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Globalization and the Elite Chasm
I read with great interest David Frum’s piece on the Great Republican Revolt, Jon’s reply to it, and all of your comments. I’m very frustrated by my inability to find good polling data — as opposed to impressionistic and obviously partisan sketches — about who Trump’s supporters really are and what their political preferences really are. I don’t know whether it’s true, as Frum suggests, that there’s an important equivalence between between them European populist parties, as Frum believes:
You hear from people like them in many other democratic countries too. Across Europe, populist parties are delivering a message that combines defense of the welfare state with skepticism about immigration; that denounces the corruption of parliamentary democracy and also the risks of global capitalism. Some of these parties have a leftish flavor, like Italy’s Five Star Movement. Some are rooted to the right of center, like the U.K. Independence Party. Some descend from neofascists, like France’s National Front. Others trace their DNA to Communist parties, like Slovakia’s governing Direction–Social Democracy.
These populists seek to defend what the French call “acquired rights”—health care, pensions, and other programs that benefit older people—against bankers and technocrats who endlessly demand austerity; against migrants who make new claims and challenge accustomed ways; against a globalized market that depresses wages and benefits. In the United States, they lean Republican because they fear the Democrats want to take from them and redistribute to Americans who are newer, poorer, and in their view less deserving—to “spread the wealth around,” in candidate Barack Obama’s words to “Joe the Plumber” back in 2008.
I hear this a lot in France, too, from friends who are sure that Trump and the National Front represent the same phenomenon. If Frum’s description were all I had to go by, I’d say, “Yep, that sounds about right.”
But I suspect it’s far too superficial. France and America are different countries, with different histories. I’ve never found it useful to draw analogies like this, and indeed I find that it often leads to catastrophic analytic mistakes. (In intelligence analysis, it’s called mirror imaging.)
Frum’s diagnosis — much like Bernie Sanders’ — is that we’re seeing a war of the ultra-wealthy against the middle class: “The GOP donor elite planned a dynastic restoration in 2016. Instead, it triggered an internal class war.”
John concedes that he doesn’t personally believe that illegal immigration is the biggest issue facing the country. Nor do I. But he suggests that it’s “become a proxy for the chasm that divides the elite from everyone else,” and thus recommends the GOP focus on proving that no matter what the elites want, the GOP sides with “everyone else.”
I’m not so sure. I’m wondering if the undiscussed elephant in the room here, intellectually speaking, is globalization.
Joseph Eager left a comment beneath Jon’s post that seems worth exploring a bit more:
Frum also seems to be underappreciating the importance of immigration policy, the point of which is to shift distributional policy away from redistributing income directly and towards redistributing capital (in the sense of stuff that makes people more productive).
The evidence that income-based redistribution is ineffective goes back centuries, while policies that redistribute capital are probably what caused the Industrial Revolution. It’s not like we don’t have a great deal of historical experience with this stuff. Use immigration to tighten labor markets; create a fiscal surplus to increase the supply of financial capital (so employers can invest in productive capital for their workers) and voila, rising wages for the masses. It’s not hard.
Well, it is hard. Because you can tighten the labor markets all you like, but you can’t prevent capital from moving to countries where labor’s cheaper without imposing capital controls.
I agree: Policies that redistribute capital are part of what caused the Industrial Revolution. But what we seem to be forgetting is that China and India are now going through the Industrial Revolution, as are many other countries. Until the whole world is as wealthy as the United States and Europe, labor will continue to cost less overseas than it will in the highly-developed world. As the moneyed elite knows perfectly well:
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
Why can’t that work come home? Mr. Obama asked.
Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.
The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.
The manufacturing jobs will not come back. Nor will mine: My skills are now mostly obsolete. The massive and rapid transformations of the digital age, globalization, and the global Industrial Revolution have changed the world of everyone alive. My own industry was creatively destroyed, along with those of many Americans my age. I expect that my life will from now on be characterized by economic insecurity bordering on terror. This grows more frightening with age and the prospect (and ultimate inevitability) of illness. So you bet I fully understand why other once-secure middle-class Americans do not appreciate being creatively destroyed. Creative destruction sounds great on paper. It doesn’t when it really happens to you.
But I’m not sure that the chasm is a class war so much as it’s an intellectual war between those who think rapid technological change and globalization can be controlled and those who see these forces as, literally, unstoppable absent the imposition of totalitarian measures, and ultimately futile even with them. Of course we can limit the flows of legal and illegal immigrants to the US. But to keep capital from flowing out of the US and toward countries with a competitive advantage in low-cost labor, we’d have to stifle and criminalize the very economic activities in which we do have a competitive advantage.
We lead the world in technological innovation. And the fact is, this is an elite pursuit. Only those who fall on the outer-edge of the Bell Curve in intelligence can fully participate in it. And given this, I genuinely don’t know whether a large and thriving middle-class can come back.
In this sense, even though I’ve personally joined the ranks of economically terrified Americans, I agree, intellectually, with our monied elites. (Marxists would say I’m suffering from false consciousness. But I’m not a Marxist. I’m just someone who has concluded that you can only suppress capitalism by trampling on liberty, and that the effort will anyway be doomed to fail.)
Enter some ideas about globalization that might be worth discussing here.
Dani Rodrik is a Turkish-born economist whose work I discovered because he was, at the time, writing about politics in Turkey in a more truthful way than most Americans seemed to be. He had a personal reason to do so: His father-in-law was ensnared in the Balyoz show trial, one of the more horrifying events I personally saw in Turkey. Because I respected his writing about the country I was living in, I started reading his work in economics.
I confess that at the time, I didn’t find them particularly compelling. But since the beginning of the Eurozone crisis, and in light of the way this election campaign has been developing, I’m beginning to think his Big Idea — the trilemma of globalization — has been vindicated.
You can read The Globalization Paradox here; and if you don’t have the time, you can read an article here in which he simplifies it nicely. In brief, he posits an “impossibility theorem” for the global economy: “Democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.”
He sums it up with this illustration:
“To see why this makes sense,” he writes,
note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs.
So what do we do?
One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates.
Another option is maintain the nation state, but to make it responsive only to the needs of the international economy. This would be a state that would pursue global economic integration at the expense of other domestic objectives. The nineteenth century gold standard provides a historical example of this kind of a state. The collapse of the Argentine convertibility experiment of the 1990s provides a contemporary illustration of its inherent incompatibility with democracy.
Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success.
So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.
I’m wondering if this idea, more than the idea of class war, could be a useful tool in trying to understand what’s at the heart of the so-called elite-base schism.
I’ve even been thinking, lately, that the idea might be applied to foreign policy and national security, as well. We can be a global hegemon — the so-called world’s policeman — at huge cost to ourselves. Or we can form alliances with countries that share some part of the burden. Try looking at the diagram above, but exchanging “guarantor of global order” with “powerful nation state.” Exchange “deep economic integration” with “regional military alliances.” Keep “democratic politics” in the same place. NATO and other regional defense pacts could be seen, perhaps, as analogues to the Washington Consensus. If we share the burden of global security with allies — deep military and political integration — it necessarily means a reduction in our sovereignty. If we don’t, we bear an unfair burden.
I don’t believe the globalization genie can be put back in the bottle, economically or militarily. We live in an age of ICBMs, nuclear weapons, biological and chemical weapons, and cyber warfare. If we retreat from the hegemonic role that brought the Pax America, it means losing our sovereignty in matters of national security and praying that the rest of the world may be trusted to do us no harm. If we want our allies to “pull their weight,” however, and minimize the burden on us, we have to accept that our allies will not be as concerned with our security — or our values — as we are, nor as competent at securing it.
Democracies being what they are, all of our politicians (in both parties) are now assuring us that they have what it takes to “keep us safe,” and that they know how to offload this defense burden onto our “allies.” The place where they lie — everyone one of them — in selling this plan is in failing to stress the implications of expecting “allies” like Saudi Arabia to act in our interests.
I don’t trust the Saudis to put my national security at the top of its agenda. Why should I? Nor do I want to pay for a huge and wasteful military. Why should I? Nor do I want to sacrifice American lives. Why should I? Who would? To what voter would any of that sound appealing? Not many.
So our politicians campaign on foreign policy lies, fantasies, and fairy tales. To be elected, it seems, you have to lie about foreign policy — because the truth is not what voters want it to be. This pushes much of the conduct of our foreign policy underground, into the realm of secrecy, where voters can neither see it nor appraise it. They wouldn’t vote for it if politicians spoke the truth about it. And this is, fundamentally, undemocratic.
I see the trilemma at work here, too: We can only have two out of three.
I doubt this idea explains everything. Perhaps it doesn’t explain much at all. No one theory about the workings of politics does.
But I thought I’d run it up the Ricochet flagpole and see what salutes. What do you think?
Published in Domestic Policy, Economics, Foreign Policy, General, Immigration, Military
This is because America is ruled by globalists who do not care about the national or fiscal interests of the United States, but imagine that we are the global hegemon, responsible for the defense of Canada as well as the United States. If actual Americans are upset by the freeloading- who cares?
Imaging that the murderous islamist regime of Turkey and the Wahhabis of Arabia still our allies is yet another symptom of this malady.
Neither regime is our friend. We should notice this. It is an important fact, worthy of notice and consideration.
Right. The US government used to be small in some ways, but the Customs Service and its predecessors was relatively large. Pining for that time in terms of the size of the patent office is looking for small government. Pining for it in terms of the impact on trade is looking for big government. During Prohibition the government was much smaller than it is today, but that does not mean that people who would like to ban alcohol on a national basis are seeking smaller government.
The United States appears to me to be in existence. *checks window* Yep, still there. Indeed, thanks largely to massive exports, it’s richer and more powerful than ever before. America is the leader of the free world. Compare Argentina, richer than America at during some of America’s protectionist phase, which went the other way, cut off trade and now exports only idiot Popes (to be fair, it leads the world in this field).
I guess I’d prefer to have a high tariffs combined with a radical conservative change in domestic policy, too, but that doesn’t argue in favor of tariffs. If you ask me if I’d like to receive a million bucks and have my left pinkie chopped off, I’d probably take that deal, as would many, but that doesn’t mean that pinkie amputation is, in general, a good idea.
How much money do you believe we spend on the defense of Canada? Defense against which threats?
They might not be our friends, but they are certainly our allies.
Sure. Do you believe that FDR’s Reciprocal Tariffs Act exceeded the sovereignty delegated to the Federal government in the US Constitution? The Federal government is intended to have the enumerated power to regulate commerce with other nations, right?
I agree that we should yield such power back to the states. The national drinking age limit, for instance, is a disgrace. I get the impression that you’re looking at something else, though.
I guess if free market principles were opposed to freedom, then we should consider them on that basis. It’s not obvious that they are.
It is true that a lack of regulation is incompatible with the exercise of government power, but that doesn’t mean that freedom negates sovereignty. Instead, it is within the sovereign government’s power to decline to involve itself. For instance, it would be entirely Constitutional for the US Government to declare war on Canada and invade, but the fact that it restrains its exercise of its sovereign powers and does not do so does not make it sovereign. Instead, it allows America to remain more free, more prosperous, and more peaceful than if it were to do so. Much as free markets do.
Don’t waste time looking for what fuels Trump supporters, statistics etc. Listening to a talk show, heard two guests: 1. A soldier in the Middle East who summed up that we cannot win the war against terror because every bomb dropped, every target in the theater has to be called in to Washington, goes through a team of lawyers, if there is a civilian nearby, you cannot attack. ISIS is living among the civilians so they are protected because of our political correctness. Most planes flying in Syria and Iraq return with no bombs dropped because they were not authorized.
Guest #2: A writer of the original Homeland Security team, has since resigned and is speaking how the current administration has handcuffed law enforcement, investigations and vetting – Obama introduced a long list of new rules in 2008 to the extent that the San Bernadino terrorists could not be investigated. He said we have the tools and resources – they are not being implemented.
Third, several generals and military are speaking out about being hampered to winning the mission.
This is what has created the Trump supporter along with many other issues. He is not the best candidate – but our current course is suicide so he’s not the worst either. Are we not in the US, France or anywhere, feeling like we are seeing our traditions, security and way of life vanishing, being replaced by an incompatible set of rules to democracy and decency?
You have to understand the tech involved – there is no “economy of scale”. You need to build layer by layer by layer, by depositing material and fusing it to the layers below. Plastics take time and heat if you don’t want the material to warp. Unless there is some major breakthrough in plastics formulation, there is no speeding of the process. And it’s limited anyway to lower temp plastics like ABS and PLA, plus some specialized medical grade stuff – none of it nearly strong enough for industrial use. Nylon printers are in the works, but they’re a long way off, and will have even more tricky heat and cure issues.
And metal is even more problematic. You start with a powdered mix of metal and a wax like material for a bonding agent. A laser must sinter an extremely thin layer of powder in a tray, then more powder, more sintering, etc. The binding agent holds it all together as the laser can’t sufficiently heat the metal to weld it – that requires a furnace at the end of the process. Short of miracle lasers where you can rid yourself of the bonding agent, you can’t really speed that process either.
I’m not sure they have been. How would we measure this in some rigorous way?
A lot of my company’s work is in short runs, rapid prototyping, etc. I’m in a niche industry where “high volume” means 2000 pcs.
But this is something of a side point to what I was addressing. I’m pointing out that none of this new flexibility is at all likely to create lots of new jobs (it could, but if so they’d be widely distributed in lots of small companies). The reason we have the flexibility is because the equipment available today is itself flexible and cheap – you can flip your machines from one product to another in no time, you just don’t need high-capital / high-employment production lines to make new stuff.
I would, along with James, likewise prefer “a government that levied tariffs yet left me alone, rather than the one we have now”.
Xennady, is your argument that it’s politically impossible to get radical conservative change in domestic policy without tariffs, but that with tariffs, you believe a radically conservative domestic policy would become politically possible again?
That cannot possibly be the clearest finding. Unless I’m overlooking it, the only data set to which they link is the CNN poll, which doesn’t in any way establish that “Donald Trump’s strong showings are entirely attributable to huge leads among voters without a college degree.” They didn’t link to the data from the NBC/Wall Street Journal or Quinnipiac.
I’m sure that pollsters and data analysts are really trying to figure out who they are, and equally sure that it’s possible to do this to a very high level of precision. But they’re doing it for private clients.
It’s true that 538 doesn’t show that it’s clear, but if you look at any of the polls that go into it, it’s the clearest distinction between Trump and others. Check page 19 of the latest national poll from CNN, for instance. There’s only three candidates who do better among the unlearned; Bush, Paul, and Trump, with Trump polling at 27% of grads, and 46% among non-grads. Trump doesn’t have comparable divides on age, sex, race, or any other significant demographic issue.
Look at Trump’s numbers and you can see why Huckabee’s strategy was to go all-in for class warfare. One of the blessings of Trump’s campaign is that it appears to have been a dominant strategy over Huckabee’s that has wiped out any Huckabee success in any state or demographic.
Isn’t this the old story though? Is productivity exactly what Marx feared? Capital replaces Labor, and the proletariat suffers. If history is our guide I would expect two things to happen. We shall settle upon another layer of welfare (maybe guaranteed minimum incomes) payed from the vast wealth generated by increased productivity, and new jobs will arise that none will have predicted as possible or practical for mass employment.
Frankly I think you will see a move back to more specialized and localized production. You will see that 10-15% of society that can ride the technological wave start demanding tailored clothes, hand made sausage, locally grown vegetables, hand crafted furniture. I think we shall see the rise of artist and artisans. Because once the generic products become so cheat and ubiquitous thanks to removing human labor from their production, the only thing that will be left is a desire for highly specialized goods, that can not be mass produced (that is until someone figures out how).
Exactly.
My guess is that you’ll see more care for the elderly, more childcare, more of practically every other service. This is a guess based largely on this being what has already been happening.
Americans are getting richer, and thus more able to pay other people to do stuff for them. This means that Americans eat out far more often than they used to, and are more catered to at every stage of their lives. That’s not going to stop, and it’s helped by the degree to which the top 20% of America is becoming unimaginably wealthy (even though, yes, if you ask them, they’re totally struggling; cf. Michelle Obama’s difficulty in paying for $10k summer camps).
Look how quickly that idea can be repackaged and how many people find it compelling.
I don’t, ultimately, but I think the rapid transition to a hugely different kind of economy is fraught with danger.
I think it’s the same poll.
Most certainly. Though we have a higher degree of democracy in the world today which I think offers a peaceful outlet for revolution. So Europe and America may see some surprising elections but I am optimistic we won’t see open rebellion. Now in non-democratic nations this will be an issue. At least that is my prediction. What I see the issue for democratic nations like the US is the violence created by non-democratic nations trying to undermine a global economy in order to preserve national sovereignty, which they use to mask their own illiberal treatment of their people.
Democracy exists solely because the benefits of continued to participation outweigh the risks associated with losing.
If that changes or is perceived to have changed, then the whole thing can come down just as fast as an other system, except with more acrimony.
Thought experiment: Imagine that Henry Ford, as he got ready to introduce the Model T, had been able to have it made in Mexico by workers making 2 cents per hour. Would he have ever bothered to introduce the assembly line and other labor-saving innovations?
Then you should check the dates, the data, or anything else. The poll conducted at the end of November is definitely different to the end of December poll I linked to, released after the 538 story.
Yes, Ford would have done the same thing in mexico. Because it would still boost production. Also assembly production guarantees quality and cosistency.
Valiuth…for a constant amount of capital investment, if you reduce labor costs of $3/day by x%, then your return on investment is far higher than if you reduce labor costs of a much small amount per day by that same x%.
Take any manufacturing operation anywhere in the world, drive wages up by 2X or greater, and all kinds of productivity investments start looking more attractive. The US was a leader in mechanization in substantial part because our wage levels were relatively high, owing in large part to the availability of free land for farming.
If Apple were absolutely required to make the iPhone (including all of its components) in the US, I think we would see some quite amazing automation going on. Perhaps couldn’t drive costs & prices down all the way to the current level, but they would wind up being a lot better than one might assume based only on national wage index numbers.
(continuing) Here’s an interesting paper on the Spinning Jenny, which increased labor productivity 10-20X over a spinster with a wheel, and the reasons why is was adopted much faster in Britain than in France or in India.
http://www.nuffield.ox.ac.uk/users/Allen/unpublished/jenny5-dp.pdf
The ratio of labor costs to capital costs is key.
(continuing) Here’s an interesting paper on the Spinning Jenny, which increased labor productivity 10-20X over a spinster with a wheel, and the reasons why is was adopted much faster in Britain than in France or in India.
http://www.nuffield.ox.ac.uk/users/Allen/unpublished/jenny5-dp.pdf
The ratio of labor costs to capital costs is key.
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Bingo! And automation today is cheap.
Your skills are not obsolete – as a matter a fact, you would make a great teacher or professor – no matter the age of the class – you have an amazing background, experience and you might find security in an academic atmosphere – benefits, good salary, summers off! Maybe take a course or two that could fill the gaps on your resume and see if you like the environment – you would be great with kids – your humor would make going to class fun! Then you could buy a house or condo, and as you get older, have a place and take care of your dad. We need good teachers everywhere Claire!
skipsul…”And automation today is cheap”
Depends what you’re automating, and what your alternatives are. For example, today on eBay you can get a Multivac H050 robotic handling system for only $95,000, but it will cost you $250,000 new from the factory. Includes a 2-axis robotic arm and a vision system.
http://www.ebay.com/itm/Multivac-H-050-Robotic-Handling-Module-/252210458224?hash=item3ab8ea2e70:g:4AEAAOSwDNdVwLxG
This could be a good deal or a bad deal, depending on what your labor costs are and what your packaging volumes are.
Which makes it all the more interesting that our elite wants to keep driving wages down down down.
It seems to me that the end result will be a country that resembles India, which is not a place most voters would like to emulate.
Side note- automation for fast food applications seems technically possible and very close to economically rational as well.
Am I the only person who thinks something has gone wrong with the country because wages are so low that it still makes sense to pay people to flip burgers?
I’m interested in a government that will leave me alone, not one that has a weird trade fetish. The point remains that when the US government had external tariffs it was able to politically maintain a much smaller and less intrusive regime than today. That is an important fact, I think.
You failed to notice a rather important word in that description. I have added emphasis to help you.
Actually, the US has much more massive imports, leading to an endless trade deficit, and surely that is a factor in the incredible national debt. About Argentina, it seems to me that the US government has adopted roughly the same path as that nation, emphasizing consumption above all else. No protestant work ethic here- spend, spend spend. Zirp, zirp, zirp.
I think that policy is a mistake, and will lead to yet more disaster.
That’s a particularly hard one to imagine given that Ford was so strange and ideological — he was the pioneer of welfare capitalism. (This isn’t in itself so strange; it was his other beliefs that were rather distasteful.) But for political reasons, I don’t think he’d have had it made in Mexico. I don’t think there would have been barriers then to doing it if he wanted to, though, would there?
It concerns me that no professional economists are chiming in here:
“Free trade in goods, services, and capital is by far the most effective way to expedite a worldwide transformation that promises a major improvement in human well-being around the world. In the process, deficits and surpluses in balances of payments are unavoidable. The countries to which capital is moving will have balance of payments deficits – the opposite face of a capital surplus – financed by. . countries whose internal savings are larger than can be absorbed in domestic activities that yield a competitive rate of return. Such deficits, far from being a burden, are an essential ingredient in the adjustment process. The remarkable performance of the U. S. economy in the past few years would have been impossible without the inflow of foreign capital — the mirror image of large balance of payments deficits.” – Milton Friedman
MF then points to California: “If balance of payments figures were available for California alone, they would show that California has experienced a steady stream of deficits for decades on end just as the U.S. on a whole did in the last half of the nineteenth century. California has grown far more rapidly than most of the rest of the country….”
Any political party that wants to govern the United States needs to establishment a political coalition such that it can control the government long enough for its policies to succeed.
Success is the key here, not necessarily tariffs. If free trade could have produced a lasting successful conservative coalition it would have done so by now. It did not. Pretending the problem is that we have not yet reached sufficient free tradiness for the glorious prosperity to appear reminds me of the plaints that communism has failed because it has not yet been tried.
I’ll add that if you need extensive indoctrination to convince people that your policies are successful then they are not in fact successful.
If you want to argue that free trade has in fact been a success, but the dead-eyed janitors of flyoverland are just to dumb to comprehend that- good luck.
I give you GOP frontrunner Donald Trump. Enjoy.
Politics is the game you’re trying to play, GOP, politics.
Polly-ticks.