Globalization
World on the verge of a nervous breakdown
Capitalism's ceaseless quest to cut costs made us more jittery in 2011, and there's no relief in sight.
Italian equities shape American realities (Credit: Tony Gentile / Reuters) For those looking for signs of how globalization has woven the world into a web of unexpected vulnerability, 2011 offered a bumper crop.
An earthquake in Japan sent the global auto manufacturing industry into a conniption.
A flood in Thailand drastically reduced supplies of computer hard drives, forcing even a titan like Intel to swiftly reduce revenue forecasts.
State-subsidized solar panel production in China crushed a U.S.-subsidized solar start-up, thereby igniting a Washington political scandal.
It is child’s play to find further examples. The underlying reality is that unexpected consequences make everyone nervous. Sensibilities are on hair trigger. Just two weeks ago, the New York Times captured the new jitteriness in a single quote. In a story reporting how U.S. stock traders were increasingly setting their alarm clocks for the middle of the night, in order to absorb the latest news from Europe as soon as it started to break, one stock analyst, Michael Mayo, complains in a tone of bemused wonder: “Who would have thought we would have to be looking at Italian sovereign debt yields to figure out what Morgan Stanley’s stock will do?”
For those who haven’t been living and dying on every twist and turn of the European financial crisis, some unpacking of that sentence may be in order. Most modern governments routinely auction some form of state-backed bonds or other securities in order to raise cash. If the bond investors aren’t excited about the opportunity — let’s suppose, just for argument’s sake, that they’re afraid the Italian economy is about to collapse — then Italy must offer a higher interest rate, or yield, on those bonds to attract buyers. The higher the yield, the more negative the bond market’s judgment is assumed to be.
But for most of November and December, the health of Italy’s debt sales became not merely a judgment on Italy’s economic health and fiscal stability, but a swiftly translated proxy for investor sentiment about the state of all Europe. If Italy ran into real trouble, so the theory went, France and Germany would soon be swept into the vortex. And a European recession would obviously be bad news for the rest of the world. So one unsuccessful auction in Rome becomes immediate cause for bearish sentiment in New York and Tokyo and Shanghai.
And no one wants to be caught more than one nanosecond out of the loop. If the orders go out to sell or buy, you want to get there first. Since now, more than ever, bad news travels fast, everyone’s got to be quick on the trigger.
It doesn’t seem healthy, but we’re going to have to get used to it. Volatility and vulnerability are built into the infrastructure of our modern world. The jury may still out on the chaos theory question of whether a single butterfly flapping its wings in Botswana can cause a typhoon in the Philippines, but we now know without a shadow of a doubt that the relative success or failure of a troubled European government’s attempt to raise cash can send instant shock waves across financial markets across the globe.
And we know, intimately, that it doesn’t take much to set off a cascade of trouble — after the great global crash of 2008, traders everywhere are in a state of permanent PTSD. Beyond the obvious surface connections between markets — that European recession slowing U.S. economic growth — there are abundant linkages beneath the scenes that are obscure and hard to unravel, interconnections woven by complex derivatives and hedging strategies and computer-driven high-speed trading algorithms that instantly translate woe in one market to panic in another.
The inescapable conclusion: Our modern high-tech markets, in which more money than ever before swirls around the globe in a blink of an eye, are better at transmitting panic and fear than anything heretofore created by humans. If civilization is supposed to imply progress, then something has gone very awry: In the second decade of the 21st century, our infrastructure is increasingly fragile, increasingly prone to disruption. The sword of Damocles hangs above everyone’s head, and the thread that keeps it from falling is fraying perilously thin.
What is perhaps most fascinating about this state of affairs is how it has arisen as a consequence of global capital’s relentless quest for lower operating costs and greater efficiency and flexibility. The better we get at extending supply and production chains across the globe, the more vulnerable those chains become to a disruption at any given point. The faster we enable the transmission of information around the world and through the financial markets, the more volatile those markets become, as every new headline sends a different trading signal.
The marvelous shipping ports of the West Coast, able to transport unthinkable quantities of goods from ship to train or truck via their state-of-the-art cranes, offer a perfect example. We’ve never been so good at moving stuff around. But shut down one of those ports for a week, and we’re suddenly stuck. There’s nowhere else for all that stuff to go!
We’re going to see more of this in the future, rather than less. Climate disruptions will increase in frequency and severity, influencing commodity prices and immigration flows and insurance-industry profit margins. Higher prices for fossil fuels will complicate those transportation logistics — a single shock in Saudi Arabia would blast through economies everywhere. The temptation to hit the panic button will become increasingly irresistible.
Our systems need more redundancy, and our temperament would benefit from a heaping dose of prudence. But it’s hard to see where the encouragement to change our ways will come from. Because if there’s one thing that’s even more clear than the emergence of a constantly-on-the-verge-of-a-nervous-breakdown global economy, it’s that, for the most part, our political systems are not up to the task of dealing with these challenges.
Which, of course, just increases our overall sense of antsy powerlessness. As individuals, we’ve never been so much at the mercy of events that play out thousands of miles away, and we are remarkably unable to do anything about it.
And here comes 2012, which will witness a U.S. presidential election, crunch time for the European fiscal union, a potentially slowing Chinese economy, more weather disruptions, and a whole bunch of stuff that we have no idea is coming. If 2011 was the year when globalization’s downside became impossible to ignore, then 2012 will likely raise the ante by another order of magnitude.
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.
Goodbye, Davos man
Pundits haven't realized it yet, but the age of economic globalization is over
Robert Rubin (Credit: AP/Cliff Owen) Now and then there are moments that clarify major trends in politics. Such a moment occurred recently, when François Hollande, the Socialist candidate for the French presidency, agreed with the French far right on the need to further limit immigration to France: “In a period of crisis, which we are experiencing, limiting economic immigration is necessary and essential.” For his part, Hollande’s opponent Nicolas Sarkozy criticized immigration in his first electoral run and as president of France has denounced deregulated markets.
Continue Reading CloseMichael Lind’s new book, "Land of Promise: An Economic History of the United States", will be published in April and can be pre-ordered at Amazon.com. More Michael Lind.
The secret to making American workers competitive
Despite GOP claims, big business won't bring us more and better jobs. Obama should outline how the government will
(Credit: AP) Who should have the primary strategic responsibility for making American workers globally competitive – the private sector or government? This will be a defining issue in the 2012 campaign.
In his State of the Union address, President Obama will make the case that government has a vital role. His Republican rivals disagree. Mitt Romney charges the president is putting “free enterprise on trial,” while Newt Gingrich merely fulminates about “liberal elites.”
American business won’t and can’t lead the way to more and better jobs in the United States. First, the private sector is increasingly global, with less and less stake in America. Second, it’s driven by the necessity of creating profits, not better jobs.
Continue Reading CloseRobert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written 13 books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. More Robert Reich.
The “American Century” has ended
The Great Recession, the Arab Spring and the euro crisis show how global relations are fundamentally shifting
Barack Obama, Moammar Gadhafi and George Papandreou (Credit: AP) In every aspect of human existence, change is a constant. Yet change that actually matters occurs only rarely. Even then, except in retrospect, genuinely transformative change is difficult to identify. By attributing cosmic significance to every novelty and declaring every unexpected event a revolution, self-assigned interpreters of the contemporary scene — politicians and pundits above all — exacerbate the problem of distinguishing between the trivial and the non-trivial.
Did 9/11 “change everything”? For a brief period after September 2001, the answer to that question seemed self-evident: of course it did, with massive and irrevocable implications. A mere decade later, the verdict appears less clear. Today, the vast majority of Americans live their lives as if the events of 9/11 had never occurred. When it comes to leaving a mark on the American way of life, the likes of Steve Jobs and Mark Zuckerberg have long since eclipsed Osama bin Laden. (Whether the legacies of Jobs and Zuckerberg will prove other than transitory also remains to be seen.)
Continue Reading CloseAndrew J. Bacevich is professor of history and international relations at Boston University. His latest book is "Washington Rules: America's Path to Permanent War". More Andrew Bacevich.
How to solve the corporate tax problem
Our globalized economy creates too many loopholes for multinational firms. It's time to push for a universal system
(Credit: AP/Mary Altaffer) The United States is teeming for tax reform. Obama speaks eloquently of the rich “paying their fair share” while Republicans pledge never to raise taxes. Warren Buffett is taxed less than his receptionist. Occupiers rally for the 99 percent, while Tea Partyers rally behind 9-9-9.
Meanwhile, 25 of the Forbes top 100 companies paid their CEOs more than they paid Uncle Sam in 2010. Some of the big names are GE, Prudential and Verizon, all of which paid their CEOs well over $10 million, but paid no income tax whatsoever.
Continue Reading CloseKeriAnn Wells is a Master of Public Policy Candidate at the University of California, Berkeley. More KeriAnn Wells.
What’s the language of the future?
As English takes over the world, it's splintering and changing -- and soon, we may not recognize it at all
No language has spread as widely as English, and it continues to spread. Internationally the desire to learn it is insatiable. In the twenty-first century the world is becoming more urban and more middle class, and the adoption of English is a symptom of this, for increasingly English serves as the lingua franca of business and popular culture. It is dominant or at least very prominent in other areas such as shipping, diplomacy, computing, medicine and education. A recent study has suggested that among students in the United Arab Emirates “Arabic is associated with tradition, home, religion, culture, school, arts and social sciences,” whereas English “is symbolic of modernity, work, higher education, commerce, economics and science and technology.” In Arabic-speaking countries, science subjects are often taught in English because excellent textbooks and other educational resources are readily available in English. This is not something that has come about in an unpurposed fashion; the propagation of English is an industry, not a happy accident.
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