Alan Tonelson, "Globalization and Trade: The Need for Debate," Current, No. 399, January 1998


Early in the nuclear age, Albert Einstein lamented that the atomic bomb had changed everything but the way humanity thinks. Today, the same can be said of the impact on American politics of economic globalization - the increasing integration of international markets being brought about by rapidly expanding worldwide flows of goods, services, capital, information, and sometimes people.

Prominent Americans in and out of government proclaim the new global economy to be the defining reality of our age, powerful enough (along with technological change) to transform such age-old institutions as the job, the nation-state, and the family itself. Yet aside from discrete trade policy controversies, globalization has not been meaningfully incorporated into American politics or policy-making. In fact, most social and even economic policy issues are debated in America today as if globalization did not exist or were happening somewhere else.

Take the ongoing controversy this year about domestic monetary policy and the relationship between economic growth, employment levels, and wage pressures. Eyeing a steadily falling national unemployment rate and understandably determined to stop inflation before it starts, Federal Reserve Board chairman Alan Greenspan has been holding real interest rates high enough to keep economic growth modest and therefore labor markets loose enough to inhibit workers from seeking significant raises. Most Wall Street observers and economists have praised Greenspan, expressed amazement that inflationary pressures have not reappeared at today's unemployment levels, and continued to warn that rising labor costs must be just around the corner.

If these observers recognized the United States economy's steady internationalization, they would understand that the employment rate of American workers is no longer the only significant determinant of American wage levels. With more and more American companies hiring foreign workers for their overseas facilities, it is equally important to look at global unemployment rates. According to the International Labor Organization, roughly one-third of the world's workforce is jobless or underemployed. Moreover, given the explosive growth in the number of workers entering the world economy in huge, low-wage countries like China, India, and Indonesia, it is easy to see how American workers could continue to be afraid to press for higher pay even if United States unemployment rates sank even lower.

Welfare reform is another issue with a critical but neglected international dimension. Both supporters and most opponents of today's welfare reform schemes apparently believe that the United States economy is full of opportunities for minimally educated and generally unskilled workers to earn a living wage - either through the magic of the marketplace or with a little help from retraining and reeducation programs. What both overlook is that most of the industries that paid decent wages to American workers without world-class skills and education - such as apparel, textiles, and steel - have been decimated by foreign competition and the inadequate response of United States trade policy. Moreover, wages in those jobs that remain have fallen precipitously in the past quarter century.

THE NEW RECEIVED WISDOM

The failure to fully incorporate globalization into American foreign and domestic policies has had serious consequences. As suggested earlier, it has obscured the global dimensions of - and therefore, key elements of the solutions to - many major national economic and social problems. It has also crippled American trade policy, saddling the country with narrowly conceived globalization approaches that have benefited relatively small numbers of Americans. Not coincidentally, the poll ratings for America's globalization policies keep sinking lower and lower.

American politics and policy are not taking globalization seriously enough for several reasons. One is perceptual. To most Americans in and out of government, globalization means "trade." This is especially true in discussions of globalization's impact on American living standards, which are usually brought to a premature halt with the observation that, despite 20 years of steady growth, two-way trade in goods and services still represents less than 30 percent of the United States economy. Thus it is said to be mathematically impossible for such flows to be responsible for most wage stagnation.

Leave aside for the moment the conveniently forgotten fact that mainstream economic theory emphasizes the decisive influence that even marginal changes in supply, demand, and prices (including labor prices) tend to have on each other. What about the impact of immigration on wage levels'? What about investment'? Technology flows? For some reason they are invariably left out of the debate - an especially ironic tendency, given that immigration is now widely blamed for about one-third of the wage decline experienced since the early 1970s by low-income Americans (a point made by Harvard professor George Borjas in the November 1996 Atlantic).

Other reasons for the globalization non-debate combine the emotional, the intellectual, and the ideological. Today, at the end of the twentieth century, many Americans are inhibited from thinking critically and rigorously about globalization for the kinds of reasons that inhibited their forebears at the end of the nineteenth century from thinking critically and rigorously about laissez-faire capitalism in the domestic sphere. Unfettered economic activity and the absolute sanctity of private property were that era's unassailable orthodoxy. Their moral and practical superiority were firmly established by Adam Smith's The Wealth of Nations and subsequent works of neoclassical economics. As Eric F. Goldman explained in his brilliant 1952 history of American reform, Rendezvous with Destiny, these certitudes formed the main links of a "steel chain of ideas" that created an overwhelming bias against government intervention in domestic economic and social affairs.

Today, although welfare capitalism has sunk deep roots in the industrialized world, free trade, unrestricted capital mobility, and economic integration are the watchwords of international economic policy. Their moral and practical superiority has been firmly established by two epochal events - the Great Depression and the fall of communism. Today's noninterventionist trade ethos has become so strong that even many liberals who have pushed hard to expand the welfare and regulatory state at home recoil at the thought of any regulation of international trade or investment. Indeed, no modern American political cliche has been more predictably invoked than when Vice President Al Gore confronted former presidential contender Ross Perot at their 1993 televised NAFTA debate with a photo of Senators Smoot and Hawley. Their 1929 tariff bill, after all, is almost universally - but inaccurately - blamed for deepening and even starting the Depression.

The power and persuasiveness of laissez-faire orthodoxy have another, equally important dampening effect on debating globalization - portraying globalization issues as a series of black-and-white, either-or choices. Free trade versus protectionism is how the debate is typically framed - as if anyone were advocating either removing all controls over international commerce or permitting no such commerce whatsoever. The situation is analogous to the debate over American foreign policy, with most commentators endlessly and fruitlessly debating "engagement versus isolationism," and neglecting what form engagement should take.

WHOSE GLOBALIZATION?

This dichotomous portrayal of globalization choices is convincing in large part because of the way globalization itself is depicted. Critics of current globalization policy are right to complain that its champions simply assume that the global economy will unfold along Anglo-American-style free trade lines, even though most of the world practices forms of capitalism significantly different from this approach.

But the problem runs even deeper. It entails the view of globalization as a monolithic, undifferentiated phenomenon, with a structure as interesting as a lump of coal. In fact, like any sweeping trend with widespread, profound effects, globalization is highly complex. The term describes a bewildering number of relationships and arrangements that are inevitably subject to strategic, political, social, and cultural - as well as "purely economic" - influences.

Elsewhere around the world, where mixed economic systems and the difficult trade-offs they require are more openly acknowledged, the complexity of globalization seems more apparent. Policymakers and analysts alike seem to recognize that their challenge entails not simply promoting or stopping globalization, but ensuring that its terms serve specific local, national, and regional interests. Efforts are under way to strike the right balance between benefiting from globalization's efficiency-enhancing effects and promoting the equally valid noneconomic goals set by all human communities. Eisuke Sakakibara, a vice minister in Japan's powerful Ministry of Finance, provided an unusually comprehensive statement of this position in his 1993 study, Beyond Capitalism: The Japanese Model of Market Economics: "Taking [the] pluralistic position that capitalism can differ across national borders and according to various historical and cultural backgrounds, our views on the world economy and world trade should be transformed as well. Indeed, in this increasingly interdependent world, many aspects of different national economies need to be harmonized. Yet to the extent that different regimes continue to be different, they will have to accommodate each other in certain ways. In some instances, these accommodations may take the form of modification of the principle of laissez-faire."

In the United States, the failure to perceive the real, highly nuanced choices presented by globalization, plus the ideological bias against intervention in the economy, severely undermines the very legitimacy of thinking critically about these matters. The clearest evidence of this is the labels that have been successfully hung on the parties in globalization disputes: supporters and opponents of prevailing policies are simply and misleadingly labeled "pro" and "anti-trade," respectively.

Proponents of current globalization policies have also been able to portray their preferences in terms connoting objectivity and inevitability. They have explicitly described themselves as the "party of the future" or, more specifically, of the "New Economy." Their depiction of their policies as "bridges to the twenty-first century" fails to provoke much protest, even from opponents.

Critics, meanwhile, are widely dismissed as voices of the past, clinging stubbornly but naively to outmoded industries and ways of life. (At least one - columnist and erstwhile Republican presidential hopeful Pat Buchanan - actually does talk openly about returning to the "Old Republic.") Paul Gigot of The Wall Street Journal used all of the major stereotypes in a September 12, 1997, column: "[F]ree trade has its political compensations even in a Democratic primary. It lets [Vice President Gore] seem future-oriented and presidential, instead of hostage to special interests and the old blast-furnace economy."

President Clinton, perhaps characteristically, tried to have it both ways in his September 22, 1997, speech to the United Nations General Assembly. "The forces of global integration are a great tide, inexorably wearing away the established order of things," he intoned, hastening to add, "but we must decide what will be left in its wake."

Superficially, these labels and stereotypes seem at least partly justified. After all, some of the leading champions of current globalization policies are high-tech companies like Microsoft, IBM, and AT&T while some of the leading opponents include industrial unions, like the United Steel Workers and the United Auto Workers, which provide the workforce for the so-called blast-furnace industries.

The problem is that the high-tech companies still employ surprisingly small numbers of high-wage, highly skilled workers. Many more of these workers are employed by the blast-furnace industries, which have also undertaken a large and growing incorporation of high-tech components into their products and manufacturing processes. Still, the CEOs of the blast-furnace economy are sending production abroad just as fast - and fighting just as hard to keep United States markets open to their output - as their counterparts in high-tech industries.

Although the globalization debate often bums white hot when it erupts, the contending factions are anything but perfectly cohesive or coherent. The confusion is understandable; after all, any phenomenon with effects as powerful and wide-ranging as those of globalization is bound to stimulate myriad responses from many different interests and individuals. Still, the blurring of disagreements even over fundamental issues make productive discussion of globalization all the more difficult.

THE DEBATE'S HISTORICAL ROOTS

For most of America's history, globalization policy has mainly meant trade policy, and its politics was mainly sectional. The manufacturing-heavy north favored high tariffs to protect and nurture its industries; the largely agrarian south, which not only imported manufactured goods but relied heavily on commodities exports, favored much more open trade. These powerful sectional influences in turn produced a clear partisan divide. Republicans were so devoted to tariffs that their presidents and especially members of Congress championed protectionist policies well into the Nixon era. Democrats generally favored more trade liberalization even after they transcended their base in the "Solid South." At the same time, it is crucial to note that the early nineteenth century triumph of federalists and nationalists in American politics and economic policy placed the nation on a predominantly mercantilist course until the mid- 1930s.

During that decade, powerful domestic and international developments began to rival sectionalism as a determinant of trade politics and policy. Domestically, nationalizing forces, such as the continuing spread of manufacturing to the south and the creation of national cultural tastes and economic markets by movies and radio, started to flatten sectional differences. Internationally, protectionism was blamed for the Great Depression (and ultimately World War II). By the end of the war, a strong bipartisan consensus in favor of multilateral trade liberalization had been produced by the determination not to repeat the mistakes of the 1930s, the overwhelming supremacy of American industry and technology, and the emerging perceived need to win or aid cold war allies by unilaterally opening United States markets. In the years to follow, many politicians and analysts credited these free trade policies with sparking unprecedented peace and prosperity in the noncommunist world - further reinforcing free trade's legitimacy and popularity.

Starting in the 1970s, the fading of United States global economic predominance, the slowing of worldwide and domestic growth, and the steady decline in Americans' real wages significantly weakened the free trade consensus. Additional blows were delivered in the late 1980s by the end of the cold war and by the steady transformation of many large American companies into truly global firms. The former development undermined the strategic arguments for tolerating continued protectionism by allies even as their own economic strength burgeoned. The latter development began to open an unprecedented gap between the fortunes of American workers and those of American businesses, as companies responded to competitive pressures, new market opportunities, and investment incentives by building more factories and even laboratories abroad, exporting possibly millions of high-wage jobs in the process.

At the same time, one powerful countertrend enabled free traders to prevail in most of the increasingly contentious policy disputes of the 1980s. President Ronald Reagan's ringing rhetorical support for trade liberalization convinced many conservative and moderate Americans that traditional free trade policies were integral parts of the campaign against big government - even as the president approved skillfully targeted trade barriers to help hard-hit United States industries like semiconductors and autos regain competitiveness.

In the late 1980s, globalization's increasingly differentiated impact on Americans and the collapse of the cold war rationale for free trade, coupled with the end of the Reagan economic boom, greatly complicated the politics of globalization. The effect on Republicans and conservatives was especially profound, as their long-standing postwar consensus on free trade was shattered. At the end of World War II, the Grand Old Party was comprised of often vigorously clashing clusters of Eastern seaboard internationalist financiers, pro-tariff New England and midwestern industrialists, Western and Midwestern isolationists, opportunistic McCarthyite red-baiters, and a small but influential band of paleo-conservative intellectuals battling against the modernizing, secularizing spirit of the twentieth century. The onset of the cold war persuaded them to set aside their differences and unite on an emergency basis behind interventionism, peacetime military alliances, and free trade.

Over the next three decades, these Republican factions broke up, evolved, and recombined into their contemporary forms - including laissez-faire-oriented supply-siders and libertarians, moral majoritarians, neoconservatives, nativist communitarians, deficit hawks, blue-collar ethnic "Reagan Democrats," and a dwindling band of moderates and liberals who retain influence in Congress and in Washington media circles. Yet with the cold war emergency over and the unifying presence of Reagan gone, America's conservative coalition has been pulling apart at the seams. And one of the main polarizing issues - even more at the rank and file than at the leadership level - has been globalization.

A February 1997 survey by prominent Republican pollsters Fabrizio McLaughlin and Associates showed how deep and wide the split runs. All five factions into which they divided the party - including the normally ardently pro-free trade supplysiders - showed plurality support for the proposition that recent trade agreements had sent more jobs abroad than they had created at home. Just as surprisingly, a late-July NBC - Wall Street Journal poll reported that Republican respondents were more strongly opposed to NAFTA than Democrats.

THE BIRTH OF THE NEW DEMOCRATS

The end of the cold war had a less dramatic impact on Democrats. Instead, their internal splits over globalization stem from the gap opened up by the Vietnam War between the party's moderate and left wings. The fault lines have remained more or less intact, but the dispute has been transformed into a battle between contrasting visions - if not realities - of the new and old economies. Moderates - most of whom eventually turned against the Vietnam War - continued to insist that cold war internationalism was a viable framework for United States foreign (and by extension, trade) policy. The left-wingers pushed a more fundamental critique of the war and the society that spawned it.

At the same time, cross-cutting issues and clashing institutional imperatives have repeatedly confused the picture. Among congressional Democrats, the hardening of organized labor's opposition to conventional free trade policies - led by unions whose leaders tended to support the Vietnam War until the bitter end - has helped shift the balance of power against current globalization initiatives.

At the presidential level, many Democratic leaders persuasively argued that electoral success depended on candidates distancing themselves from the party's best-known constituencies (including not only big labor but civil rights groups and feminists) and from the unpopular federal bureaucracies they had allegedly captured. Instead, the moderates counseled, Democrats should embrace the technological progress and entrepreneurial spirit that was fueling the booming information-based New Economy.

Greatly enhancing the New Democrats' power has been the skyrocketing costs of political campaigns. Since business - which is traditionally pro-Republican - is the greatest potential source of funds for the media advertising that can make or break candidates, Democrats have had to "follow the money" and step up their efforts to win corporate support. Under the leadership of former Connecticut Congressman Tony Coelho, the Democratic Congressional Campaign Committee turned into a big-time money machine and full-time Wall Street presence, starting in the late 1980s. In fact, one of Bill Clinton's most effective fund-raisers in 1992 was Treasury Secretary Robert Rubin, then head of the Wall Street investment giant Goldman Sachs. Because the large companies pursued by the Democrats have been the strongest proponents of current globalization policies, the New Democrats who preach that America should "compete, not retreat" in the world economy (to quote Clinton) have seen their influence grow. (The Democrats have made no special efforts to target small businesses - the vast majority of which do not export or are found in domestic-oriented service industries.)

The fly in the ointment has been the environmental issue. Although many environmentally minded voters are high-income Americans who consider themselves to be globalization's winners, many fear that uncontrolled globalization will greatly increase industrial pollution - and enhance corporations' ability and authority to pollute. Thus, major environmental organizations like the Sierra Club have been leading opponents of NAFTA and the General Agreement on Tariffs and Trade (GATT) Uruguay Round agreement that gave birth to the World Trade Organization.

GLOBALIZATION'S DRAMATIS PERSONAE

One critical result of these intraparty changes has been the emergence of nonpartisan "strange bedfellows" coalitions on globalization issues. Numerous commentators and analysts have noted that the anti-NAFTA and anti-GATT campaigns united Pat Buchanan and Jesse Jackson, Ralph Nader and Ross Perot, paleo-conservatives and big labor. Less remarked on have been the mirror images of these pairings among globalization enthusiasts - Bill Clinton and Newt Gingrich, Henry Kissinger and Jimmy Carter, the Brookings Institution and the Heritage Foundation. At the same time, below the surface of these coalitions lurk major globalization-related disagreements that make coherent debates difficult to hold - and difficult for most voters to follow.

Today's globalization enthusiasts are divided between self-styled competitiveness advocates and free-market conservatives. The former - many of whom serve in the Clinton administration-speak of current globalization policies as integral parts of a broader "proactive" government strategy to restore America's relative economic position on the world stage. Indeed, many also favor a significant government role in developing and commercializing new technologies, as well as public sector efforts to restructure labor-management relations along more cooperative lines and improve America's primary and secondary schools. Although often insisting that trade in particular is not a zero-sum game, they repeatedly emphasize the importance of American exporters not only getting their appropriate share of foreign markets, but also beating the competition in the race for business opportunities whenever possible. Early in the Clinton administration, many of these competitiveness advocates vowed to reduce America's global trade deficits and its major bilateral trade deficits, which they blamed largely on foreign protectionism. The continued growth of these deficits, however, led them to abandon these goals in favor of simply boosting exports.

Nowhere was this approach more apparent than in the campaign to pass the original NAFTA in 1993. The agreement was sold as a way to create millions of high-wage jobs and improve the relative competitiveness of United States companies by securing for them significant advantages in Mexican consumer markets as well as important investment preferences. NAFTA supporters even warned that without these preferences valuable business opportunities would be lost to European and Asian companies allegedly poised to dominate the Mexican economy. Revealingly, the same arguments are being made today in the debate over expanding NAFTA to the rest of the Western Hemisphere.

The free-market conservative allies of these competitiveness advocates are distinctly uncomfortable with most of these arguments. They tend to see any trade expansion as a good in itself that enhances global efficiency and maximizes global welfare - thus benefiting America indirectly. Convinced (somewhat inconsistently) that international markets can, do, and should operate completely independent of international power politics, they oppose as counterproductive government efforts to shape worldwide economic flows for national advantage. The only exception entails maintaining sound macroeconomic policies.

Significantly, these conservatives' laissez-faire instincts are so strong that they vigorously oppose government trade policy activism even when market forces are fettered. In other words, true to David Ricardo's teachings (although not to Adam Smith's), they regard government as inherently so incompetent that they believe in tolerating foreign protectionism rather than retaliating. To be sure, they attribute America's trade deficits primarily to its relatively low rate of savings and high rate of consumption, not to foreign barriers. More important, however, most attach no significance to these international trade balances. Consistent with their free-market beliefs, they also oppose dedicated United States government efforts to promote exports, not to mention anything smacking of "industrial policy." Indeed, they - like Ronald Reagan's rhetoric - see opposition to protectionism as central to their plans to shrink government.

CRITICS LEFT AND RIGHT

Critics of current globalization policies face significant disagreements of their own, which tend to divide along left-right, nationalist-internationalist lines. Right-wing critics generally take a strongly nationalist view of international economics. They see the main challenge of United States globalization policy as defending and promoting purely American interests against the predations of foreign actors. Consequently, they scorn international organizations like the World Trade Organization as mechanisms largely designed by weak countries to handcuff great powers like the United States, and as unacceptable threats to America's sovereignty and the principles of representative, accountable government. In addition, they are fully confident that the unilateral use of United States power - especially regulating access to the American market - can achieve America's essential globalization policy goals, including removing foreign trade barriers and ensuring that exports to the United States are "fairly" traded. Yet like the competitiveness advocates, the right-wing globalization critics leave unclear whether they simply want a perfectly level playing field in world trade and investment and equal opportunity for American producers, or whether they want guarantees of successful outcomes.

These critics understand that promoting economic development and sound environmental policies in low-income countries can help buoy wages and environmental standards at home. But they fear that significantly closing the North-South gap will take too many years - if it can be done at all. Therefore, they tend to see the interests of American workers and their foreign counterparts as being in unfortunate but unmistakable conflict.

Most left-wing globalization critics see entirely different fault lines in the world economy. Generally unconcerned with the globalization-related tensions among countries, their main interest is the struggle they see between the world's workers and international capital. Unlike the conservative nationalists, they believe that developing world living standards can be raised relatively quickly with few sacrifices from workers in the industrialized world, and they are confident that international institutions can and should play constructive roles. The main problem they have with these institutions is not that they are anti-American, but that they are controlled by worldwide corporate interests. If only unions and consumer groups were adequately represented, these left-wing critics suggest, they would have no objections to significant reductions in American sovereignty.

At the same time, one faction on the left, convinced that multinational businesses have all the advantages in a truly global economy, seems to oppose the idea of increasing worldwide economic integration itself, and argues for greater self-reliance at the national and especially subnational levels.

ONE NATION, DIVISIBLE?

Unquestionably, the American globalization debate has been hampered by the diversity of the nation and by globalization's uncanny ability to subdivide even the factions described above, as well as by ideological blinders. The globalization of production does indeed create obstacles to identifying which firms are truly serving the entire nation's interests and therefore where and how to target globalization policy initiatives. Powerful links are forming between the prosperity of American workers and foreign countries - whether the former work in exporting industries or hold stock in foreign enterprises or major United States exporting companies. And globalization issues can pit not only different industries against each other, but different companies within industries against each other - witness the current feud among American airlines over access to Japan. At the same time, although organized labor and United States multinationals are battling tooth and nail over the trade and investment dimensions of globalization, they are cooperating to defeat a UN environmental initiative that both believe will damage American competitiveness.

Precisely because its effects are distributed in such a wildly uneven, frequently shifting manner, globalization raises serious questions about America's future as a cohesive, successful society - about American nationhood itself. Globalization's ability to set worker against manager, industry against industry, and companies within industries against each other is clear even during today's ongoing economic expansion and relative prosperity. These developments will only become more frequent and pronounced when the economy slows.

Observing the growing tendency of wealthier Americans to literally wall themselves off from the problems of their fellow countrymen with private schools, gated communities, and private security forces, writers as different as Robert Reich, the former labor secretary, and conservative military strategist Edward Luttwak warn that parts of America are starting to resemble chronically divided, class-ridden third world societies. Should these trends continue, globalization could represent the greatest challenge to national unity since the Civil War. It is, of course, certainly possible that Americans ultimately will be better off as members of transnational labor or corporate communities, or even as citizens of tightly contained subnational groups; no political form lasts forever, and the nation-state cannot automatically be assumed an exception. But questions so monumental should be confronted openly and decided deliberately, not backed into unwittingly, heedless of the full consequences.

Mr. Tonelson is a research fellow at the United States Business and Industrial Council Educational Foundation. From "Globalization: The Great American Non-Debate," by Alan Tonelson, Current History, November 1997, pages 353-359:

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