or a factory, or an ecosystem, for that matter. Why do people need to be able to interact in a face-to-face way in order to conduct business? In a factory, not only do you need face-to-face interaction, you need human-to-machine-to-human interaction. Engineers need to be able to tour factories, “kick the tires,” get a “feel” for how a particular manufacturing process works.
One of the many problems with the American auto industry is the tradition whereby engineers create their designs, then “throw it over the wall” to the guys running the factory. Without the feedback of the factory floor, engineers and managers lose crucial information and critical opportunities. It’s even worse when engineers “throw it over the wall” all the way to China.
In fact, as Paul Craig Roberts recently detailed:
The idea is nonsensical that the US can remain the font of research, innovation, design, and engineering while the country ceases to make things. Research and product development invariably follow manufacturing. Now even business schools that were cheerleaders for offshoring of US jobs are beginning to wise up.
In other words, the economy is an ecosystem, and tearing it apart and hurling it across oceans can only lead to a decrease in innovation and wealth. We need as much innovation as we can get now, because we are entering an era in which the human species either learns how to produce sustainably or endangers its very existence.
A continentalized global economy would probably have quite a bit of trade, but no region would be dependent for its survival on trade with another region. Trade would mostly be in terms of innovative goods and services. Because every region would be independently wealthy, international power would be distributed more evenly, and war would be less likely to bring victory to the aggressor.
It is perhaps the greatest irony of the idea of globalization that the very people who most sing its praises, those in economics departments and financial firms, work and live in two of the geographically smallest environments, the college campus and downtown Manhattan. All they need to do is look around them to see that innovation depends on proximity.