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| From the Folks Who Brought You the Internet Crash... |
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Sunday, June 17th, 2001
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Wall Street told you to bet your life�s savings on worthless Internet stocks. Now it wants you to buy in to a much, much bigger bill of goods: one-way globalism. By Eamonn Fingleton.
The Council on Foreign Relations�s journal, Foreign Affairs, is one of the most respected publications in all publishing. So it is sad to note that even Foreign Affairs now seems to have fallen for the absurd � if highly fashionable � canard that America�s huge trade deficits don�t matter.
Foreign Affairs�s lapse from grace occurs in its May-June issue. The offending article is headed �The U.S. Trade Deficit: A Dangerous Obsession.� Written by Joseph Quinlan, an economist at Morgan Stanley, and Marc Chandler, a currency commentator at Mellon Financial Corporation, this is couched in scholarly tones but is in reality merely just another statement of Wall Street�s highly self-serving approach to globalization.
We�ll get to Wall Street�s hidden agenda later. First let�s deal with the article�s substance.
Quinlan and Chandler argue that, in measuring America�s standing in global competition, we shouldn�t bother about America�s perennially inadequate exports but should focus instead on a much bigger number: corporate America�s total overseas sales. They calculate that this latter total is running about $2.4 trillion a year � or more than two and a half times America�s export revenues. All this reflects the fact that increasingly in recent years enterprising American corporations have adopted a �make where you sell� policy and thus have established countless overseas production operations to serve foreign customers.
Quinlan and Chandler conclude: �In the end U.S. exports and imports neither represent America�s global linkages nor indicate how or where U.S. firms compete�.U.S. global engagement involves far more than just trade. If policymakers continue to interpret a large trade deficit as a loss of competitiveness or a result of unfair trade practices, protectionist backlash could result�.The United States� obsession with its trade deficit belies the fact that corporate America has never been better positioned to compete in the global market place.�
All this seems at first sight to be reasonable. So what�s the problem?
A narrow view of the national interest
For a start there is the matter of the authors� stunningly narrow view of the American national interest: the only thing that matters, they imply, is whether American corporations are making good profits. While it is important that American corporations earn a reasonable return on investment, remember that profits are only a small part of any nation�s total income. By contrast, wages are a large part. Thus if we are to take a balanced view of the American national interest, we must consider the interests not only of shareholders but of workers. And it is concerns about American jobs and wages that are at the root of much of the alarm about the soaring trade deficits. Needless to say, Quinlan and Chandler, speaking as they do for the Wall Street interest, have nothing to say about American workers� interests � whether wages or job security.
Quinlan and Chandler make much of the fact that American corporations have invested heavily in building factories around the world in recent years. But why has it been necessary for them to do this? It is a good question. After all a �make where you sell� policy runs directly contrary to the ostensible tenets of globalization. The whole point of globalization is supposed to be that it is no longer necessary for factories to be sited close to the ultimate customer.
There is a mystery here which Quinlan and Chandler do nothing to resolve. Let me make up for their omission. In the case of many of America�s most important corporations, the decision to manufacture abroad has been driven by nothing less than blackmail. When American corporations like IBM and Texas Instruments want to sell in, say, Japan, they are told that they can do so only if they produce there. Not only that, they are required to transfer their most advanced production technologies. Thus world-beating knowhow that might otherwise provide American workers with a unique edge in world competition must be handed on a plate to a foreign country. Pressure of this sort has been a key reason why America�s leading electronics companies, for instance, have transferred essentially all their knowhow to Japan in the last two decades. Needless to say, Japan has not returned the compliment. As a matter of policy, the Japanese government makes sure that Japan's most advanced production technologies are kept at home.
In the case of corporate America�s big investments in China, what is going on is similar but even more alarming. Corporate America transfers jobs to China to take advantage of China�s artificially low wage rates (the rates are kept low at the barrel of a gun). In return corporate America is required not only to bring advanced production technology to China but to sell the resulting products in the United States and other Western nations. The effect is to throw countless Americans workers out of a job while dissipating America�s once-enormous productivity lead.
Monumental conflicts of interest
Much more could be said about the errors and omissions in the Quinlan/Chandler analysis. But at the end of the day the question is this: why do prestigious American media organizations take their view of the global economy from Wall Street? The fact is that Wall Street suffers monumental conflicts of interest in discussing globalism. For a start many major Wall Street firms have struck a Faustian bargain: in return for getting access to market like Japan, they have undertaken to bang the drum for globalism in the United States (funding globalist-minded scholars and pushing the globalist agenda in Washington). Not the least of the beneficiaries from such arrangements is Quinlan�s own employer, Morgan Stanley.
More generally Wall Street has a huge vested interest in maintaining the present trade imbalances because these have to be financed. Guess who arranges the financing?
While the writers of this article may well believe they are offering the United States objective advice, the fact is that the general climate of opinion in the securities industry on trade is profoundly self-serving. Nobody who has a sophisticated understanding of finance would ever buy a stock on the basis of the public comments of a typical Wall Street investment analyst. The question is this: why should anyone take such analysts� economic advice on the fate of the American nation at face value? That fate is too important to be entrusted to the private agendas of the �greed is good� crowd.
Eamonn Fingleton is the author most recently of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity.
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Contact Eamonn Fingleton |
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