It is the season of lists: best movies, best books, and so on. Since I teach and write on globalization and international political economy, I thought I should continue a tradition I started several years ago of creating a different type of list: a geo-political-economic list -- a list of the globalization top five from an American perspective.
Why only five? Because I am only giving an overview, a macro look at how globalization is now shaping or will shape America. More than five and the list would become less an overview and more a detailed analysis.
1. America Is Roaring Back
Seven years ago, with America's economy leading the world into economic mayhem, many questioned America's political and economic authority to be the world's leader.
But as Warren Buffet said, "It has never paid to bet against America." Through wise, but politically erratic actions such as the stimulus, the auto bailouts, the stress test for banks, along with the Feds QE policy, the administration has re-fired the American economic engine. Combined with America's energy boom, the United States has re-emerged as the leading, growing -- not declining -- economic power.
Ironically, the fact that the American economy is the least globalized of the major economies has also helped. As a percent of GNP, exports account for 52 percent of the German economy, 32 percent of the UK's, 27 percent of China's but only 14 percent of America's. This lesser dependency on exports has help shelter the US economy from the EU slowdown, while allowing the benefits of energy savings to ricochet more powerfully throughout the country.
2. Deflation -- Possibly a New Global Economic Contagion
For the first time since the early 1930s, there is a serious threat of global economic disorder from deflation. What makes today's version of deflation truly worrisome is that it has developed concurrently from different strains around the world.
In the US, as in the rest of the industrialized world, we see it as the down side of the oil boom. But America is also being affected by disintermediation -- the technologically induced removal of intermediaries in the supply chain. People used to buy hard copy books for $20 but now can buy them online for $9. The price of a taxi medallion in New York has dropped by 17 percent because of Uber. We can even see disintermediation's footprints in the fact that corporate profits are rising more quickly than sales. Falling prices might seem wonderful in the short-term; in the long run they are extremely detrimental to an economy. The value of assets fall, consumers hold back purchases, wages do not grow and the burden of debt is magnified.
Due to its growth spurt, deflation in the United States is held in check -- for now. The problem for the US is the rest of the world, and the exportability of deflation. China is candidate number one in this regard, with its severely over built manufacturing capacity, that is forcing factories into a fight to the bottom, to cut prices on exports. In the Eurozone, where deflation has begun to flirt with the economy, leadership for various political and cultural reasons has found it difficult to develop a course of action. And of course there is Japan.
3. Oh Where, Oh Where, Has Manufacturing Gone?
Technologically driven disintermediation and its sidekick, automation and growing new technologies such as 3D printing, are causing a global shift away from the economic value of manufacturing. Since the invention of the spinning jenny in 1764 and Watt's steam engine in 1781, manufacturing and the people it employs have been the underlying basis of modern economies. Now this is changing.
The world is shifting very rapidly from the manufacturing age to the age of human capital.
In the United States this phenomenon is today visible in the lack of growth in middle class wages. In China, the nucleus of global manufacturing, the problem is more acute. How does China continue to compete on the bottom end of the manufacturing spectrum against lower wage-based countries and on the upper end in heavy industrial manufacturing against the United States with its automated facilities and cheap energy?
4. Germany -- Redux
From an economic and historic perspective the most interesting development this year has not been watching Putin's 19th century fantasy or the slowing of China's growth, but watching the evolution of Germany from a leading merchant state into a growing global force. Under the leadership of Angela Merkel, pressured by the counter-productive actions of Putin and the demise of the so-called post war balance between Germany and France, Kissinger's famous statement about not knowing which number the United States should call in Europe is now irrelevant. It is Germanys' number.
5. AGING -- And Immigration as the Antidote
Aging populations, combined with low birth rates, are probably the single common denominator among the leading industrial nations; the one exception being the United States. The question these countries face is how they maintain their standard of living, as retiring baby boomers start to overtake the ability of the balance of the population to support boomer retirement while creating new economic growth. Ironically the opposite problem is occurring in much of the non-industrial world where the birth rate is exploding.
In Japan more than 20 percent of the population is over 65. The Japanese government estimates that if conditions stay on the same trajectory 40 percent of the population will be over 65 by 2060.
The European Commission has stated:
"The proportion of people of working age in the EU is shrinking while the relative number of those retired is expanding. The share of older persons in the total population will increase significantly in the coming decades which will lead to an increased burden on those of working age to provide for the social expenditure required by the ageing population for a range of related services."
In China, Helen (Hong) Qiao, chief Greater China economist at Morgan Stanley has asked the question, "Will China Grow Old Before Getting Rich?"
What makes The United States different is immigration. According to the Fiscal Times, "It's only because of immigration that the U.S. doesn't find itself in the same economic conundrum as Japan, China, South Korea, and Europe.
The U.S. is exceptionally young among OECD nations, it's the country's immigrants that are keeping the population balanced and preventing it from becoming like Japan, Korea, and much of Europe.
Without immigration the U.S. would, in other words, have sub-replacement birth numbers like every other OECD nation. And it would, presumably, suffer a similar economic malaise caused in large measure by this demographic structural reconstruction of their populations."