The Convergence of Powerful Forces Is Creating Fear and Insecurity

Globalization will impact you. And if you think you are isolated from this, think again.

The effects of today’s global economic realities go far beyond the balance sheet. They are transforming our culture and political relationships, and in the process, impacting virtually every aspect of our lives. Consequently, no country, industry, business or individual is exempt. We all must adapt—and continue to adapt. For business, this means developing strategies that support worldwide expansion. But in the existing environment of fear and anxiety, how effectively executives communicate the impact of globalization on their company—and the logic behind their international business responses and decisions—can mean the difference between achieving understanding and support or experiencing suspicion and protest.

We are witnessing one of the greatest periods of transformation in history. The convergence of powerful technological, political, economic and cultural forces is shaping the 21st century. Nations, communities, companies and workers are finding it difficult to adapt—but truly necessary.

Technological advances in microelectronics, computers, telecommunications, transportation logistics, biotechnology and other fields are changing the way we live and work. The fall of Communism, which added one-third of humanity to the capitalistic ranks, is sharply boosting global competition and creating new markets. Globalization, made possible by the technological revolution, is empowering companies to source and sell anything anywhere. Concurrently, many traditional cultures are resisting the modernization pressures these changes bring. In response to these seemingly chaotic events, many faiths are retreating into religious fundamentalism in order to regain certainty in an uncertain world.

How did we get here?

Industrialization emerged in the late 1700s in Great Britain and early 1800s in the United States and Germany. The invention of the steam engine and its application to railroads enabled the speedy transport of mass produced goods across large distances. And the harnessing of electricity, which virtually turned night into day, established new paradigms. The recent integration of new technologies, global markets and improved supply chain management has again altered our production and distribution models with fantastic results. Productivity has climbed to new highs while innovation has flourished. The shift from brawn power—use of muscle on the factory floor—to brainpower is nearly complete. Today, self-directed workers operate in teams and apply more sophisticated skills to create and run new processes.

What is the result? Manufacturing output continues to rise while the number of workers, as well as inflation-adjusted prices, continue to fall. In turn, the manufacturing contribution to U.S. gross domestic product (GDP) is declining—from 22 percent in 1979 to 12.7 percent in 2004.

We’ve seen these trends before. In 1940, 9.5 million U.S. workers were employed on farms. By 2004, this number fell to approximately 2.2 million. Yet, U.S. agricultural output skyrocketed. In the process, the U.S. did not lose 7.3 million farm jobs: they shifted to emerging industries resulting in higher standards of living and a more prosperous economy. This fact has gone virtually unnoticed.

From 1970 through June 2005, the number of working Americans has grown by 63 million, a jump from 78.7 million to 141.6 million, according to the Bureau of Labor Statistics’ Household data. And the Labor Department projects a net gain of 21.3 million jobs from 2002 through 2012. However, manufacturing jobs have fallen from a high of 21 million in 1979 to 14.3 million in June 2005. Many blame this on rising imports and offshoring. But analysis reveals that new technologies, high levels of productivity and improved manufacturing processes are the primary causes. Additionally, as more functions such as accounting, design and trucking, for example, are routinely contracted from manufacturing companies to local specialist accounting, design and trucking firms, the U.S. Census Bureau re-categorizes these jobs from manufacturing to services, lowering the overall manufacturing count, while raising the services count.

Job losses, as reported in the daily newspaper, often give the impression of mounting losses. But consider this. Normal U.S. job churn results in the average loss of 31 million jobs annually. What’s not reported is even more important: new jobs are created even faster—but not of the heavy manufacturing variety. In turn, resources are shifting from low-technology production to higher value, higher technology processes that create new industries and higher skilled, higher paying jobs. This pattern is not new—and not well understood.

Looking forward, U.S. manufacturers must compete less on price and more on product design, branding strategies, productivity, flexibility, quality and responsiveness to customer needs. This puts a high premium on skills. Consequently, it’s no surprise that unemployment is higher among workers with lower levels of education. For example, in April 2005, the U.S. unemployment rate for workers age 25 years and older without a high school diploma was 8.4 percent. It declined to 4.4 percent for high school graduates, 3.9 percent for those with some college education or an Associates degree, and 2.5 percent for college graduates or higher.

In an attempt to adapt to globalization, companies are increasingly specializing in more complex, value-added goods and services. In turn, workers are seeking greater expertise. This pattern, however, is not without consequences. The previous shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Workers were required to learn new skills. But the skills demanded today are far more sophisticated, and probably are creating even more fear and anxiety than before. This is causing a backlash.

As the U.S. manufacturing sector evolves, less competitive industries will increasingly demand protection via creative subsidies, quotas and regulations from policymakers. Higher tariffs will be more difficult to obtain. In the past, different tactics were used in an attempt to isolate industries from competition. For example, in the early 19th century, the English Luddites destroyed textile machines because they replaced weavers.

Federal Reserve Chairman Alan Greenspan has repeatedly warned that creeping protectionism must be thwarted and reversed. In testimony before the U.S. Senate Committee on Finance on June 23, 2005, Chairman Greenspan said, “Any significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living. A return to protectionism would threaten the continuation of much of the extraordinary growth in living standards worldwide, but especially in the United States, that is due importantly to the post-World War II opening of global markets. Such an initiative would send the adverse message to our trading partners that the United States, while accepting the benefits of broadened world trade, is not willing to absorb the structural adjustments that are often necessary.” Through pro-globalist advocacy efforts, corporate America must take it upon itself to fight protectionism and educate various audiences on today’s economic realities.

For example, trade and globalization have generated an increase in U.S. income of approximately $1 trillion annually, measured in 2003 dollars. This translates into an income gain of about $10,000 for the average American household per year, according to Gary Clyde Hufbauer of the Institute for International Economics, a Washington, D.C., think tank. And further liberalization that achieves global free trade and investment could produce another $500 billion in U.S. income annually or $5,000 per household each year, Hufbauer says.

The bottom line: to remain competitive, companies must become more specialized and expand internationally. This may involve establishing a joint venture or strategic alliance in a foreign market, acquiring an overseas firm through direct investment or licensing technology abroad. But in this environment of suspicion and fear, poorly communicating a decision to move facilities abroad, for example, will result in negative publicity and community ill will. Protests, loss of support from politicians and consumer boycotts may even ensue. This can be avoided.

This book will provide you with an understanding of the real impact of globalization, and explain how you can more persuasively communicate your corporate responses and sensitive decisions to the media, policymakers, employees and investors.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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