The area where the zero-sum-game myth is most pernicious is trade policy. Each reduction in the volume of world trade means higher prices and fewer choices for consumers, scarcer jobs for producers, and less opportunity for people such as Charlie Woo to innovate. Nevertheless, trade policy even in America is based on the peculiar belief that giving consumers the chance to buy cheaper, better products is a great sacrifice. Thus, in 1999, the American government made a great show of reacting to the European Union’s refusal to open its banana market by imposing huge tariffs on various European imports such as cashmere sweaters and Gucci handbags. Even leaving aside the questionable symmetry of these actions—not to mention the financial contributions to the Clinton administration by America’s biggest banana-grower—the decision still seemed like a scene from an economic version of Dr. Strangelove. “The Europeans are punishing their banana eaters,” one can imagine the dialogue, “so let’s make American sweater wearers really sweat.” Three years later George W. Bush outdid even that farce, screaming bloody murder at foreign steel mills for “dumping” their products on the American market, thereby criminally forcing down prices for American industry.
In fact, unfair trade is usually an oxymoron. Frédéric Bastiat, a French satirist, once argued that the sun offered unfair competition to candle makers. Why not, he suggested, board up windows so that there would be more jobs for them? In America, every time the trade deficit swells, so does use of the phrase fair trade and then, in turn, calls to use Section 301, the part of p. 113 U.S. trade law that allows America (probably in contravention of WTO law) to take retaliatory action against anyone whose trade policies are unreasonable. In the 1980s, the unfair traders were the Japanese who were unreasonably exporting cheaper, better products to America. By 2002, the charge seemed to be shifting to China and the Europeans, who were apparently not doing enough to jolt their economies into life and thus forcing those reluctant “consumers of last resort,” the American people, to buy cheap goods.
As numerous economists, notably Jagdish Bhagwati, have pointed out, this is piffle of the first order. People generally gain from trade regardless of what their trading partners do. Perhaps the most cruel use of “fair trade” comes when it is tied to issues such as labor conditions and environmental standards. For instance, the goal of eradicating child labor is a noble one, but when it has been linked to trade, it has nearly always been for protectionist reasons (step forward, the American textile industry) and has often had disastrous consequences for those it has tried to help. It would be better if poor children in Pakistan did not spend their days stitching together baskets rather than going to school, but close down their factory and they will merely enter less appetizing professions. Two solutions suggest themselves. The first is labeling and publicity: Witness both the success of “dolphin-friendly tuna” and the way that multinational companies rapidly drop suppliers who are found to breach labor standards. The second is direct help for the people concerned: If the United States, which gives a pathetic amount of money to the third world, and the European Union, which gives only slightly more, put as much effort into helping poor children directly as they do into discriminating against their products, the effect could be dramatic.
The use of “fair trade” in this context is particularly galling because the single thing that the developed world could do to help the third world most would be to remove its own deeply unfair barriers to trade. The children flocking to third-world cities go there in part because the local farms have so few export markets. Removing the rich world’s restrictions on agricultural imports would give the poor world a huge new market. Additionally, much of the money that the West spends supporting manufacturing (some sixty billion dollars a year within the European Union alone) goes to the sort of basic industries that could represent a step up the development ladder for poor countries. Rich countries’ average tariffs on manufacturing imports from poor countries are four times higher than those on other rich countries. One estimate by UNCTAD reckons that by 2005 the developing world could add seven hundred billion dollars a year to its exports if the rich world lowered these barriers.[13] That would be much “fairer.”
The Fifth Myth: The Disappearance of Geography
p. 114 Wandering around the warehouses and factories of Toytown, you get the distinct feeling that they should be somewhere else. Isn’t this just the sort of low-tech manufacturing that should be based in, say, India or China rather than downtown Los Angeles? The idea that in a global economy “geography does not matter”—that business will inevitably migrate to where it can find the cheapest hands—is such a staple of the debate about globalization that it seems strange to point out that this is by no means always the case. Los Angeles certainly has a powerful array of high-tech and service industries; its biggest business, by far, is entertainment. But as Joel Kotkin, a local economist, points out, three of the city’s biggest industries are furniture, food processing, and clothing. The last of these, thanks to a new generation of Asian, Middle Eastern, and Latin American immigrant entrepreneurs, is now probably bigger than defense.
This is not unusual. Far from relocating overseas to benefit from cheap labor and lax regulations, most of low-tech America seems to be staying put. For every ballyhooed high-tech manufacturer such as Intel or fashionably “virtual” company such as Nike (whose sneakers are assembled across Asia), there are plenty of humdrum manufacturers spinning out such mundane but essential products as plastic chairs, cutlery, toys, tape measures, and T-shirts. Overall numbers are hard to come by, but a crude index measuring most of the above products shows that they held their own in terms of both output and jobs from 1992 to 1996.[14] Many of America’s “millionaires next door,” celebrated in the best-selling book of that title, are small family firms. In some cases—notably, textiles and virtually anything to do with agriculture—these local heroes are protected by trade barriers. But many more of them are earning their keep in fairly open markets, making fairly basic things.
Wages and fringe benefits per manufacturing worker in the United States average about eighteen dollars an hour. Many low-tech manufacturers undoubtedly pay their workers (both legal and illegal) much less, but hourly rates in America are more than a day’s pay for workers in many developing countries. So why do the companies stay?
One reason why geography still matters is that in a global economy, business clusters are important—something Woo has always appreciated. Rather than trying to discourage competitors, as most businessmen do, he spread the word about his success around Hong Kong and also helped local entrepreneurs. He felt strongly that a business that was surrounded by other p. 115 similar businesses had much more of a chance to succeed than one that sat in splendid isolation. The number of customers would increase, he reasoned, because each new business would bring its own clients, and people would be more likely to brave the horrors of downtown if they had hundreds of outlets from which to choose. And there would be more opportunities to contract out work to nearby specialists. “It is much better to make friends out of your fellow businessmen than enemies,” argues Woo, before adding, with a smile, “and I make a healthy living out of renting my warehouses to newcomers.”
As a result, Toytown contains a set of skills that would be difficult to match elsewhere. Of course, Woo’s kingdom does not compare with the entertainment cluster in Hollywood or the technology one in Silicon Valley (which is the subject of chapter 11). But Toytown has helped consolidate southern California’s hold on the toy industry: Around 60 percent of America’s toys come through the region. If you look at other low-tech clusters—South Carolina’s furniture makers, for instance—you find the same sort of economics at work. They are always threatened by globalization, but it also offers them new markets.[15]
However, even when low-tech firms are not linked in some cluster, there is another, much broader set of reasons why they can survive, as should become apparent from a consideration of Osram Sylvania’s factory in Maybrook, New York. America’s electronics
industry usually conjures up images of semiconductor workers in Dr. No suits, not people in T-shirts checking lightbulbs. The machinery is more than a decade old and the technology involved in lightbulb making has not changed greatly in half a century. But the 210 workers at Maybrook still manage to churn out some twenty-two million fluorescent lights a year, and their parent company has the biggest share of the American market for compact fluorescent lights.
Osram Sylvania is owned by Germany’s Siemens. No doubt it is a caring concern, but it is hard to imagine that Siemens would think twice before moving production elsewhere if it made economic sense to do so. But there are sound reasons for staying put. In the lightbulb industry, the key factor is transport costs. Importing a fifty-cent lightbulb from overseas might cost twenty cents.
Look around low-tech America and you will find plenty of other companies with particular reasons to stay put. Foamex International, the world’s biggest supplier of urethane foam (which goes into car seats and mattresses), has sixty-seven different factories and distribution outlets in the United States because transporting a product that is 95 percent air is not economical.
p. 116 Time is often more important than price. Rubbermaid could make many of its basic plastic household products more cheaply in Asia, but in order to keep fussy retailers such as Wal-Mart happy, it has to keep an enormous inventory of its products on hand, so it might miss the chance to ramp up production quickly if a new product or promotion proves especially successful. More than 90 percent of Rubbermaid’s sales in America are of products made there. In the clothing business, oscillating fashions, promotion schedules, and seasonal offerings require suppliers to be flexible. Nike’s decision to make its shoes in Asia has forced distributors to order months in advance and is contingent on fashions changing relatively slowly. When American teenagers lost some of their appetite for Nike in 1997, the system clogged up with unsold sneakers.
Even old-fashioned prejudices can play a part. It might be cheaper to can soup in Laos rather than Los Angeles, but the product would be a tough sell in Des Moines. One South Carolina furniture distributor says that furniture made in many Asian countries does not look “American enough”: So far, globally, he has got what he wants only from a factory in the Philippines, so he buys the rest from domestic manufacturers. Some even suggest that patriotism comes into play. There is no evidence that Nike has lost any sales by making its shoes abroad, despite widespread criticism of its working practices there. But two shoe companies, New Balance and Red Wing, maintain that “a certain segment” of their customers care a lot about their “Made in the USA” stickers.
Perhaps the most important reason why America’s low-tech industries have been able to defy globalization, however, is because they have fought like hell. At Maybrook, the story has not been an easy one. Three years ago, despite its relative efficiency, the plant was barely breaking even. Now, having introduced a blizzard of quality-related programs and other new management methods, Dick Brace, the plant’s manager, boasts that the factory is one of the group’s most profitable in the world. Labor accounts for only 20 percent of the cost of each fluorescent light; nevertheless, the firm works relentlessly to keep costs down yet maintain quality. And it is always looking for little competitive edges. One of the problems with fluorescent lights is that they heat up as they burn out, often expanding so they get stuck in their fixtures. Maybrook has just started adding small drops of titanium hydride that will put the light out when it gets too hot, giving the company a (probably fleeting) advantage over its competitors. Brace insists that his lamps are better than others’. “You can’t just train people to make lamps overnight,” he says indignantly, pointing out that new competitors from places such as Asia always run into problems with quality.
p. 117 Osram Sylvania recently closed down another light factory near Boston, moving the work to factories in Kentucky and Canada. Brace also noticed at a recent trade show that the quality of lights made by cheap overseas firms is getting better. He also faces an internal challenge: New equipment at an Osram Sylvania factory in Bari, Italy, is faster than Maybrook’s. Brace may have to cut back the line that makes the same “S-type” lights as Bari (which currently accounts for a third of Maybrook’s output). But he also thinks that Maybrook can take over some work from a German factory, which will let it expand its share of another part of the American market. In the meantime, he is pushing through other changes, such as a new profit-sharing scheme that will include all the workers at the factory, as well as a new computer system. As long as the factory keeps on changing faster than its competitors, it will be some time before the lights go out in Maybrook.
Woo’s World
Although Maybrook demonstrates how companies can defy globalization, Dick Brace’s gyrations—and subsequently those of his workers—still show how much his life is affected by it. One thing about myths is that even if they are wrong they often contain substantial fragments of truth. The only one of the five key myths that seems to be wholly dishonest is the zero-sum-game one. But there are some good big companies that have prospered by getting bigger; there are some global products; the old economy has not become a new one, but it is being changed by globalization; and although geography is certainly not dead, it matters less. The point is that globalization is potent enough on its own account; it is not necessary to exaggerate its effects.
Charlie Woo is as aware of those effects as Brace is. Despite his achievements and his bursts of optimism, Woo is not content. He has a nagging fear that the same forces that created his kingdom could destroy it. He worries that relying on guanxi, or connections, alone will leave him vulnerable to even cheaper competitors. He frets that some of Toytown’s most successful companies are now diversifying into products such as kitchenware and sunglasses. Meanwhile, the toy business itself is getting more complicated. In 1998, the traditional toy industry failed to grow in America. Instead, parents poured their money into educational and entertainment software. Mattel decided to redefine itself as a “global children’s products company” and bought The Learning Company, an educational software company, for $3.8 billion. In Hong Kong and Shenzhen, Charlie Woo’s spiritual offspring are starting firms such as actionace.com, which sells toys across the Internet.
As a result, Woo is forcing his kingdom upmarket. His own business has p. 118 employed a small team of trendy designers, packagers, and advertising people. He has also organized a course in toy design at a local college to give him an entrée to young talent and has started a manufacturing and design center so that his fellow entrepreneurs can improve their products. Woo also plans to get around this threat by extending his network and plugging Toytown into Tinseltown. Hollywood, he argues, increasingly defines children’s dreams around the world; to thrive, a toy maker needs to be part of the dream machine. Woo no longer mocks Mattel for producing overpriced products but instead praises them for employing six hundred designers and smooching with studio chiefs. The studios are pumping out a growing number of film-related products, he notes, and he wants to get in on the action. The unreturned phone calls that irritate him now are to Hollywood producers rather than to politicians.
Globalization may not be dividing the world into the people who live in glass towers and those who sleep on the streets, but it is undoubtedly forcing even the humblest businesspeople to keep improving their products and to look for alliances, like the one Woo is trying to forge with the film industry. The Darth Vader masks above Charlie Woo’s desk that his secretary keeps warning him will one day topple down on top of him also hold the key to Toytown’s future.
7 – Managing in a Global Age
p. 119 IF A MEMBER of the Académie Française had to define hell, it might well be as the McDonald’s outside the Animal Kingdom in Orlando, Florida. The smart new burger joint is a themed Walt Disney World restaurant—the theme being McDonald’s ubiquity. The staff wears special Disney-approved uniforms showing McDonald’s characters. On the wall, there is a list of battle honors: “1993:
Saipan, Israel, Iceland, Slovenia . . . 1996: Fiji, Liechtenstein, Lithuania.” A video screen displays various McFacts (“Which country has a Maharajah burger?”). In the middle of the store, an oversized bottle dispenses Coca-Cola.
If our Gallic intellectual did a little more research about the ties between Disney, McDonald’s, and Coke, he might be even more horrified. These three icons of Americanization form not just a cultural triumvirate but also a commercial one, linked through a series of partnerships and alliances. McDonald’s relationship with Coca-Cola goes back to the 1950s. Although Coke sells drinks to other restaurants, its involvement with McDonald’s goes far beyond that of a mere supplier. It has helped McDonald’s set up new operations around the world. When Roberto Goizueta, Coke’s chairman, died, flags flew at half-mast at McDonald’s around the world. Meanwhile, Coke has been the sole provider of soft drinks at Disney theme parks since 1955, and McDonald’s has had a formal alliance with Disney since 1997. Mediocre Disney films such as Flubber have been helped by tie-ins at McDonald’s, which has also sold a lot of Disney Happy Meals.
A Future Perfect: The Challenge and Promise of Globalization Page 18