ForteCash

America's Middle Class Has Become Globalization's Loser

Gabor Steingart / SPIEGEL | October 25 2006

At the beginning of the 21st century, the United States is still a superpower. But it's a superpower facing competition from beyond its borders as well as internal difficulties. Its lower and middle classes are turning out to be the losers of globalization.

There are essentially three exclusive characteristics whose simultaneous development have served as the foundations of the United States's success up until now -- and they only appear in this particular combination in America. They are not only the country's biggest strengths, but also its greatest weaknesses. It's worth scrutinizing them more closely.

First, nowhere in the world can you find such a high concentration of optimism and daring. America is the country that strives hardest for what is new -- not just since yesterday (like Eastern Europeans) and not just for the last three decades (like the Chinese); rather from the very instant settlers began arriving. Unabashed curiosity seems to be hardwired into the nation's genetic code.

The steady influx of the adventurous and hard-working -- which helped increase the country's labor force by about 44 million people since 1980 alone and continues today -- ensures a constant replenishment of daring. After all, it's not just the additional people that make the difference. The mere addition of 17 million people into Germany following reunification in 1990 - newcomers more concerned with preserving their guaranteed rights than with making the extraordinary effort necessary for success - did nothing to foster the kind of daring you see in the United States. Indeed, the result was exactly the opposite, and it has been a painful lesson for Germany.

Second, the United States is radically global. Its very origins -- in the rebellious citizens from every country in the world who assembled on the territory that is now the United States -- mark its people as true children of the world. Former German Chancellor Helmut Schmidt calls the founding fathers of the United States a "vital elite," one that continues to pass down its genes to this very day. Their language is dominant, having marginalized Spanish and French during the second half of the past century. Their everyday culture -- from the T-shirt and rock 'n' roll to e-mail -- has peacefully colonized half the world. And from the very beginning, US corporations were eager to venture abroad in order to trade and set up production sites in other countries. Multinational corporations may not have been a US invention, but they became its specialty.
Third, the United States is the only nation on earth that can do business globally in its own currency. Indeed, the dollar has established itself as the world's currency. Whoever wants to own it has to purchase it in the United States. All important decisions about the quantity of cash that circulates or the setting of interest rates are made within the nation's borders, which guarantees a maximum degree of national independence. It's American blood that flows through the veins of the global economy. Almost half of all business deals are closed using dollars as the currency, and two-thirds of all currency reserves are held in dollars. Charles de Gaulle, who was president of France after World War II, admired this "exorbitant privilege" even then.

The trial of strength

But there is a flip side to the coin. First, Americans are so optimistic that they often blur the line between optimism and naivete. Public, private and corporate debt far exceeds any previously known dimensions. Forever piously trusting in a future rosier than the present, millions of households are borrowing so much money that they end up endangering the very future they're looking forward to. The lower and middle classes have practically given up on putting aside any savings. They're going into the 21st century like a poverty-stricken, Third World family, living from hand to mouth without any financial reserves whatsoever.

Second, globalization is striking back. The United States has promoted the worldwide exchange of commodities like no other nation, and the result is that their local industry has begun to be eroded. Some production sectors -- such as the furniture industry, consumer electronics, many automobile part suppliers, and now computer manufacturers -- have left the country for good. In the recent past, free trade has primarily benefited the very rival states that are now mounting an economic offensive on the United States -- and which have cut off a large slice of America's global market share for themselves.

Third, the dollar doesn't just strengthen the United States; it also makes it vulnerable. The government has pumped its currency into the world economy so vigorously that the dollar can now be brought to the point of collapse by external forces - such as those in Beijing, for example. Former US President Bill Clinton spoke of a "strategic partnership." Current President George W. Bush would later speak of a "strategic rivalry." They meant the same thing. There's a form of dependence that obliges economic actors to cooperate in normal times. But when times change, there is the temptation to engage in a show of strength.
Delinked from prosperity

Make no mistake about it: at the start of the new century, the United States is still a superpower. But it is a superpower that faces tough competition from outside and difficulties within. The feedback effects involved in globalization are especially intense for the US economy -- so much so that large parts of the US workforce are now standing with their backs against the wall.

The rise of Asia has only led to a relative decline of the US national economy. At least so far. But for many blue- and white-collar workers, this decline is already absolute because they have less of everything than they used to. They possess less money, they are shown less respect in society and their chances for climbing up the social ladder have deteriorated dramatically. They're the losers in the world war for wealth. But while that may be their fate, they cannot be faulted for it. And it's certainly not a private affair. Every nation has to face uncomfortable questions when an ever-larger part of its citizenry is delinked from the nation's overall wealth. This is all the more true of a society that has made the pursuit of happiness a fundamental right.

On Oct. 28, 1998, the US Congress established a commission that brought together highly respected experts to examine the effects of the country's trade deficit and the withering away of industrial labor. Donald Rumsfeld, the current US defense secretary, then-US Trade Representative Robert Zoellick, Anne Krueger, the number two at the International Monetary Fund (IMF) and Massachusetts Institute of Technology (MIT) Professor Lester Thurow provided their assessment of the situation at the behest of the president.
Things were going swimmingly for the Americans until the end of the 1970s, the commission report concluded. Family incomes grew virtually at the same rate in all sections of the population during the first three decades after World War II, with those of the poor growing slightly faster. The lowest fifth of US society saw a 120 percent increase in incomes, the second fifth 101 percent, the third 107 percent, the fourth 114 percent and the fifth 94 percent. It was as if the American dream had manifested itself in statistics.

But then the trend reversed, and not just in the United States. Japan had awakened, and global trade had shifted directions. Capitalists left their home turf and went looking for suitable locations to invest in. Direct investment abroad - which had been more or less in harmony with exports until then - rose dramatically.

Until then, investment abroad had served mainly to boost the export of German, US or French products. But then factories themselves began to be relocated, mainly to cut manufacturing costs. Production for the world market became increasingly global itself, which led to a redistribution of capital and labor. Global production increased by a solid 100 percent between 1985 and 1995. But direct investment abroad increased by 400 percent during the same time period. Capital's new mobility began to make the other factor of production, labor, restless, too.

continued below...

__________________