Opinion

Chrystia Freeland

A consequence of globalization is polarization

By Chrystia Freeland
December 10, 2010

Chuck Schumer, the senior Democratic senator from New York, already has one of his talking points for 2012 — he plans to lambaste the Republicans for their “tax cuts for millionaires,” a reference to the right’s refusal to end the Bush tax breaks at the upper-end of the income distribution.

That’s a big deal, because for much of the post-war era, class has been a forbidden subject in U.S. politics. Americans were sold on the idea of living in the land of opportunity — their country, after all, was the one huddled masses fled to for the chance to build a better life. That self-image was so appealing and so powerful that politicians ran against it at their peril—Morning in America played better on the campaign trail than class war.

Schumer is a centrist whose constituency includes many of America’s plutocrats —he has sometimes been called the Senator from Wall Street. He is also one of the country’s savviest politicians. So his judgment that “millionaires tax break” will make a good bludgeon for Republicans says a lot about how deep the chasm has become between America’s super-elite and everyone else, and how worried middle-class Americans are that the old promise of social mobility is no longer delivering.

Liberals concerned about this divide have focused on the ways in which it has been created by pro-rich tax policies, a concern documented in Winner-Take-All Politics by Jacob Hacker and Paul Pierson, and further stoked by this week’s tax deal. That’s a legitimate gripe.

But the two Americas are moving further and further apart for another reason, too, and it is one over which U.S. legislators and U.S. voters have little control. After a century when succeeding in America was the surest route to commercial success, the country’s best businessmen and women have realized that the way to win is to go global.

A favorite complaint of foreigners has been to point out that Americans, for all their international might, are actually rather parochial. That slightly smug assertion is true: to take one example, according to research by head-hunter Elisabeth Marx, in 2007, nearly one third of British FTSE 100 CEOs were foreign nationals; in the U.S., just 10 per cent of Fortune 500 chiefs were foreigners.

Now that the American century is over, however, America’s business leaders are catching on fast. One sign of the times was the recent decision, first reported by my Reuters colleague Megan Davies, of Stephen Schwarzman, the trend-setting boss and co-founder of private equity group Blackstone, to move to Paris for three to six months next year. Another major New York private equity house hopes to send one of its partners to Hong Kong.

Nor is this shift limited to finance. In a speech at Stanford business school this year, GE CEO Jeff Immelt said that when he was an up-and-comer at the industrial giant in the 1980s, developed nations accounted for 80 per cent of global economic growth. In the coming decade, he said, that equation is expected to flip, with 80 per cent of international growth coming from emerging markets. Like Blackstone, GE is moving its chiefs to where the action is: last month John Rice, a GE vice-chairman, was reassigned to Hong Kong, where he will oversee non-U.S. sales, marketing and operations.

Or consider McKinsey, the premier management consulting firm, founded in Chicago in 1926. Today, McKinsey’s managing director is a Canadian, Dominic Barton, who lives in London, but whose assistant is based in Singapore. “There are more and more global CEO meetings in the emerging markets, especially China,” Barton told me over breakfast in midtown Manhattan late last month. He was due to see Schwarzman later that day, but recalled that “the last time I saw Steve was in China” where Blackstone held a meeting this fall. Barton himself was traveling to Chile later in the week, then on to Sao Paolo, where McKinsey was holding its own board meeting.

The Luddites and isolationists in both parties are already starting to argue that this globalization of American business is a bad thing. They are wrong — surely America would be even worse off if its brightest businesses leaders were missing out on globalization and the rise of the emerging markets. But the shift of American capital and American capitalists outside the U.S. will further polarize an already bitter national debate. By 2012, Americans won’t just be arguing about tax-breaks for millionaires, they’ll be targeting the millionaires who spend 6 months a year in Paris or Hong Kong. That will be dangerous not just for the global super-elite, but for the entire world economy.

Comments
12 comments so far | RSS Comments RSS

The USA is not Britain. We have never had an Empire on which the sun never set. British Imperial practice is hardly what we are about. We are also a continental country, not a smallish island chain. We certainly need not emulate the Imperial model.

Our rich export business because they do not lose American military and legal protection or lose their right to live here in privilege. They like an expensive dollar because it provides them with the opportunity to sell foreign made goods here, at the expense of unemployed American workers. A lower value dollar would make those overseas investments and outsourcing deals far less profitable and perhaps outright unprofitable.

Yes, there is class conflict. The fact that the Government is irretrievably in the hands of the richest is not healthy for anyone, including rich people who have any reason other than low taxes to live here.

Posted by txgadfly | Report as abusive
 

These wealthy businessmen who are investing American money overseas and building thousands of factories there, instead of here in the USA, are costing our country tens of millions of manufacturing jobs. The current depression is going to be a lasting one for those who now can not find decent employment as jobs are relocated overseas. The balance of payments deficit and outflow of cash is killing the country. Sooner or later the system is going to collapse. China and Japan already own trillions of dollars in US debt. Soon we will be number two. I hope that the common people will wake up and re institute import duties to encourage local manufacturing before the middle class is wiped out. Repeal of the unfair free trade acts before its too late is essential!

Posted by francis1 | Report as abusive
 

Dear Cynthia,

This might come as a big surprise, but globalization has been going on for the last 500 years. The rules have shifted a little bit. Before you could only exploit countries other than your own. Now global ventures are allowed to exploit their own countries as well, all done under the rubric of globalization. With the implied (although false assumption) of “shared prosperity”. I think a more apt phrase under the current regime would be “shared despair” for the general populace, and additional prosperity for the prosperous.

Posted by lottakrap | Report as abusive
 

This consequence is exactly what George Bush wanted to inherit to his successors i.e. if you are not my friend, you are my enemy, don’t look back and forth.

Posted by leungsite | Report as abusive
 

Chrystia

Globalization has been with us for thousands of years. In its present form it changed 50 years ago from colonial exploitation phase to the present form which under the rubric of capitalism, exploits not only abroad but is an equal opportunity exploiter. It owes no allegiance to any nation. In a form of stateless mercantilism where the globalized wealthy benefit to the detriment of the rest of the global society, this is something to be neither admired nor emulated. This world class predatory economic model is unsustainable. The world is not flat as Tom Friedman is so blithe to opine. Only the thinking is flat and lacking in nuance and imagination

Posted by lottakrap | Report as abusive
 

It’s unclear what your conclusion is? Feels like you were assigned this piece and felt obliged to present balance only to deliver a random thought on economics and politics.

Posted by jpss | Report as abusive
 

Ms. Freeland,
You fail to make one single argument as to why this is a good thing for America or American business. I fail to see one reason that America could possibly be “worse-off” presently after reading your article.
You simply pull out the middle-management tripe straight from the globalists’ toolbox, calling those who rightly disagree “isolationists” and telling them that they’re just “wrong” based on some failed understanding of long-dated economic theory. The massive transfer of wealth and opportunity to foreign enemies by U.S. entities in search of both unprotected labor and environment in the name of profits has placed the world’s greatest super-power on the verge of bankruptcy. It has also done very little for the quality of life in any developing nation, in any substantial way. However, it has greatly increased the wealth of the wealthy. These are not “misunderstandings” from some type of “polarized” and ignorant world-view, but a harsh, cold reality backed by real data.
If the wealthy investment bankers, the “economists” who play the king’s fools, the government “of the people”, and finally the media drones such as yourself fail to see the reality, the chasm will in fact widen, and will likely make the French Revolution pale in comparison.
The middle-class American, upon whose bruised and bloodied back the globalists have grown fat, fail to see the reality, they will inevitably “eat the rich” in the worst of ways. Their appetite grows each day, rest assured. And your worthless pontification provides no sustenance whatsoever.

Posted by Jozsef | Report as abusive
 

Chrystia Freeland wrote about “Luddites and isolationists” opposing the negative effects of “globalization” — i.e. the outsourcing of American industry. Keep telling yourself globalization a good thing, while the US economy continues to go down the drain, then snivel to us after you’ve lost your job.

Posted by moebadderman | Report as abusive
 

Globalizaion = disappearance of the middle class and creation of a two-tier society – the top 5-10% and the bottom 90-95 just as it is in Africa and Latin America! This has been the goal of the elites forever. It allows the return of feudalism where the chosen ones rule the peasants and control the land (real estate = royal estate) and all capital. If you think about it, the largest owner of property in the world are the banks…which are under the control of this so called elite. Anyone seeing anything wrong with this picture?!

Posted by pesheff | Report as abusive
 

This must sound warm and fuzzy to business people. I mean I guess it’s “ok” to abandon us here at home trying to find something to do. I can’t find any factories within 100 miles of Minneapolis to work at. Maybe if I wanted to work for 7.50 per hour I could work at McDonalds and be a manager someday. It’s unconscionable that American companies are encouraged to flee the country to make a buck. Well if we don’t start getting companies to invest in American workers, so we can buy stuff, which increases demand here, which creates more PROFITS for any company here, we can all forget the American dream!
All we need now is more articles like this that point out how fun it is and how “ok” it is to ignore the American people when creating profits overseas. Greed.
WARNING: If no one makes a decent wage in America, and banks don’t lend bc they make their money on wall street instead of main street, and if Tax-haters trickle-downers keep starving Cities of revenue’s (Tim Pawlenty), eventually, or more accurately, currently, our Education system will surely fail kids more and more, by NOT creating engineers or Doctors (who now need aroiund 100,000 dollars a year to raise just one child through college). So I guess we can sit at home and watch TV and wish we had enough money to go out and buy something more than just food and rent. Scrooge lives on Wallstreet don’t cha know.!

Posted by mjimih | Report as abusive
 

The key is in the term “globalization.” While there may be many advantages to globalization, a global company is not necessarily an American company, because it shifts its activities away from the United States to maximize profits — even if the result is a net loss for (a) the United States as a whole and/or (b) at least some Americans. Some Americans benefit from this and tend to support politicians who promote it. Those Americans who are disadvantaged tend not to have the background to understand what is going on well enough to advocate for themselves on this issue.

One question is whether there is anything new in all of this. Throughout most of the 19th century, the British economy was globalizing. Much of the investment that funded the tremendous expansion of the U.S. economy during the 19th century came from Great Britain, and America benefited from the fact that this was money was invested here rather than in Great Britain.

By the 1890s, the United States was the world’s largest economy. Even though a nontrivial portion of that economic activity was beholden to foreign investment, the average American from the employment opportunities created by the economic activity, regardless of the source of of the capital or who was receiving the profits.

The problem with “globalization” is that the shoe is on the other foot. During the latter 19th and early 20th centuries, job opportunities were growing in the United States far more than in Europe, in part because of investments of capital that Europeans were making in the United States. This led to the American industrial might that proved decisive in World War II, and we Americans came to view it as our birthright during the post-World War II period. The fiction of this birthright is presently almost the only ares of agreement between left and right hold in common in American politics, and our policy reflects a situation in which the only political common ground is a fiction.

Since the late Cold War period, American businesses have been shifting operations to low-labor cost areas outside of the United States. I suspect that the original reason for doing this was to mitigate under appreciated deflation that was occurring throughout the 1980s as a result of the combination of high interest rates and reduced government spending. The 2000s was another period of heavy outsourcing where economic growth was flat.

Deflation occurs when spending power drops, so that market prices are bid down. If spending power drops so much that prices are bid down to below the cost of producing goods and services, then deflation is a disaster. This happened during the 1930s. It may be that outsources (the cutting edge of globalization) the only reason it did not happen during the 1980s (and, later, during the 2000s). This enabled American businesses to remain solvent, but it reduced the ability of the average American to recover spending power as the overall economy recovered. With reduced spending power among Americans, the businesses headquarted in the United States concentrated more on selling their foreign-produced goods in foreign markets — thus making money from operations unrelated to the United States (except for the counting houses on Wall Street). Voila — “globalization.”

Posted by Bob9999 | Report as abusive
 

Globalization really means the ascendance of corporatism. This means: less competition; corporatized executive, legislative, and judicial structures; decreased wages, socialized debt, privatized windfalls, exploitation of land and water resources on a massive scale, appropriation of individual liberties by corporate entities, corruption, and legal and economic isolation of individuals and households. So far, it hasn’t really worked out so well, I don’t see it getting any better.

Posted by Soothsayer | Report as abusive
 

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