A POST COLD WAR LANDSCAPE

 

This blog is currently reviewing various problems related to how Americans interact and how, in turn, those social processes reflect the challenges posed by the natural rights perspective.  That view has become dominant among Americans in the way they see governance and politics.  The last two postings have highlighted economic activity and specifically commented on trade and comparative advantage.

          Perhaps history will designate this current time as the post-Cold War era.  To the extent this is true, looking back might be helpful.  In the years leading to the end of the twentieth century, one can detect academic and journalistic commentators who warned of what was developing then and has reached fruition now.  At that earlier time, concerns over various industries were being pointed out. 

As the last posting identified, those were industries in technological space – industries such as microelectronics, biotechnology, tele-communication, and computers plus software.  At the turn of the century, international markets had not experienced the full effect low-income nations would have on those industries.  Today, one is hard pressed to buy a new car since computer chips cannot be sufficiently obtained due to the pandemic and the resulting disruptions of many supply chains that have occurred.  The shortage of computer chips, for example, has had an inordinate effect.

Here is the way the predictions sounded back at the turn of the century:  the major competitors, including those of low wage countries, have yet to see the highest levels of labor competition which seem to be in the future.  As the former communist nations become more capitalistic, their educated work force will enter the global labor market.  “Communism ran bad economies but good school systems.”[1]  Once the former communist world learns to play the capitalist game, employers will have access to a relatively well-educated work force of 1.9 billion people. 

Lester Thurow, who points this out, further writes,

Suppose one gave a comprehensive examination to all high school graduates in America to test their educational qualifications and then gave that same examination to everyone in the old Communist world … How many of the latter world pass the exam with test scores higher than those achieved by the average American high school graduate?  The answer is essentially “infinity” – hundreds of million of people know more than the average American.[2]

In most cases, those educated or trained people excel in the technical areas that promised to be the job producing ones in what was then the future.  And that future is now and the only aspect that didn’t turn out as predicted: the leaders of that eventuality are still under communist rule, that being China and Vietnam.

          The two leading Anglo post-industrial nations, the US and Great Britain, have opted for the individualistic perspective – the natural rights view – in the way they define their competitive institutions.  This perspective has led to strategies that have been shortsighted and geared to maximizing profits.  It has also led to making money the new-fashioned way:  securities trading, leverage buyouts, and stock options.

          An economy so directed is neither creating new wealth to its potential nor increasing productivity.  Early, Germany and Japan adopted more of a communitarian perspective (at that time, Seymour Martin Lipset provided ample statistical evidence for this comparative assertion, particularly in the case of Japan[3]).  What about today?  One way to see how this approach has advanced through the years is to observe how the two nations interact economically today.

          In 2012 the Bertelsmann Foundation conducted a survey of the German population and asked how the people viewed Japan.  They were overwhelmingly positive.  They expressed seeing Japan less as a competitor and more as a partner.  The Japanese reciprocated with their overall positive view of Germany.  The poll, for example, found 97% of the Japanese had a positive view as opposed to 3% who had a negative view.[4]

          Early on, Japan’s government took a much stronger role in coordinating its economic efforts.  Corporations through cross stock ownership arrangements known as Keirstsus[5] in the industrial sector, own 78% of stocks within industrial groups on the Tokyo stock exchange.  These arrangements transcend individual businesses and industries, and, in turn, they advance high efficiencies. 

Today, Japan is the fourth largest economy of the world and Germany ranks third.  These comparisons are tricky.  For example, one can look at wealth per capita – as expressed on the average (the mean) or median – and perhaps get a better sense of which countries and their related approaches do a better job.  But any review seems to bolster the sense that communitarian views fare better in providing more equal but prosperous results.

As for the Keirstsu example, these arrangements have established strong systemic conditions that encourage coordination and lend themselves to a communitarian perspective of shared goals and values.  This should not be an indictment of capitalism, but a “gut-check” to unbridled capitalism as exemplified by policies generally denoted as neoliberal policies which became dominant in the US since the 1980s.[6]

These more communitarian approaches are strong organized conditions that encourage coordination and lend themselves to shared goals and values.  Under a communitarian perspective, the goal is not profit maximization, but market share maximization.[7]  They can be sustained only by populations that share a federated view of their citizenry, i.e., a general sense that that people share a national partnership.

And this leads one’s analysis of the economic landscape to another important factor, the prominence of monolithic corporations.  First, the stage needs to be set.  These entities have acted as the great arbitrators in the economy since their rise in the late 1800s.  They have determined products, wages, and prices.  They maintained a balance which did a good job of keeping the consumer demands of the US reasonably satisfied.

Due to the emerging competition from abroad and the easy access to labor markets, financial resources, transportation facilities, and distribution systems available to any smaller competitors, the pristine perch of the huge corporations no longer exists in many industries.  Perhaps the exception is the social media industry.  Many monoliths have experienced serious downsizing.  According to Robert Reich,[8] in the 1990s, every competitor turned to being leaner if not meaner.  This blog will pick up this turn in the next posting.

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[1] Lester C. Thurow, The Future of Capitalism:  How Today’s Economic Forces Shape Tomorrow’s World (New York, NY:  William Morrow and Company, Inc.), 45.

[2] Ibid., 46.

[3] Seymour Martin Lipset, American Exceptionalism:  A Double Edged-Sword (New York, NY:  W. W. Norton and Company, 1996).

[4] “Finanzachrichten – Borse and Wirtschaft aktuell,” www.wallstreet-online.de. , attempted to access November 11, 2021.  This is a difficult site to access.

[5] Keirstsu means a business network in Japan that is made up of various companies and organized by supply chains.  The sense is that members are partners, distributors, and at times financiers.  These relations are bolstered by cross ownerships of stock though individual members sustain their independence in their operations.  They, collectively, have been described as “headless combines.”  This blogger thinks they exemplify federated arrangements.  See Daniel Liberto, “Keirstsu,” Investopedia (2021), accessed November 11, 2021. 

[6] William K. Tabb, The Restructuring of Capitalism in Our Time (New York, NY:  Columbia University Press, 2012).

[7] Lester C. Thurow, Head to Head:  The Coming Economic Battle among Japan, Europe, and America (New York, NY:  MacMillan Publishing Company, 1992).

[8] Robert B. Reich, The Work of Nations:  Preparing Ourselves for the 21^st -Century Capitalism (New York, NY:  Vintage Books) AND “Is Lean Manufacturing Still Relevant in 2021and Beyond?”, Four Principles (n.d.), accessed November 11, 2021, https://fourprinciples.com/expert-opinion/is-lean-manufacturing-still-relevant-in-2021-and-beyond/ .

THE COMPETITIVE CHALLENGE

 

The last posting touched upon the stated woes facing many American workers.  The nation’s labor force has experienced many transforming changes since World War II from the rise of foreign trade, automation, and an adoption, domestically, of a natural rights view about what ought to prevail in terms of rights and responsibilities.  This last element affects the social-cultural expectations that Americans hold as they determine how to conduct their social affairs including labor relations.

A review of those changes is useful.  The global framework has drastically changed for the US.  The post-World War II condition was extremely generous to this country.  That war created a level of US superiority in the world never before enjoyed by any other nation in history.  Historically, this was due to the technological advancements caused by the war, the vast destruction suffered by all other industrial countries (except for Canada), and the almost total lack of destruction in the US.

          Consequently, the United States created the rules and conditions of international trade that prevailed in the 1945-1975 period.  The US kept the high technological industries for itself and allowed the rest of the world to fill in the low technological niches.  This distribution was to the benefit of all nations.  The exception to this economic balance was the military expenditures (a public consumption element) of the US (a product of defending against the threat of the Soviet Union) and the unwillingness of Americans to cut private consumption to pay for it.

          This excess, over the years, ate into the investment levels within the US economy and, in turn, the productivity levels of the nation.  The inability of the US to keep up its relative advantage in productivity (even though the US still has the highest productivity levels of the world) and the increasing productivity of such nations as Germany and China, have caused a new competitive world in which vying for the high value market segments in various industries has stiff competitive global markets.

They include specifically seven key industries:  microelectronics, biotechnology, and new materials industries, civilian aviation, tele-communication, robots plus machine tools, and computers plus software (e.g., the production of computer chips).  One report states,

 

The political climates in the United States and Europe show that there are different viewpoints on the results of globalization.  Many countries around the globe are tightening their immigration rules, and it is harder for immigrants to find jobs in new countries.  This rise in nationalism is mainly due to the anger from the perception that foreigners fill domestic jobs [either in their own nations or in the US or Europe] or at companies moving their operations abroad to save money on labor costs.[1]

 

Unlike the period in the post-World War II years, this is a win-lose competition in which an advantage for one country will be a disadvantage to other major competitors.[2]

          Each major competitor comes into the competition with advantages and disadvantages.  In summary, Asian countries (China, Vietnam, and Japan) have the advantage of culturally supporting a productive, as opposed to a consumer, mentality (a factor in those countries that has become more Western since the turn of the century), and a relatively disciplined economic strategy, and Europe has created the largest trading block, giving it the opportunities to highly influence trading rules in the 21^st century.

          The main disadvantages are, for Asian countries, a relative intolerance of foreigners.  That hampers those nations from integrating fully their off-shore economic activities (although China has been very active in various parts of the world).  Germany and other European countries find it difficult to incorporate fully Eastern European nations, control migration patterns (which include influxes from Africa), and its long-standing cultural diversity inhibiting full political unity (of note the departure of Great Britain from the European Common Market).

            As for the US, it still leads the world in all of the economic absolute measures – although one can foresee China eventually taking over that position except for income per capita.  But its weakness is that it has lost ground on many measures and that past successes have made it difficult for its populace to understand the underlying dangers. 

Here lies the area in which American educational practices contribute to a host of challenges the American economy faces in terms of global competition.  As this posting is being written, the US Congress passed an infrastructure law that promises to address many of the elements in which the US has been delinquent in keeping up with its competitors.

          Take for example the trend of real wages (wages that account for inflation).  The Congressional Research Service reports:

Real wages rose at the top of the distribution, whereas wages rose at lower rates or fell at the middle and bottom. Real (inflation-adjusted) wages at the 90th percentile increased over 1979 to 2019 for the workforce as a whole and across sex, race, and Hispanic ethnicity. However, at the 90th percentile, wage growth was much higher for White workers and lower for Black and Hispanic workers. By contrast, middle (50th percentile) and bottom (10th percentile) wages grew to a lesser degree (e.g., women) or declined in real terms (e.g., men).[3]

In short, unless one finds him/herself in the top wage bracket, he/she is more likely to find one’s economic standing more challenging in relative terms.

          Here, the concept of comparative advantage becomes central in many of the calculations affecting international trade.  Comparative advantage relates to how a nation or business can produce goods not in absolute terms – in the cheapest way – but how they can produce goods cheaply relative to the costs to competitors.  In that, those foreign entities have high levels of such advantage.

          Here is how one source describes the importance of comparative advantage:

Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago.  Globalization has brought the world together by encouraging more trade among nations, more open financial institutions and a greater flow of investment capital across international borders.  In a globalized economy, countries and businesses are connected in more ways than ever before … Together, these developments improve economic output and opportunities for both developed and developing nations. These factors also cause greater specialization based on comparative advantage …

[C]ountries such as China have seen exponential growth in their manufacturing sectors in recent decades. Countries with the lowest labor costs have a comparative advantage in basic manufacturing. Globalization has benefited developing countries by providing jobs and capital investments that would not have otherwise been available. As a result, some developing countries have been able to progress more quickly in terms of job growth, educational attainment, and infrastructure improvements.[4]

And this sort of backdrop encourages one to be concerned over America’s ability to compete to its fullest capacity in this continuously changing landscape.  Some of these factors have been of concern since the last century, but while some advances have occurred, these factors are still of importance today.  The next posting will continue this review.

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[1] “Globalization Benefits and Challenges,” Velocity Global (October 6, 2021), access November 4, 2021, https://velocityglobal.com/blog/globalization-benefits-and-challenges-gs/?utm_source=google&utm_medium=cpc&utm_campaign=contact-us&gclid=CjwKCAjwiY6MBhBqEiwARFSCPsSW8zJsRwiKECTu7rZGxsfLc0RqJz-1pXLpcgQ3_zdMik1RoGFamxoCcmEQAvD_BwE&gclsrc=aw.ds .

[2] Today this is pretty much treated as a given in the literature.  For accounts of the transition from a US dominant world economy to a more competitive one, the relevant literature can be found in the 1990s.  For example, Lester C. Thurow, Head to Head:  The Coming Economic Battle among Japan, Europe, and America (New York, NY:  MacMillan Publishing Company, 1992).  Of course, one can now add China to that list of competitors.

[3] “Real Wage Trends, 1979-2019” (updated 12/28/2020), Congressional Research (no date), https://sgp.fas.org/crs/misc/R45090.pdf .

[4] The Investopedia, “How Does Globalization Impact Comparative Advantage?,” Investopedia (January 18, 2021), accessed November 8, 2021, https://www.investopedia.com/ask/answers/030215/how-does-globalization-impact-comparative-advantage.asp .