Gabor Steingart: America's Middle Class Has Become Globalization's Loser
[Gabor Steingart, 44, heads DER SPIEGEL's Berlin office. His last book was titled "Germany: The Decline of a Superstar" and, like "World War for Prosperity," was a bestseller in Germany. Steingart was chosen as "The Economic Writer of the Year" in 2004.]
At the beginning of the 21st century, the United States is still a superpower. But it's a superpower facing competition from beyond its borders as well as internal difficulties. Its lower and middle classes are turning out to be the losers of globalization....
On Oct. 28, 1998, the US Congress established a commission that brought together highly respected experts to examine the effects of the country's trade deficit and the withering away of industrial labor. Donald Rumsfeld, the current US defense secretary, then-US Trade Representative Robert Zoellick, Anne Krueger, the number two at the International Monetary Fund (IMF) and Massachusetts Institute of Technology (MIT) Professor Lester Thurow provided their assessment of the situation at the behest of the president.
Things were going swimmingly for the Americans until the end of the 1970s, the commission report concluded. Family incomes grew virtually at the same rate in all sections of the population during the first three decades after World War II, with those of the poor growing slightly faster. The lowest fifth of US society saw a 120 percent increase in incomes, the second fifth 101 percent, the third 107 percent, the fourth 114 percent and the fifth 94 percent. It was as if the American dream had manifested itself in statistics.
But then the trend reversed, and not just in the United States. Japan had awakened, and global trade had shifted directions. Capitalists left their home turf and went looking for suitable locations to invest in. Direct investment abroad - which had been more or less in harmony with exports until then - rose dramatically.
Until then, investment abroad had served mainly to boost the export of German, US or French products. But then factories themselves began to be relocated, mainly to cut manufacturing costs. Production for the world market became increasingly global itself, which led to a redistribution of capital and labor. Global production increased by a solid 100 percent between 1985 and 1995. But direct investment abroad increased by 400 percent during the same time period. Capital's new mobility began to make the other factor of production, labor, restless, too.
The new jobs were created elsewhere, which had to have an effect on family income in the United States. Within the next two decades, the income of the lowest fifth sank by 1.4 percent. The second fifth still managed to gain by 6.2 percent, the third by 11.1 percent and the fourth by 19 percent. At the tip of the pyramid - where the promoters and planners of globalization reside, and those who profit most from it - income gains climbed by 42 percent.
The US national economy clearly bears the signs of this break with its golden age, when the country produced prosperity for almost everyone. Until the 1970s, the productive core of the country burned with such a fiery light that it illuminated the entire world. The United States provided dollars and products for everyone. The American empire's nuclear power helped in the reconstruction of war-torn Europe and Japan. The United States was the world's greatest net exporter and greatest creditor for four decades. Everything went just the way the economy textbooks said it should: The world's wealthiest nation pumped money and products into the poorer states. The United States used the energy from its own productive core to make other countries glow or at least glimmer. It was indisputably the world's center of power, a source of energy that radiated out in all directions.
US capital was at home everywhere in the world, even without military backing. Many experienced this state of affairs as a blessing, some as a curse. Either way, it was good business for the United States: At the peak of its economic power, the West's leading nation disposed of assets abroad whose net value amounted to 13 percent of its GNP. To put it differently: The country's productive core had expanded so dramatically that it opened up branches and subsidiaries all over the world.
This undoubtedly superior United States doesn't exist anymore....
Read entire article at der Spiegel
At the beginning of the 21st century, the United States is still a superpower. But it's a superpower facing competition from beyond its borders as well as internal difficulties. Its lower and middle classes are turning out to be the losers of globalization....
On Oct. 28, 1998, the US Congress established a commission that brought together highly respected experts to examine the effects of the country's trade deficit and the withering away of industrial labor. Donald Rumsfeld, the current US defense secretary, then-US Trade Representative Robert Zoellick, Anne Krueger, the number two at the International Monetary Fund (IMF) and Massachusetts Institute of Technology (MIT) Professor Lester Thurow provided their assessment of the situation at the behest of the president.
Things were going swimmingly for the Americans until the end of the 1970s, the commission report concluded. Family incomes grew virtually at the same rate in all sections of the population during the first three decades after World War II, with those of the poor growing slightly faster. The lowest fifth of US society saw a 120 percent increase in incomes, the second fifth 101 percent, the third 107 percent, the fourth 114 percent and the fifth 94 percent. It was as if the American dream had manifested itself in statistics.
But then the trend reversed, and not just in the United States. Japan had awakened, and global trade had shifted directions. Capitalists left their home turf and went looking for suitable locations to invest in. Direct investment abroad - which had been more or less in harmony with exports until then - rose dramatically.
Until then, investment abroad had served mainly to boost the export of German, US or French products. But then factories themselves began to be relocated, mainly to cut manufacturing costs. Production for the world market became increasingly global itself, which led to a redistribution of capital and labor. Global production increased by a solid 100 percent between 1985 and 1995. But direct investment abroad increased by 400 percent during the same time period. Capital's new mobility began to make the other factor of production, labor, restless, too.
The new jobs were created elsewhere, which had to have an effect on family income in the United States. Within the next two decades, the income of the lowest fifth sank by 1.4 percent. The second fifth still managed to gain by 6.2 percent, the third by 11.1 percent and the fourth by 19 percent. At the tip of the pyramid - where the promoters and planners of globalization reside, and those who profit most from it - income gains climbed by 42 percent.
The US national economy clearly bears the signs of this break with its golden age, when the country produced prosperity for almost everyone. Until the 1970s, the productive core of the country burned with such a fiery light that it illuminated the entire world. The United States provided dollars and products for everyone. The American empire's nuclear power helped in the reconstruction of war-torn Europe and Japan. The United States was the world's greatest net exporter and greatest creditor for four decades. Everything went just the way the economy textbooks said it should: The world's wealthiest nation pumped money and products into the poorer states. The United States used the energy from its own productive core to make other countries glow or at least glimmer. It was indisputably the world's center of power, a source of energy that radiated out in all directions.
US capital was at home everywhere in the world, even without military backing. Many experienced this state of affairs as a blessing, some as a curse. Either way, it was good business for the United States: At the peak of its economic power, the West's leading nation disposed of assets abroad whose net value amounted to 13 percent of its GNP. To put it differently: The country's productive core had expanded so dramatically that it opened up branches and subsidiaries all over the world.
This undoubtedly superior United States doesn't exist anymore....