Globalization—Dancing on the Head of a Pin
Forty years of American business and industry aimed at the specific goal of globalization, a term we common folk could hardly define, much less fully understand.
I think I’ve got a handle on it, but maybe I’m wrong
Basically, the American market was a shirt that was too tight around the collar for capitalism. In spite of mergers and acquisitions, big and comprehensive just wasn’t good enough for American industry and tech companies.
They wanted it all. Why be satisfied with a golden goose laying a single gold egg a day, when you could conjure up a whole barnyard of geese? There were all these emerging nations that needed automobiles and Facebook, skyscrapers and Google, investment advice and Amazon.
Only pricing was a problem, but what the hell
One of the things that happens when you leave a fat nation for the world’s skinnier markets, is that product pricing gets a little dicey. Not easy to meet skinny needs with union wages and all those fussy little American manufacturing details like a middle class wage, profit-sharing, pension plans and health insurance.
But capitalism is nothing, if not innovative and chock-a-block full of forward-looking alternatives. I just love that phrase. Forward-looking is also attractive because it avoids glancing in the rear-view mirror to notice the American middle class disappearing in the distance. The eggs broken to make an omelette are hardly worth mentioning if they’re not your eggs.
Off-shoring ‘American’ production comes to the rescue
Inverse to a baseball World Series that includes only American teams (and a Blue Jay), globalization turns its back on America, except for market share. From Bangladeshi sweat shops to Chinese wage-slaves, Nike and Apple, Levis and Black & Decker are but a tiny part of what we no longer manufacture in the U.S. But you already know that, if you ever worked for GE, Ford, Caterpillar Tractor or AT&T. All those American icons are now producing elsewhere and highly profitable, thank you very much, now that they’ve cut loose from the Americans who made them great.
Fiddling the tax man
Just as cities and states in America once gave enormous tax and infrastructure credits to lure business investment, globalization took that benefit ah, what’s the word, global.
Ireland is a favorite, with low tax rates, great whiskey and a lovely natural environment. Apple incorporated its European headquarters in Ireland and Google has a subsidiary in both Bermuda and the Netherlands. Amazon has been accused of transferring U.S. funds to a shell company in Luxembourg to avoid paying $234 million in U.S. taxes for 2005 and 2006, but that’s merely an accusation, so who knows?
What we do know is that in 2018, Amazon paid $0 in U.S. federal income tax on more than $11 billion in profits. It also received a $129 million tax rebate from the federal government.
If it’s all upside, where’s the pin come in?
Disruptions are the unforeseen problem of the moment, which is a real kick, because each of these companies is in itself a disruptor. None of them saw a pandemic coming, with its growing number of lockdowns worldwide. A synonym for worldwide is global, but who’s looking?
The pin we dance on in this case is just-in-time manufacturing, which has gotten to be a very big deal these days. In assembly processes, the exact part must now arrive at a precise time. Any shortage and the line stops. That exact part, thanks to manufacture at the lowest cost, may be made thousands of miles from where it’s needed.
The only manufacturer I know of who has anticipated this weakness and turned that knowledge to a benefit is Elon Musk, with his Tesla electric car company. His formula is much like Henry Ford’s once was—to make everything in-house, probably with the exception of tires. No distant supplier, no problem.
And there’s more, so stay tuned
There are other balances to upset on that pin. What happens to global infrastructure when the run-on disruptions like periodic economic collapses occur? Those seem to come along with unsettling regularity.
Right now, hotels, airlines, restaurants, shopping centers and the giants of retail that support them are going bankrupt. That means the builders of hotels, manufacturers of airplanes and suppliers to retail are all at risk. Hundreds of millions of employees dependent on this interdependent infrastructure will find themselves jobless, most of them permanently.
A nation of producers can always find new sources of production and build back their lives. We proved that in 1929. Someone always needs something.
A nation of consumers finds itself adrift, without marketable production skills and too broke to consume. That house of cards is not much shelter in a hurricane.
We’ve come a long way, baby
Indeed we have, just to be brought down by a plague, as in ancient times. From a nation that was once producer to the world, we’ve slid backward in our origins over the past four decades to supplicant consumer.
But consumption is a snake that eats its own tail.
And that’s the pin upon which we dance.