Coca-Cola is not alone. McDonald’s sells bulgogi burgers in South Korea and offers teriyaki sauce in Japan. “I do not know how a global firm could not be decentralized,” says Jack Greenberg, McDonald’s boss. Asked to define the consistent element in a McDonald’s experience, he replies, “An excellent fresh meal in a clean restaurant.” Budweiser produces a superstrength lager in Japan and even boasts about the brew’s intoxicating qualities in its advertisements, something that would be inconceivable in prudish America. In the Middle East, Pillsbury puts lamb in its toaster strudels rather than jam, as in America; in China it uses pork and dough, so that they have a dim-sum taste. Naturally, local products sometimes have unexpected global markets: Pillsbury started making green-tea ice cream for the Japanese, but other people like it, too. But those companies that fail to take into account local differences are bound for trouble, as General Motors discovered when it tried to sell its Chevrolet Nova in Latin America without changing the car’s name. (No va means “doesn’t go” in Spanish.)
Indeed, in recent years, marketing departments have become obsessed with segmenting customers rather than bundling them together. Companies err if they treat entire countries as single markets, let alone the whole world. In Europe, companies that consolidated their marketing operations in anticipation of the birth of the Euro are rediscovering the importance of national differences. In the United States, where blacks, Latinos, and Asians have a collective purchasing power of about nine hundred billion dollars a year, marketing to “hyphenated Americans” is a booming business.[6] And there is probably more room to divide markets geographically. In 1997, McDonald’s split its approach to the United States into five regional divisions to reflect the fact that different areas have different climates and different sets of competitors and customers. Car firms already vary their pitches around the country. Now the art of television programming—traditionally a Los Angeles and New York affair where honchos like to boast that they “program for the people they fly over”—might also soon take a local direction. Research shows that American viewers rate stations by the quality of their local news, not by which network they are attached to.
Charlie Woo’s own industry appears to be symptomatic. Even “global” p. 106 toys are carefully localized by their manufacturers. In Japan, Barbie has smaller breasts than she does in America. Despite the extra cost, Woo is always fiddling with packaging and designs so that his Latin American toys look different from the American ones. Indeed, for students of the nature-versus-nurture debate, the toy industry offers plenty of insights that are potentially politically incorrect. Why is it that, even at a young age, German children are notably more organized than their unruly American peers and thus more likely to buy complicated building toys? Why do black American children like some sort of toys and their Asian peers others? Woo does not care about the psychological insights; like everybody else, he just changes his products to fit.
The Third Myth: That Economics Needs to Be Rewritten
Put to Charlie Woo the idea that he is part of some new economy and all you get is a wry chuckle. Far from assuming that the business cycle is dead, he talks at length about the prospect of another downturn, like the one in the early 1990s. As for inflation, it is indeed low; in fact, deflation seems to have gripped some parts of the toy industry. But Woo’s main fears are still about rising costs, particularly for labor. He is always squabbling with his workers about pay raises. His environment certainly seems to be changing a little more quickly than before: Globalization means that competitors can spring up anywhere. But the underlying rules of how to make money are the same as always.
This is not a view that Peter Schwartz shares. Schwartz, an affable man with a neat beard and habit of saying “absolutely,” is the driving force behind the Global Business Network. GBN specializes in a rarefied form of consultancy: mapping the future. Nearly one hundred clients—ranging from blue-chip firms such as IBM and AT&T to the government of Singapore—pay thirty-five thousand dollars each to belong to GBN’s intellectual community. For considerably more money, GBN also provides them with bespoke maps of the future. Schwartz has a good record as a cartographer, particularly in his earlier career as a scenario planner at Royal Dutch/Shell. In 1982, he speculated that oil prices might collapse to sixteen dollars a barrel. Shell piled up cash to prepare for that eventuality and was not caught short, as its rivals were.
Schwartz lent his authority to a view of the future that won widespread applause in Silicon Valley in the late 1990s: A mixture of globalization and technological innovation was all but abolishing the business cycle. He laid p. 107 out his case in richest detail in “The Long Boom,” an article he cowrote in 1997 for the country’s leading organ of high-tech boosterism, Wired, and later turned into a book of the same title. A brief quote conveys both the essence and the tone of the argument then common:
We are watching the beginning of a global economic boom on a scale never experienced before. We have entered a period of sustained growth that could eventually double the world’s economy every dozen years and bring increasing prosperity for—quite literally—billions of people on the planet. We are riding the early waves of a 25-year run of a greatly expanding economy that will do much to solve seemingly intractable problems like poverty and to ease tensions throughout the world. And we’ll do it without blowing the lid off the environment.[7]
Schwartz was on the extreme end of the scale, but the idea that we were entering a new economy that was governed by fundamentally different rules from the old one gained a remarkable amount of influence in the 1990s. Silicon Valley treated it as gospel. Kevin Kelly, executive editor of Wired, wrote a book called New Rules for the New Economy. BusinessWeek was an early convert. Alan Greenspan flirted with the phrase. On Wall Street, brokers cited the new economy as an explanation for why old expectations about how quickly profits can grow were invalid—and pumped up a stock-market bubble. Meanwhile, even those few Americans who had not piled their life savings into Amazon.com seemed to be caught up in the grip of what Nathan Myhrvold of Microsoft once dismissively (and perhaps ungratefully) called “technomania.” (“If The Graduate were to be made in the late 1990s the single word of advice imparted to Benjamin would be ‘information.’ ”)[8]
The new economy is difficult to define, largely because it encompasses three things. The first, now fortunately gone for good, had to do with the stock market in the 1990s: that it somehow justified crazy equity prices. But the other two things have survived the bubble. The second has to do with the organization of business: the idea that corporate life, particularly in America, is being transformed by the Internet and by Internet companies. This seems very hard to quarrel with. The third, most complicated debate has to do with macroeconomics and how much its laws and assumptions need to be rewritten in the light of all this new technology and, to a lesser extent, globalization.
For most of the 1990s, the basic argument that technology had revolutionized productivity and changed the speed limit at which the American p. 108 economy could grow looked weak. Yes, American firms had poured money into technology, and inflation had stayed low, but there were plenty of other things holding down prices, including cheap commodities, a strong dollar, and even the aftereffects of the savage restructurings at the beginning of the decade: Scared workers restricted (inflation-causing) wage demands. Worse, despite a colossal investment in technology in the last two decades of the twentieth century, American productivity growth bounced along well below the postwar average of 3.4 percent a year for most of the 1990s. Some people wondered whether the gains in productivity were limited to just a few high-tech industries; others even whispered that technology might not be quite as productive as people claimed. As Stephen Roach has pointed out, the hours that we all spend trying to tap into office networks from hotel rooms often stretch workdays without achieving much.[9]
On the other hand, throughout the 1990s, most of the anecdotal evidence from the real economy indicated that something had happened.
It was almost impossible to visit an American company in the 1990s without discovering more evidence that productivity was increasing and that technology (and to a lesser extent globalization) had played a role. Inventories were being tracked, parts being automatically ordered when they were needed, workers reminded that factories could be relocated to cheaper countries. And by the early twenty-first century, the statistical evidence had begun to move a little: The annual speed limit at which the American economy could grow safely appeared to rise from around 2.25 percent to 2.75 percent. That was a long way from the revolution that Silicon Valley preached but not insignificant.
Both sides of the new-economy debate have tended to characterize their opponents unfairly.[10] But even if the American economy’s speed limit has increased, some pretty strange ideas seem to have been embraced in its name. One clear area has been stock-market valuations: The astronomic changes in stock valuations, still evident in 2002, are well above historic norms and anything that could be explained by improvements in corporate earnings (even if the numbers are actually correct, which scandals like Enron and WorldCom have cast doubts over). Another is the idea that economics needs to be rewritten. Most of the ingredients of the new economy are actually fairly old. Deflation, for instance, is not a new threat, and there is a fairly simple way to cure it: loosen monetary policy. And the idea that the new economy will look after inflation all by itself seems extremely unlikely.
On balance, we are skeptical about whether the Internet marks the same paradigm shift as the introduction of electricity and the arrival of the comp. 109bustion engine. (Whenever you meet somebody from Silicon Valley who talks about how the World Wide Web will revolutionize your business “like never before,” ask yourself whether the improvements it is bringing will really be as life changing as the ability to keep on working easily after dark was for businesses one hundred years ago.) And even if the change does prove to be as large, that does not mean that the economic cycle has gone, let alone that it justified the idea of “Dow 36,000” in 1999.[11] Globalization shows that the old economy is being quite as inventive as ever; there is no need to invent another one.
The Fourth Myth: Globalization as a Zero-Sum Game
Tell the story of Charlie Woo to many American trade unionists, and they react with disapproval. Far from creating jobs, they argue, Woo has been stealing them. By employing cheap immigrant labor and importing Chinese-made goods, he has undermined the good middle-class jobs that Mattel and Hasbro used to provide. This accusation certainly contains some truth. Both Mattel and Hasbro have cut jobs as they have outsourced manufacturing. More than two thirds of the world’s toys are made in China or Hong Kong. The toy industry has also been caught out repeatedly for making toys in deplorable conditions in the third world. Yet even if Woo’s opponents can marshal a few honest facts, their accusation is still based on a much bigger, dishonest myth: For some people to profit from globalization, others must lose to an equal degree.
The idea that economic integration is a zero-sum game underpins antiglobalist thinking about everything from “fair trade” to jobs to wages to the relationship between rich countries and poor ones.[12] Ross Perot expressed this belief most vividly when he warned that NAFTA would produce a “great sucking sound” as jobs went south of the border. Other politicians—including Pat Buchanan and Dick Gephardt in America, Oskar LaFontaine in Germany, and just about every French leader you have ever heard of—have peddled the same line. Allow low-wage workers to compete head-to-head with high-wage workers, they maintain, and the high-wage workers will end up on the dole. Allowing Germans to buy foreign-made lightbulbs means fewer lightbulbs made by German workers. Allowing German companies to move their plants abroad means more jobs for foreigners and fewer for Germans. This is why even supposed supporters of free trade, such as the Bush administration, announce each reduction in American tariffs as if it were a concession. There is, it seems, only so much employment and so p. 110 much trade to go round, so the primary job of a government should be to hang on to its share of the pie.
In some cases, this myth is pathetically easy to expose. For instance, NAFTA seems to have had a negligible effect on jobs in the United States; American direct investment in Mexico has increased since the agreement, but only from $2 billion a year to $3 billion, still a small figure compared with the more than $700 billion that American firms currently invest in their home country. However, in most cases, the zero-sum myth falls into the small-truth/big-myth category. Of course, some first-world workers lose as a result of foreign trade or foreign direct investment. Just ask a steelworker or a coal miner, if you can find one. But globalization also creates jobs. If Buchanan were right, the United States, with one of the most liberal trading policies in the world, would be losing jobs by the million. Instead, it has generated twenty million additional jobs in the past decade alone.
In most places outside Paris and Havana, the zero-sum myth has been thoroughly debunked. This may explain why its partisans have recently shifted their focus from the quantity of jobs to the quality. Free trade, they point out, forces workers from rich countries into head-to-head competition with workers from poor countries. Companies can then move jobs to low-wage countries in order to reduce their payrolls—or at least they can threaten to move there if domestic workers refuse to accept “realistic” wage levels. This pressures the first-world worker into either accepting low wages or following the steelworkers-cum-strippers of The Full Monty into dodgy jobs in the service sector. Marx, exponents of this scenario imply, was right: Capital profits at the expense of labor; that is why American companies did so well in the 1990s and also why wages in the United States have risen more slowly since 1973 than they did during the “less global” period before then.
This argument has plenty of statistical problems and two big conceptual ones. The first statistical hitch is that relatively few American workers are in direct competition with workers from poor countries: Most of them are engaged in producing goods or services for industries in which there is little cross-border competition, such as health care or construction. (Immigration has a much more direct impact on American wages than trade does.) Second, most American manufacturing jobs are in industries in which the most direct competition comes from other rich countries rather than poor ones. Third, low-skilled workers seem to be doing even worse in industries that are little affected by trade than in those that are greatly affected by it. This suggests that something else explains their fate, and most economists suspect it is technological change.
p. 111 The first conceptual problem is that labor costs are best measured not just by wages but also by productivity. It makes perfect economic sense to pay high wages to people who are highly productive—and since first-world workers are more productive than their third-world counterparts, thanks to better education, management, machinery, and infrastructure, they can compete in the open market without getting poorer. So why have wages grown more slowly since 1973 than they did before then? Once again, productivity provides the answer. The rate of growth of pay has slowed over the past decades because, as we have already noted, the rate of growth of productivity slowed (at least until recently).
Tellingly, many third-world Pat Buchanans seize on the issue of productivity in order to preach a more or less opposite version of the same myth: Globalization is helping productive, capital-rich countries profit at the expense of poor ones. Mexican trade unions complain that America is more productive just as American trade unions moan that Mexican workers are cheap. In fact, the evidence is that the current system has helped them catch up. In 1960, the average wage in developing countries was just 10 percent of the average manufacturing wage in the United States; in 1992, despite all that terrible globalization, it had risen to 30 percent. The reason lies in the second concept that the antiglobalists cannot handle: Globalization helps the whole pie get bigger.
Toytown provides an example of this. Sales of toys in America have grown pretty steadily since Woo founded Toytown. To be s
ure, Woo has replaced some jobs, but many of those that he has created are new ones. In America, his toys helped create a new niche in the market—below that of Mattel but above that of street vendors. In other markets, notably Latin America, Toytown has helped broaden the choice available to an emerging middle class. But it is not just a matter of price: Toytown has created new products, increasing the pie. Typically, innovation is not usually thought of in terms of a scarier Darth Vader mask, but in Woo’s world it can be.
Two fundamental principles show why he is right. The first is Adam Smith’s principle of the division of labor: The more people specialize in what they do best, the more productivity is improved—and the bigger the market, the more refined the division of labor can become. The second is David Ricardo’s principle of comparative advantage. The whole point of engaging in trade is to allocate resources to the country that can use them best, even if that activity is linking Chinese hands with American consumers. This process is never painless. Some workers are forced to move to new lines of business. Some are forced to take a reduction in pay. But in the long run, the process creates far more winners than losers. Consumers obviously benefit p. 112 from cheaper prices and more choice, but producers also benefit from doing what they do best rather than from what can be done better by others.
Why then does the zero-sum-game myth persist? One reason is that some supporters of globalization have sometimes tried to beat the pessimists in the exaggeration game. To Ross Perot’s taunt that NAFTA would produce a great sucking sound, they frequently retorted that, on the contrary, it would produce a great sound of job creation (which, given the fact that tariffs were pretty low anyway, was never going to happen). Another reason is that the costs of globalization are far more visible than the benefits. The costs tend to fall on identifiable people, such as steelworkers. The benefits are spread through the whole of society, but they do not come with a label that screams globalization. Workers who make products sold abroad often fail to understand that their jobs depend on their country’s willingness to import as well as its capacity to export. People contributing to a pension fund seldom realize that the value of their investments is sometimes boosted by the fund’s ability to invest abroad.
A Future Perfect: The Challenge and Promise of Globalization Page 17