What Globalization?

SYNOPSIS:

International trade is not much bigger now, as a share of world output, than it was a century ago. Here are some statistics: in 1993, the United States spent 10 percent of its income on imports. In 1890 the corresponding figure was 8 percent. That's not much of an increase, especially when you consider that during the 19th century the US was frankly protectionist, while today it is a relatively open market. And other countries did an extraordinary amount of trade: Great Britain exported some 40 percent of its gross domestic product in the 1850s, more than it does today. And yet we read all the time about how modern transportation and communication have made it possible to "explode the value-added chain" -- for Taiwanese workers to take an American microprocessor, wire it up to a disk drive made in Singapore, put the whole thing in a plastic case made in China and ship it back to America. Why doesn't all this to-ing and fro-ing lead to vastly more trade than the more prosaic manufacturing processes of the late 19th century? Because while we ship manufactured goods back and forth with unprecedented abandon, such "tradeables" constitute a steadily shrinking share of our economy.

This is not an accident: It is a trend that is deeply rooted in the nature of economic and technical change.

Start with a first, seemingly paradoxical principle: The kinds of jobs that grow over time are not the things we do well but the things we do badly. The American economy has become supremely efficient at growing food; as a result, we are able to feed ourselves and a good part of the rest of the world while employing only 2 percent of the work force on the farm. On the other hand, it takes as many people to serve a meal or man a cash register as it always did; that's why so many of the jobs our economy creates are in food service and retail trade. Industries that achieve rapid productivity growth tend to lose jobs, not gain them.

But where has our economy achieved its most rapid productivity growth? One answer is that we are getting better and better at producing goods -- food, clothing, autos -- but not improving very much at providing services. An even better answer would be that we are making rapid progress in fields where the information required is relatively easy to formalize, to embody in a set of instructions to a robot or a computer; we have made much less progress in activities, from cutting hair to medical care, where the information processing is of the exceedingly subtle and extremely complex kind that we call common sense.

But the kinds of activities that we can't program a computer or robot to do for us, that require the human touch, also typically require direct human contact. That is, precisely because farming, manufacturing and some impersonal services have become so productive, our economy increasingly focuses on the other things the "nontradeable" activities that make up the "non-base" employment that occupies most people in modern cities. These are jobs from retail clerks to nurses. And that's why most people in a city like Los Angeles produce services for local consumption, and therefore do pretty much the same things as most people in metropolitan New York -- or for that matter in London, Paris and modern Chicago.

This brings us to the moral of the story. You will find a lot of people who are worried about the American economy. That's reasonable: We have plenty of real problems. But many of these people seem to be worried for the wrong reasons. They worry, for example, about "deindustrialization": Where, they ask, have all the manufacturing jobs gone? And they look at our strangely abstract economy and worry that its prosperity is somehow unsound, that (in the words of the recent World Competitiveness Report) we are "rich in consumption but not in production."

But consider Los Angeles. It is not very obviously a manufacturing city; but it is actually somewhat more manufacturing oriented than other big American cities, and if we had statistics we would probably find that it exports more manufactures than it imports. It is not a city where many people produce anything tangible; but that is precisely because its residents are so good at the tangible stuff that their energy is focused on the intangibles.

So, the next time someone tries to frighten you with the fear of global competition, and tries to prove his point by telling you about closing factories and declining manufacturing, remember modern LA, and remind him: "I have seen the present, and it works!"

Originally published, Spring.97