Globalization at Mach Speed
by Gregg Easterbrook
Random House, 272 pp., $26
I didn’t realize I was a worrywart until I read Sonic Boom.
Gregg Easterbrook is unique among journalists because his writing highlights the positive trends you never hear about on the nightly news. He’s forever telling us to look on the bright side. His 1995 A Moment on Earth argued that environmental pollution was a solvable problem. Beside Still Waters (1998) attempted to reconcile rationalism with faith. Progress Paradox (2003) tried to figure out why, if almost everything is getting better all the time, we feel so miserable.
In Sonic Boom, Easterbrook argues that despite the recession, globalization is about to go into overdrive. The results will be greater worldwide prosperity and innovation, but also social dislocation and constant stress. What’s more, “the main forces involved cannot be brought to a halt.” I love good news as much as the next guy, but I couldn’t help feeling the trends Easterbrook describes are a little more fragile than he lets on. Encountering a cockeyed optimist forces you to think pessimistically.
Which isn’t to say Easterbrook is incorrect. To the contrary: His thesis is compelling. “Before the downturn that became apparent in 2008,” he writes,
the larger global economic trend for three decades was rising prosperity for almost everyone, accelerating growth, higher living standards for average people, better education, increased ease of communication, low inflation, few shortages, and more personal freedom across most of the family of nations.
Jihadism notwithstanding, the last generation has seen the greatest advances in the human condition, ever. We are richer, we live longer, we are smarter (IQs appear to rise over time in a phenomenon known as the Flynn Effect), we are safer, we are more productive, and we are freer. Leave Boomer nostalgia to shows like Mad Men, where it belongs. The recession is bad, but like all recessions it will come to an end. Quite frankly, there has never been a better time to be alive.
Why? Globalization. Easterbrook begins his narrative in the late 1970s, when China’s Deng Xiaoping declared the small fishing village of Shenzhen a “special economic zone” where markets could operate more or less freely. Today, Shenzhen is a city of nine million and one of the busiest ports in the world. The market revolution of the late 1970s and early ’80s, in Deng’s China but also in Margaret Thatcher’s U.K. and Ronald Reagan’s USA, set into motion a period of global economic integration, technological innovation, and almost uninterrupted prosperity. Between 1982 and 2007, America experienced only two recessions, and they were among the shortest and shallowest on record. Beginning in 1989, the collapse of the Soviet empire freed markets, liberated peoples, and seriously diminished the incidence of military conflict. All of this coincided with a revolution in electronics that dramatically lowered the cost of information, ramped up productivity, allowed practically instantaneous communication with anyone, anywhere on the globe, and created whole new economies on the Internet.
Laptops, cellphones, iPods, Facebook, and Google are important, but the greatest achievement of the age has been the reduction in global poverty. “Of the nearly 2.4 billion men and women who have joined the world’s population in the last three decades—itself an amazing number—only one in nine has been born into terrible conditions,” Easterbrook writes, “while conditions for the other eight fall somewhere on the spectrum of okay to really nice.” Easterbrook illustrates his point well when he points out that, “since beginning to liberalize, China has pulled up out of deep poverty a number almost equivalent to the entire population of Brazil.” If present trends continue—this might not happen—in another 30 years there will be hardly any Chinese living in extreme poverty. India has joined in the game as well, enriching her economy and thereby strengthening her democracy. Nor is the progress limited to the rising powers. In a recent New York Times column, George Mason economist Tyler Cowen pointed out that Indonesia, Brazil, Colombia, and Peru have all made great strides over the last decade. Chile, once an autocratic backwater, is a prosperous market democracy.
Prior to the last 30 years, life for most people fit Thomas Hobbes’s description of “poor, nasty, brutish, and short.” But Hobbes lived in a world without developed market economies, free trade, and steadily advancing technology. Maybe the author of Leviathan would have been a more optimistic guy had he lived in the early 21st century! Increasingly, for most people, life is pretty good, peaceable, and long. Even with the recession, the United States is far richer than it was 30 years ago, and crime and pollution are in decline. (In 2009, New York City was the safest it’s been since the early 1960s.) America’s problems are born of success: A society concerned with obesity and clothing for pets is one that is no longer concerned with starvation or nuclear war. Our challenge today is maintaining and augmenting what we already have: global economic and military dominance.
Sonic Boom is not relentlessly cheery, however. The emerging economic order has its dark side. “Get used to a ceaseless, low-grade sense of economic emergency,” Easterbrook says, “even if all goods and services are in ample supply, even if the local grocery store is fully stocked, busy, and open twenty-four hours.” Global competition will make all of us incredibly uneasy, for three reasons: Jobs are going to be less secure; inequality is going to rise; and the more we have to lose, the more anxious we’ll be about losing it. The danger is that these forces could give rise to political movements that mitigate—or reverse—the best parts of the sonic boom.
With unemployment at 10 -percent, the jobs issue is already at the forefront of our politics. Eventually the economy will recover and unemployment will fall. But job insecurity will remain. This won’t be entirely bad; one sign of a thriving market is business creation and destruction. The constant grind means entrepreneurs are able to test their theories of which products and services consumers want. And since businessmen are not always right, many startups go under. People lose jobs. America’s flexible labor markets allocate workers efficiently, but they also allow firms to hire and fire employees with relative ease. Thus the American jobs machine often leaves workers looking for their next gig.
The economists call this “job churn,” or the unending turnover of new hires and displaced workers. In 2005, for example, no less than 60 million Americans had a change in employment status. Such tumult not only enriches the economy, it leaves everybody stressed out. As Easterbrook puts it, “an economy in which jobs flash in and out of existence like subatomic particles in a physics experiment makes even those who have good jobs feel insecure.” Rising productivity allows American firms to do more with less; this also means fewer jobs in certain sectors. For example, did you know the United States produced 15 million more tons of steel in 2007 than in 1970? Probably not, since the media only cover U.S. steel when there are job losses or attempts to slap tariffs on Chinese imports. And sure enough, while the tonnage of U.S. steel has risen, the number of U.S. steelworkers has fallen. There were only 159,000 steelworkers in 2007, down from 531,000 in 1970. Expect job churn to continue as American companies compete with businesses in China, India, and Southeast Asia, where labor is cheap. The days of lifetime employment at a single firm are over, unless the firm in question is the U.S. government.
Another feature of the economy will be rising inequality. Poverty is declining and middle-class incomes are growing, but not nearly as quickly as those of the rich. For some high school graduates, a union card and factory employment continue to serve as doors into the middle class; the problem is those doors are being shipped to Asia. Brawn is giving way to brains. The service economy rewards education, social skills, and creative thinking. Every field has its celebrities who reap fortunes far greater than the average worker. Easterbrook points out that, since 2005, there have been at least 300,000 U.S. households making more than $1 million a year. That’s “the population of Saint Paul, Minnesota—America has produced the equivalent of an entire city of millionaires.” Compared with 99.9 percent of the human beings who have ever existed, poor Americans live like French nobility during the ancien régime. Understandably, however, a narrative of gradual historical progress, thanks to market competition, doesn’t make the poor feel any better about themselves. Mass media compound feelings of relative deprivation, since they beam images of wealthy decadence directly into people’s homes and laptops. Politicians cater to their constituents’ short-term desires and resentments, and gain influence when they redistribute wealth to powerful interest groups.
The widening disparity of incomes may gradually erode the longstanding American ethos of social equality. This is a serious concern, but it’s hard to know what to do about it. The preferred liberal answer, high marginal tax rates and increased union membership, would only make everybody poorer by sending investment capital and jobs overseas. The preferred conservative answer, school choice and continued economic growth, is no panacea, either. Note to policymakers: Pay more attention to Ron Haskins, Easterbrook’s colleague at the Brookings Institution. Haskins recommends more education at all levels, full-time employment, and creating incentives for family cohesion. None of Haskins’s recommendations would eliminate inequality overnight; that would be impossible, and probably not even desirable (some inequality, after all, is a recognition of human diversity and an incentive to personal improvement). Nevertheless, these sorts of policies would help the poor get a leg up. They’d demonstrate America’s commitment to social mobility and equal rights. In the meantime, government could discourage aristocracies of wealth by eliminating corporate welfare, tax loopholes, and subsidies that favor market incumbents.
Effective policy will be rare, however, in a world where governments have less power. “If it hadn’t been shown a hundred times before,” Easterbrook writes, “the financial-world events of the last two years proved that even the most powerful officials have little clue what the economy is about to do, and only a mild, limited ability to influence economic events once they commence.” Moreover, when officials attempt to influence the economy, they often don’t know the results of their actions for some time. The consensus view, for instance, is that changes in Federal Reserve policy take about two years to work their way through the economy. How do you cover a two-year-long policy in a five-minute packet of information on cable news?
It’s a perennial: Focused on the most recent crisis, politicians neglect not only the potential unintended consequences of their actions, but also unforeseen developments that might render those actions moot. In January 2009, the Obama administration told the country that a $1 trillion stimulus plan would hold unemployment to 8 percent. Congress passed the plan, only to watch as unemployment rose to 10.2 percent. The economy doesn’t allow you to take a mulligan: The stimulus saddled the country with more debt while not doing much to improve the overall economic picture. As a result, the administration’s options in 2010 are limited. Voters and elected officials are understandably worried that the national debt is on an unsustainable course. Hence, both left-wing proposals for even more deficit spending and right-wing proposals to cut taxes on corporations, payrolls, and capital gains are likely to face sharp resistance.
Luckily for Obama’s reelection chances, however, market economies are resilient. History shows, for instance, that American markets can survive high marginal tax rates; they just won’t perform as well as they could (and the government won’t collect as much revenue as it could) if rates were kept low. The animal spirits that propel a kid tooling around in his garage won’t be stopped by Barney Frank’s latest regulatory shenanigans. Bad economic policy can hamper or drive out the risk-taking activity crucial to growth. But, since we live in a large federal republic in the midst of a bustling global marketplace, risk-takers just pack up and relocate to more hospitable locales. In the last decade, California’s losses have been Texas’s gains, and Wall Street’s post-Sarbanes-Oxley doldrums were a boon for London.
American politicians, Easterbrook says, are largely irrelevant to American economic fortunes. They can pass laws that improve or retard the chances for growth, but the economy is integrated to the point where national policies are less important than they used to be. Not only do companies have to worry about the Federal Trade Commission when they want to merge, they have to consider the European Commission, too. Or consider that Chinese currency manipulation may have more of an effect on the American job market than any of the Obama administration’s stimulus plans. And Barack Obama can do little about it.
“Perhaps we are entering an era of uncommanded institutions,” Easterbrook writes, “in which more and more aspects of our lives will be influenced by truly huge numbers of people at home and abroad, yet no one is in charge.” Paradoxically, then, the integration of the global economy has led to fragmented decision-making. Billions of investors and consumers worldwide matter more than any single prince. This has been a doubly good thing, since it has meant (a) we are all getting richer, and (b) politicians have less of an ability to screw up our lives. But it has also led to the unending worry that no one, including ourselves, is in control.
We fear that “the system will methodically destroy itself, of course without intending to.” Easterbrook calls this fear “collapse anxiety,” and it’s a major component of life in the sonic boom. Human nature being what it is, we look for leaders to dominate communities and make decisions with tangible consequences for you and me. The big man rules. No surprise there—humans have organized societies in such a way for most of our existence as a species. In some places, the pattern continues today.
But a different pattern applies to advanced market societies like the United States. Democracy and free economics limit the power of a single man to dominate his environment. The upside is dispersed power, more human liberty, and greater prosperity. The downside? A crisis in authority. “For centuries, people have looked to the top figures of the business and intellectual worlds as father figures for society,” Easterbrook argues. As the power of institutions wanes, the influence of elites wanes, too. Mass democracy checks the influence of political figures, even the president. Product lines no longer depend on the whim of a central planner but on the aggregated taste of millions of consumers. Not long ago, a few writers in New York decided what counted as fashionable opinion; today, no group of intellectuals has a monopoly on ideas.
As the economy becomes more complex, individuals become more important than authorities and institutions. It thus becomes harder to discern cause and effect. Take the financial crisis, for example. What caused it? Some say it was greedy bankers and mortgage lenders; others, foolish government regulators; still others, huge economic imbalances between the United States and China. Maybe one of these stories is correct. More likely, they are all correct, to some degree.
In a globalized world, therefore, it becomes difficult to untangle the chains of events that produce layoffs, laptops, and lattes. In an era of rapid and profound change, we no longer believe we are the captains of our fates. “Once millions of people could say to themselves words to the effect of, ‘Whatever else happens, at least I belong to/work for/worship at a great institution that is widely respected and making the world a better place.’ ” Nowadays—not so much. “It’s going to be the Super Bowl of stress,” Easterbrook concludes. “Chances are it’s going to go well. Chances are it won’t be relaxing.”
The weakness in Sonic Boom is that, for a supporter of free markets, Easterbrook is incredibly deterministic. He’s convinced the trends he describes will continue unabated. “We must make our peace with the forces of the present,” he writes. “Wishing they would go away is a waste of everyone’s time. No clock has ever been turned back.” Maybe so, but human beings are not clocks. History is a series of peaks and valleys; nothing is permanent. Previous eras of globalization did not end happily. The period of rapid industrialization and free trade at the beginning of the 20th century came to a horrific end in the First World War. After that conflict shattered Europe, the global economy recovered and a new era of international cooperation seemed at hand. More than 60 nations, including Germany and Japan, signed the Kellogg-Briand Pact outlawing war. But treaties and good feelings did not stop the Great Depression. And Lenin, Stalin, Mussolini, Hitler, and Tojo were more than happy to reverse liberal gains.
So, too, when the financial crisis struck in 2008, pundits declared an end to the era of “market fundamentalism.” The globe, it was argued, had entered a new age in which governments would play larger roles in the economy. Easterbrook says these obituaries for capitalism are premature: “All postwar recessions have ended in a resumption of previous trends.” If he’s right, then all we have to do is watch television until the economy recovers. What’s missing from Easterbrook’s account, however, is -politics—the role that law and regulation plays in shaping the future. Perhaps it is the case that politics isn’t as important in the sonic boom economy. Or perhaps politics is important to the extent that communities want it to be important. Over the last generation, the market has delivered increasing returns on a global scale and regulation has played a diminished role in economic life. Taxes were kept low. The cost of creating and maintaining a business was kept low. The size of government relative to the economy remained stable. In some cases, government’s reach was drastically reduced.
If these policies had not been in effect, what would the world look like today? Chances are, we would be neither as prosperous nor as free. Politics matters. It may be folly to try to stop change, but that doesn’t mean people won’t try. Right now, markets are in disrepute. Powerful forces in American life want to increase regulation, hike taxes, boost labor unions, and limit free trade. All of these initiatives would interfere in the operations of the global economy and thus leave us worse off. More regulation and higher taxes favor established firms; venture capitalists, startups, and innovators suffer. Unions lead to high unemployment and an inflationary price/wage spiral. Trade barriers raise prices and build walls between nations. Easterbrook says the sonic boom will provoke consternation, frustration, and worry. What he doesn’t say is that those feelings could lead to a reactionary politics that turns the boom into a bust.
The international scene isn’t stable, either. It’s true, as Easterbrook notes, that both military spending and war are in decline. But on the question of why this has happened he’s a little fuzzy. The money that nation-states devote to defense fell from $1.5 trillion in 1985 to $1.3 trillion in 2008. “Studies show that violent conflicts, both between and within states, rose steadily from 1955 to 1989, hit their post-World War II maximum in that year, declined steadily until 2003, the year of the U.S. invasion of Iraq, and since have risen slightly but remain below the level of the late 1970s.” What world-historical event happened in 1989?
War isn’t declining because governments spend less on their militaries; it’s declining because the United States defeated the Soviet Union in the Cold War. Strategic victory lessened the chances of military conflict by removing Soviet support for international terrorist and guerrilla movements, bringing more countries under the American security umbrella, and boosting the American ideology of democratic capitalism. In an international system where a hegemonic power provides the bulk of global public goods, and maintains security from the Balkans to the Korean DMZ, most allied governments can afford to spend less on their militaries.
America’s rise to global primacy has coincided with unprecedented peace and prosperity. You may not like the amount of money America spends on defense, but those dollars contribute to the world Easterbrook describes in his book. If anything, America ought to devote more resources to meeting her global responsibilities—who else is going to do it? American power is the pillar supporting a world of free trade and free people. Remove the pillar, and the world becomes a very different place.
National interests will not disappear in the sonic boom. Nor is the world steadily marching toward convergence. Russia invaded Georgia in 2008 because the Putin regime could not countenance Caucasian democracy and wanted to see it weakened. The Iranian mullahs have wrecked their domestic economy and are hellbent on acquiring a nuclear weapon. Hugo Chávez spreads Venezuela’s oil wealth around Latin America to further the cause of “Bolivarian socialism.” Kim Jong Il maintains his nuclear slave state in North Korea. Individually, these challenges don’t compare to the security dilemmas of the 20th century. Collectively, however, they have provoked a systemic crisis, as Cold War institutions such as the United Nations and NATO find themselves riven with disagreement and unable to isolate and neutralize rogue actors.
The rise of China to great power status is a remarkable event that Easterbrook greets with sanguinity. No question, the Chinese enjoy greater personal freedom today than they did only a decade ago. Economic growth has been a tremendous boon for the Chinese people. Equally important is the Chinese government’s decision to work within the American-led international system. China participates in regional and global institutions including the U.N. and the World Trade Organization. The Chinese and American economies have become inseparable. More than a decade has passed since the last crisis in the Taiwan Strait. The two powers eye each other warily, but find they can get along (more often than not). “The world’s two most important nations are not angling to destroy each other,” Easterbrook writes; “rather, they are for the most part engaged in cooperative competition that for the most part benefits both.” Let’s enjoy it while it lasts.
Easterbrook acknowledges the Sino-American relationship is subject to radical change, but he doesn’t really examine how that might happen. He comes across as confident that economic and technological progress will force the Chinese dictatorship to liberalize. Perhaps so, but authoritarian governments display a remarkable tenacity when their existence is threatened. Liberalization is not the only option. China’s technocrats depend on economic growth and robust nationalism to maintain their rule: Growth might disappear and lead to further social upheaval, or nationalism might spin out of control and lead to a belligerent China. Neither scenario is palatable.
Rather than examine these darker futures, however, Easterbrook views China through rose-colored glasses. He describes China as “a great state not attempting to establish a dominant military.” Not quite! No one can read the 2009 report of the U.S.-China Economic and Security Review Commission and reach Easterbrook’s conclusion. The Chinese government is engaged in a three-decade long military build-up and modernization program aimed at changing the People’s Liberation Army from an ill-equipped defense force to an arm of national policy able to project power abroad. The scope of Chinese political, economic, and security interests continues to expand. China’s defense budget is second only to the United States’. As America decommissions aircraft carriers, China wants to build her first. The Economic and Security Review Commission concludes that “the intelligence services of the Chinese government are actively involved in operations directed against the United States and against U.S. interests. China is the most aggressive country conducting espionage against the United States.” Yet Easterbrook says “the government of China believes it will never go to war with the United States.” It sure doesn’t act like it.
The point is not that conflict between the United States and China is inevitable; the point is that nothing is inevitable. The advance in human liberty and welfare is the result of centuries of contingent and unpredictable actions and reactions. Plenty of those gains have been institutionalized, and it’s hard to see them disappearing overnight—but that does not mean humans are no longer able to inflict suffering on others.
What’s stopping them? Since its inception, the United States has been a revolutionary engine of commerce and liberalism; if we ignore our legacy and neglect our responsibilities, American power will wane and so will the fortunes of others. The “post-American world” is in vogue, but it is telling that most of Easterbrook’s examples of innovation are drawn from American entrepreneurs. Easterbrook is right to say the future is bright. He’s right to point out the downsides as well. But the real lesson of his book is that the future he describes depends on American domestic competition and international strength.
Which is why I worry. The political class has made some foolish choices lately. Elites have bought into a narrative of American decline. Both Republican and Democratic Congresses have gone on epic spending sprees. Debt service and entitlements threaten to consume the entire budget. The only expenditure President Obama seems eager to cut is defense. The business climate is plagued by uncertainty. Taxes are going to go up. Enterprising young Americans are beginning to search for opportunities abroad.
Luckily, the American people remain sensible. The public disapproves of the return of big government. Democrats know they have overreached, and want to return to the center in 2010. There are signs of economic improvement as well, from the Chicago purchasing index, to the stock market rally, to the improving yield curve. And if the elected branches of government don’t lead the way, the people will, whether at the ballot box or in the business world.
So why not take Gregg Easterbrook’s advice and ignore the doomsayers? Look around. Things are starting to change once more. Feel the ground rattle beneath your feet. Hear the drone overhead. A boom is coming.
Matthew Continetti is associate editor of The Weekly Standard and the author, most recently, of The Persecution of Sarah Palin.