Outside the Box: How Globalization Changed from Moving Stuff to Spreading Ideas
September 25, 2020
The issue of international trade and globalization is often used as political cudgel. Marc Levinson’s new book about globalization’s multiple incarnations, its present state, and our potential future, provides an antidote based in historical fact and analysis.
Outside the Box: How Globalization Changed from Moving Stuff to Spreading Ideas by Marc Levinson, Princeton University Press
Globalization upended the world. That is inarguable. It is an issue that elicits strong opinions from all sides of the political spectrum—usually the same opinion, largely in opposition to it. And that is understandable. If we focus in on one community, Flint, Michigan, we witness a dramatic change of fortunes over the past 40 years. In 1980, Flint had the highest median income in the nation for young workers, at $50,208 a year. A generation later, the population of the city has dropped by around 40 percent, mirroring the drop in employment at its major employer, General Motors. In 2016, after a criminally mismanaged financial emergency resulted in a literal poisoning of the water in the city, a federal judge ruled that the residents who remained in Flint be provided door-to-door delivery of bottled water. That kind of displacement and neglect is severe, but it is not the first time globalization has displaced people, and it is not the world’s first instance of what we’ve come to call globalization. We are, according to Marc Levinson and his new book, Outside the Box, in the Third Globalization.
Our country was built during the first, in an age of European colonization, and came into its own economically as mercantilism gave way to the rise of capitalism. As we know, it was built not only on the movement of people, goods, and ideas between “old world” and “new,” but on our nation’s original sin:
The African slave trade was extremely profitable and thoroughly global, forcibly transporting an estimated 12.5 million enslaved people on at least thirty-six thousand transatlantic voyages and another half a million slaves shipped by sea within the Americas.
There is no understating the effect this had on the world. Our country’s economy would be built around, and world history inexorable altered by, the international slave trade. The brutality and injustices of it have reverberated through, and continue to exist, in our society, as protests in American streets—now entering their fifth month—attest. Even earlier, notes Levinson, in the fourteenth century, the trade routes that linked Eurasia spread the black plague that “killed perhaps forty-eight million of Europe’s eighty million people” alone. And Valerie Hansen’s book, The Year 1000, places the beginning of globalization in, well, the year 1000. Perhaps the big difference between that globalization and those that have occurred more recently is that the vast majority of people alive on Earth at the time the slave trade existed lived lives that were materially unaffected by it. Most lived as their ancestors had for hundreds if not thousands of years prior. Today, nearly everyone on Earth interacts in some way with a global economy from the moment they wake up until the moment they go to sleep. Not everyone has an iPhone, and not every product has as complicated a value chain, but consider its example:
In an office park in Silicon Valley, a team of engineers designed a smartphone. Working with them, linked by computer, instant messaging, and video, was a team of colleagues at research centers in Europe and Asia. When the design was complete, the researchers’ employer, based in the United States, transferred ownership to its subsidiary in Ireland for a nominal fee. The Irish entity licensed the design to a Taiwanese-owned manufacturer in China, which ordered displays from Japan, processor chips from South Korea, cameras from Germany, and headphones from the United States. The Chinese plant then assembled the components as directed and returned the finished products to the Silicon Valley company that designed them, which marketed them under its own brand name in many countries.
Now, consider this question: Where were the phones made?
Levinson is not here to tell you that the world is flat. It is, he believes, quite lumpy and regional. It is full of potential risk and interruption. But it is connected, and we are connected to it. How we remain connected to and participate in it will largely determine our economic fortunes. And, while manufacturing and mass production drove the Third Globalization, it is probably not a good idea—for many reasons—to attempt a return to an age when we dominated that space. But before he explains why, and what workers might expect as we enter a new stage of globalization, Levinson helps us understand the historical forces that led to our current moment.
It all started, as so many things do, with an idea. That idea, the theory of comparative advantage, began, Marc Levinson tells us, with David Ricardo in 1817. Living in a zero-sum, mercantilist economy in which any country that exported more goods than it imported was deemed a winner, he argued that countries could benefit mutually through trade. Instead of competing on the production of individual products, countries could grow by allowing in more imports to compete with local products, lowering prices on products they were not as efficient in producing, while devoting their own efforts toward the production and export of what it was best suited to. From that beginning, nearly half of the book is a history of international trade since, in all its many manifestations and intricacies, through two world wars and the international agreements and arrangements that came in their wake. It explains the seemingly bureaucratic and picayune details of agreements like Bretton-Woods, the General Agreement on Tariffs and, and so much more shaped the literal landscape. Freer trade between countries was one of the explicit goals of the new agreements, but it also relied on stable exchange rates, which meant there was one thing that needed to be under tight control:
But to make the system work, there was one product that could not be traded freely: money. […] Finance could not be allowed to globalize.
The system they set up depended on it, and that is, in large part, why that system eventually fell—because finance was allowed to globalize. In detailing how that occurred and evolved, Levinson explains how the U.S. war in Vietnam changed the fortunes of container shipping by proving it was not only possible, but could be extremely profitable even at great capacity and great distances. You’ll learn exactly how and why cars and cameras imported from Japan and Germany began pouring in to compete with American manufacturing, and how US companies’ investments overseas took off at the same time as those foreign firms’ investment in new manufacturing facilities began to expand here. The imbalances that resulted would very quickly bring the Bretton-Woods system to a breaking point, forcing the United States to renounce its promise to exchange US dollars for gold—which had previously been the backbone that stabilized currency exchange rates.
The ensuing economic chaos demonstrated that national governments could not cope with the strains and stresses of a globalized financial system—but that finance would globalize regardless, at considerable cost to the public.
As currencies began to float on the open market rather than being fixed to the US dollar, the stability of the postwar economic order began to dissolve. One precious commodity, however, was still tied to the dollar—oil. And countries that had a lot of oil reserves also had huge reserves of the U.S. dollars it was traded in. Rather than sit on them, they placed those dollars under the management of banks in the world’s major financial centers, who in turn began lending them out to the world’s least developed countries (LDCs)—whose economies relied on commodities that had been devalued and were short on cash—hoping for big returns as those countries’ economies growth. It was a risky bet, and…
At the same time, companies in wealthy countries were taking advantage of floating exchange rates to borrow in foreign currencies, introducing yet more complications into global finance.
Finance had, essentially, became unregulatable even as it became exposed to exponential amounts of risk. Almost as quickly, international debt and financial crises—kept mostly in check under Bretton Woods—began rippling throughout the world. The human cost, especially in debtor countries, was severe and long-lasting as rich countries insisted poorer ones repay foreign creditors rather than invest in their own economies and people. But it also depressed the value of their currencies, which made “their exports more attractive abroad.” And so imports from, and trade deficits with, developing countries began to take off, which meant that hard times for workers in the world’s already industrialized nations weren’t far behind. As the 1980s progressed:
Apparel plants, shoe factories, and steel mills laid off workers by the tens of thousands. Employment in US factories, which has averaged nearly nineteen million over the four years before the debt crisis erupted, would never approach that level again.
And it won’t. Those jobs are gone. Even if manufacturing were to return en masse to the United States, it will be largely automated. And rather than rein in international finance so that individual countries’ governments could once again have some more power over their own economies, it was almost entirely deregulated, “providing kindling for the Third Globalization,” Levinson tells us, “which unfolded in the late 1980s.”
Loosening regulations—allowing “market forces rather than government edicts shape their economic development”—became a prerequisite for developing countries receiving international investment. As Levinson writes:
This counsel was blind to history. No country had ever climbed from poverty to prosperity by leaving economic development to market forces.
But it happened nonetheless. And this is how, if you follow the details, shipping came to occupy such a prominent place in the discussion that Levinson was able to write an entire (and entirely brilliant) book about globalization by focusing on the shipping container—his 2006 book, The Box. Because what followed, deregulating the movement of things and privatizing the infrastructure it moved it on, created a “tidal wave of freight” and the long-distance, just-in-time manufacturing supply chains built by private carriers and shippers. Large corporations and consumers benefited—while small business and workers suffered. Big box stores on the edges of town near freeways proliferated as downtowns emptied out. Countries doubled down on deregulation and tax cuts, and the ships kept on getting filled, and kept getting larger.
But just as a race to build monumental skyscrapers often heralds an economy poised for a correction—the Empire State Building in New York, planned in the late 1920s to be the world’s largest building, sat largely empty through the Great Depression of the 1930s—so the construction of ships too big to call at most of the world’s ports was an early indicator of excessive exuberance.
The Great Recession hit, investment dried up, and international trade plummeted. The world’s largest container ships proved even harder to fill in the aftermath than an office building in Midtown Manhattan. So the world is not flat, but globalization is not over. Amidst the economic disruptions caused by COVID-19, the weaknesses inherent in global supply chains, and in the economic model and government policies they rely upon, have become even more exposed. But the world’s economies have largely become the world economy, and even if the largest container ships stop calling on the world’s ports, we are still all connected. It all started, as so many things do, with an idea. Eventually, the spread of the virus will stop, but ideas will continue to spread, and many outlines of a new economic arrangement seem to be emerging. But the future is, of course, uncertain. “The political outlines,” Levinson notes, along with the fate of the arrangements we’ve lived under in the past “remain indistinct.” We need to build new ones, and soon. It all starts, as so many things do, with an idea.