Our house of cards

Barry Lynn thinks globalization made America dangerously dependent on foreign companies -- and that disaster is looming.

Published September 15, 2005 10:08PM (EDT)

Critics of globalization see a host of evils in the spread of free trade and free markets across the world: human rights abuses, exploited workers and environmental havoc, just to name a few. In "End of the Line: The Rise and Coming Fall of the Global Corporation," Barry Lynn looks at globalization and sees all that and worse: Imminent disaster is looming, an economic crash of dire proportions. But there's a paradox -- the instruments of this crash are precisely those companies currently regarded as the most successful businesses in the world, the leanest, meanest, best-run corporations.

So while business magazines and Wall Street investors praise the Wal-Marts, Dells, Ciscos and General Electrics that bestride the land, Lynn comes to bury them. The very things that make these companies great -- their mastery of logistics, nimble outsourcing and offshore operations, relentless quest to bring costs down and profits up -- are destined to doom us all.

Who is to blame? For Lynn, a fellow at the New America Foundation and the former editor of Global Business, a monthly publication aimed at executives of multinational corporations, Bill Clinton gets the lion's share of calumny. Under his watch, free trade flourished as never before, and American corporations were given full rein to do whatever they wanted. In a brutal break with American political tradition, as honored by every president from FDR to Ronald Reagan, argues Lynn, Clinton abandoned the time-tested policy of employing trade policy as a weapon for foreign diplomacy and a tool for domestic economic support. Never mind all the economists who maintain that protectionism hurts everyone -- the United States had always been protectionist to some degree, states Lynn, until Clinton unbarred the barn door.

Laying blame for globalization squarely on Clinton's shoulders isn't really fair. It's kind of the obverse of giving Al Gore credit for inventing the Internet; neither man deserves full (if any) responsibility for something that was and is the product of many actors and multiple historical forces. When Lynn holds Clinton guilty "of one of the great snookers in American history" (a bamboozling of the American public that Lynn feels is far worse than George W. Bush's bogus rationale for invading Iraq) and savages him for having committed "the most grave error in the history of the American nation," his rhetoric, and his animus, undermine his more cogent analyses.

And that's a shame. Because the heart of "End of the Line" -- and the reason why this book should be required reading for anyone interested in understanding what globalization has wrought -- is Lynn's fascinating explanation of how the flexibility and interconnectedness that are fundamental building blocks of the global economy are actually its Achilles' heel. Not only are we now in bed with nations who don't share our values and may end up being our enemies (read: China), but our most successful corporations are companies that don't actually make anything, that in fact subtract value from the economy, rather than add to it.

It's a complicated argument, hard to do justice to in the confines of a review. But in Lynn's hands it is thoroughly reported and passionately narrated. Lynn examines the history and evolution of companies such as the above-named blue chips, and discovers that what these corporations have achieved, after outsourcing and moving offshore every possible step of their business, is an economic structure that only seems flexible and infinitely reconfigurable. In truth, argues Lynn, what we have now is more rigid and fragile than ever before. And if one twig snaps, the whole tree is likely to come crashing down.

"The hyperspecialized and hyper-rigid production system that is emerging is, if we are honest, the natural outcome of what happens when globalization and outsourcing are combined with an entire lack of regulation by governments," writes Lynn. "When the borders of the nation and the borders of the firm are both simultaneously ripped open, the result, in industry after industry, is a chain reaction that results very quickly in a single highly networked and highly specialized system of production."

In Lynn's view, being highly networked and specialized creates dangerous new vulnerabilities. As an example of what can go wrong, Lynn cites an earthquake that occurred in Taiwan in September 1999. Taiwan is the world's No. 1 source of made-to-order advanced semiconductors -- the microchips that are the brains of iPods, DVD players, computer graphics cards, cellphones and countless other electronic devices. Although the handful of factories that manufacture such chips were not seriously damaged by the quake, power and transportation systems in Taiwan were severely disrupted for a week. The ripple effect of that turned out to be an economic tsunami of sorts for the global high-tech economy.

"The one-week shutdown in Taiwan cut world output of electronics by 7 percent below predictions, just in the month of October, and disruptions continued well into the new year," reports Lynn. Factories in California -- including some that assembled computers for Dell -- had to shut down their assembly lines.

Dell was shocked to learn that key parts of its computers depended on a single supplier in Taiwan. Dell executives weren't aware of this, argues Lynn, because Dell doesn't actually make computers. Instead, it specializes in logistics, in managing the supply chain made up of the hundreds of companies that actually manufacture the thousands of parts that make up the modern computer. There are so many layers between Dell and the original supplier that no one really knows what's going on, from the top to the bottom of the supply chain.

Shortly after the Taiwan earthquake, some observers feared a global economic crash was beginning. That didn't happen. But a key lesson should have been learned. There was no backup plan. There were no other factories that could produce those chips, in the short term. A bigger earthquake, one that might reduce to rubble the science park where Taiwan's top chip plants are located, could have had devastating consequences.

Lynn argues that similar disasters are waiting in the wings -- that they are the inevitable result of an economic mandate to outsource and move offshore every possible step in the supply chain. Calculating risk, says Lynn, is no longer a priority for the modern corporation. That's left to contractors in other nations.

The crucial problem is that the modern corporation is only responsible to its shareholders, not to its workers, or society at large. The single most important consideration for the executives of state-of-the-art American corporations is to deliver good enough numbers each financial quarter to keep those shareholders happy. Thus they are under constant pressure to do whatever they can to keep their costs down. The aspiring workers of China and India are happy to help them in this regard, but this also means that, in the long term, the United States' manufacturing base is eroding, and becoming more and more vulnerable to events that are out of its control.

"Every day by its nature," writes Lynn, "its built-in urge to use every iota of material within the system in the absolute most efficient way possible and hence the most unique way possible, its blind desire to strip all redundancy from the system and shift that wealth into the pockets of the shareholder, today's global production system undermines its own foundations, excavating the brick it uses to build our ever-finer spires from the deepest columns on which we all stand."

Lynn's rhetoric sometimes get a bit overheated, and one has to acknowledge that the idea that the American corporation is beholden to its shareholders is hardly breaking news. (For plenty of Milton Friedman-esque economists, that's exactly how it should be.) By maximizing efficiency and profitability, so the theory goes, such companies create more wealth to be invested in the economy than they would if they were weighed down by overpaid workers, environmental regulations and ruinous taxes.

Such trickle-down theories rarely comfort workers who have been downsized, or had their benefits cut, or watched their jobs sent overseas. What makes "End of the Line" so interesting is that it doesn't waste time belaboring the standard left-wing analysis of how workers get screwed in unregulated capitalism. Lynn's argument challenges the current dominant paradigm on its own terms, making a compelling case that the long-term economic effects of shareholder-run capitalism will be disastrous, for both balance sheets and the realpolitik arena of international relations.

That there are serious instabilities in the global economic system as currently set up seems indisputable, given the evidence marshaled by Lynn. But is the fact that the American corporation enjoys "the freedom to do business wherever in the world a company wished and the freedom to operate only for profit, unburdened by any sense of responsibility to any community or any individual," really all Clinton's fault?

The movement of American manufacturing overseas started long before Clinton's tenure, and the social primacy of the shareholder traces its roots back at least as far as the so-called Reagan revolution. Which is more important, the deregulatory impulses given full flower by Reagan or Clinton's role in pushing the North American Free Trade Agreement and his failure to obstruct American businesses in their pell-mell rush to move jobs, manufacturing capacity and billions of dollars of investment capital to China and India? Both play a role, but one president fundamentally altered the terms of engagement in the political landscape, while the other merely did little to resist what was already fast becoming a fait accompli.

Ultimately, the question of who is to blame is less important than the need to comprehend what is currently going on. In that respect, "End of the Line" is a welcome eye-opener. Flexibility is rigid; interdependence implies vulnerability; the actions of the best-run corporations can lead to the worst consequences. Tighten your seat belts, the rest of this century is going to be a bumpy ride.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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