One World, Ready or Not: The Manic Logic of Global Capitalism

1. One World, Ready or Not: The Manic Logic of Global Capitalism Chapter 10 – The Buyer of Last Resort William Greider

2. Key Issues • The main issue is not that of the United States • Losing in the Global Economy • Offshore Manufacturing Jobs • United States conforming trade to benefit the world

3. “…the underlying disorders in the global system are covered up by the United States.” • For about 50 years the US has served as the broad-shouldered leader that has also lead as the buyer of last resort. • America is the only major economy that is willing year after year to absorb gross surpluses from other nations. • Japanese cars • Electronic goods • In doing so, America serves as a safety valve for the global marketplace, reducing conflicts, and keeping the global economy afloat.

4. But this cannot go on forever • With declining wages and the loss of high-income employment in the US, the nation’s broad capacity for mass consumption is being slowly eroded. • Sooner or later the US will be tapped out – no longer able to afford its role as the buyer of last resort.

5. History really does repeat itself • The role of Buyer of Last Resort was on Britain during the 1920’s. • During the time of crisis and downfall the US loaned Britain lots of money to try to keep them upright. • The economy began to crumble and the role shifted to the US in later years.

6. Japan is feeding the fire • Currently, Japan is propping up the US by loaning lots of money so that the US can continue its role. • Sound familiar? That’s right… the same happened to Britain, and it is inevitable that it will happen to the US, says Greider.

7. Best and Worst Cases Best • It is the unexpressed hope of statesmen that the shifts of power will evolve gradually, without provoking a bloody breakdown. Worst • If an abrupt halt comes to the purchasing of surpluses and many nations are compelled to produce much less, a worldwide implosion of market will be triggered, that is, global depression.

8. Positive? In the long-run, yes. • Superpowers will not be destroyed, but will be put on a more level plane. • This event could renew American society in confrontation of the inequalities of the world and the wastefulness in the American material life. • Americans may be lead to discover more about themselves and their country.

9. But, it is not just America’s problem • America’s problem is really a principal symptom of the global system’s much larger disorder: creating more supply than new demand and the expanding productive capacity completely overruns the available consumer market! • Which is why America has plays the role of the buyer of last resort. • If America taps out of their role, the world’s producers will find themselves looking frantically for buyers.

10. WWCD – What Would Clinton Do? • Greider discusses Clinton and delves into the old order that he optimistically inherited: • Free trade and liberalized markets for business and finance • Active promotion of American multinationals and globalized production • A tolerant stewardship of the world trading system • A vast military infrastructure committed to ensuring world order for others • NAFTA, GATT, and the WTO were improved and empowered to fulfill the unfinished work of Clinton’s Republican predecessors. • This was Clinton’s central weakness of his presidency because the old order was no longer working to the benefit of most Americans.

11. A little extra bling bling… • Clinton offered an attractive rationale to support his new GATT agreement • To add $1700 in income to the average US family’s income over the next few years. • To create hundreds of thousands of high-wage jobs • To have the biggest global tax cut in history • To fulfill the country’s two responsibilities: • To lead and remain engaged in the world • To try to help the people of the United States to get ahead

12. Lottery winnings • However, most American families did not get the $1700 increase, and, in fact, most incomes were stagnant or shrinking. • There was an uneven distribution of money, mainly skewed toward the rich. • The statistic, in order to understand better, would be like asking people to assume that if their next-door neighbor wins the lottery, everyone on the block would get richer.

13. “I did not have sexual relations… oh wait, wrong speech?” • In July 1995, when all looked grim and thousands of white-collar jobs were being made redundant, Clinton spoke to a conference of community leaders. • “We lowered the deficit…” • “We increased investment in education, in technology, in research and development…” • “We expanded trade frontiers…” • “We have seven million more jobs…” • “We have a record number of millionaires…” • “We have an all-time high stock market…” • “We have more new businesses than ever before…” • “… And most people are still working harder for lower pay than they were making the day I was sworn in as President.” • An honest speech, but that still didn’t solve the globalization problem.

14. Support our troops… and our lifestyle! • It was actually US military procurement that spurred the American lifestyle to be adopted by other countries. • South Korea, Taiwan, Thailand, and even Japan had US troops stationed within their country for defense purposes. • Influences came from these troops and also the multinational companies that saw a golden opportunity to market products and services to emerging markets.

15. A crumbling empire • Despite their good deeds, empires do not last forever. • America is currently in a weakening economic position and does not have much longer at the top. • Many sectors, such as domestic-goods-producing and housing sectors, have suffered due to the weak economy. • Imports and exports have dropped as well as consumer spending. • Values, within politics and business have shifted, thus, making the market a different and new place to do business. • How much longer do we have? Only time will tell.

16. Losing in the Global Economy • Reversal of Fortunes pg. 202 • “Unites States went from holding a net surplus of foreign assets equal to 30 percent of its own economic output in 1970 to a debtor position by 1994 of -8.5 percent.” • Economic Professor Wynne Godley of Bard’s College Levy Economics Institute

17. Losing in the Global Economy(continued) • Deteriorating Situation pg. 203 • “Given the immutable laws of credit and compounding interest, America’s debt position was going to rapidly deteriorate further as interest payments mounted on an outstanding debt…” • Estimated that debt position would double in 5-6 yrs. (approx. by 2000) • By 2005: 30 % • By 2010: 40%

18. Losing in the Global Economy(continued) • Market of Last Resortpg. 206 • “We are the market of last resort. You get excess capacity and you can’t sell it anyplace else? Sell it to the Americans. We are also the market that props up development. If you are China or Indonesia, Thailand or Korea, you achieve rapid economic growth by supplying the Americans. You run a trade surplus with the U.S. and that’s how you can earn the capital to finance the rapid growth.” • Clyde Prestowitz of the Economic Strategy Institute

19. Losing in the Global Economy(continued) • “Mopping Up Excess Production” pg. 206 • United States has been the largest buyer of excess production in the world • World Vehicle Exports (1993) • US: 23%, Germany: 8% & Japan: <1% • Other industries (1993) • Office machine & Telecom: 23% • Steel exports: 10% • Heavy machinery: 18% • Chemicals: 9%

20. Losing in the Global Economy(continued) • Systematic Problems pg. 209 • “…if the United States stopped buying the world’s surpluses, that would not correct the global system’s underlying problem, but simply make it visible and inescapable. As exporting nations suddenly scrambled for buyers, cutting production and prices and erecting trade barriers, the shrinking marketplace could trigger a collapse of commerce.”

21. Off-Shore Manufacturing Jobs • “If enterprise prospered, the benefits flowed widely, if not uniformly, throughout society.” p. 210 • The Theory • More business – more jobs • $1 Billion of exports – 20,000 jobs • The Problem • Cheaper labor • Labor contracts

22. Off-Shore Manufacturing Jobs • “..the United States was losing it’s hegemony: it was targeting free trade and export growth, while the rest of the world targeted industrial base.” p. 212 • Boeing • Auto-makers • AT&T

23. American - Made • U.S. Export –Import Bank • Subsidized financing for export deals • Created in 1934 to promote employment • 100% American-made • 1987 – 15% foreign content, some up to 50% • Defining nationality

24. Exports - Imports • “In the global perspective, the very idea of national “exports” and “imports” was regarded as antiquated.” p. 214 • 40% of global trade - intrafirm • 11% of Japan’s GNP was from American and European countries • Does the trade deficit matter?

25. U.S. Employment U.S. employment changes over the past decade

26. Job Training • “If Americans cannot make steel or cars or aircraft, let them be computer engineers.” p. 217 • Replace factory jobs with “good, new jobs” p. 217 • Microsoft employs less than Bethlehem Steel

27. Leading the World • Political Burdens • Reordering domestic economic priorities and • restoring greater equity among citizens • Tasks • Must bring unbalanced trade to a halt • US must defend its industries, not its companies. • Re-examine tax codes and subsidies

28. Examples • Malaysia and Motorola • Germany and GM • China and Boeing • Wawasan 20/20 • “The only justification for taking such an extreme step is the consequences of doing nothing” p. 220

29. Christopher Whalen • “We are headed for an implosion. If you keep lowering and lowering wages in advanced countries, then who’s going to buy all this stuff? You look around and all that you can see is surplus labor and surplus goods. What we don’t have is enough incomes…If this keeps up, we’re going to face a lack of demand that is worse than the 1930’s”

30. Fair Tariffs • Elliot Janeway once said to tarriff products that are imported that exceed 25% of the goods in the country. • WTO • Japan Capitalism Ideology • Export more goods than you import. • Will have an effect on more than the United States One day. It could backfire on Japan and the effects could be felt in Europe.

31. Trade and Supply • Godley • It is a well kept secret that the theory of international trade-the entire story about the benefits every country can gain by exchanging goods with other countries-depends upon the assumptions: • A) that trade between countries is balanced and • B) that trade does not alter the level of employment or unemployment” p.222 • Greider has two solutions to Excess Supply • “Negative…Shutting down production.”(p.222) • “Positive…to bolster worldwide demand.”(p.222)

32. Conclusion • “The problem is not addressed: it would require governments to confront the free-running industrial revolution and try to moderate its course. No nation, including the United States, yet has the will to stake out such a provocative position. In the midst of the storm, governments, like people and enterprises, hunker down and hope that it passes.”(p.223)

33. Questions • When and how will the United States go about placing tariffs? • How will the transition be when the United States can’t be the buyer of last resort? • How important is the trade deficit given that companies are now multinational?

34. Notes • National Archives • Wall Street Journal • Washington Post • New York Times • Rolling Stone Magazine • Japan Times • Bank of England • Jerome Levy Economic Institute • Economic Policy Institute • The Economics of Chaos: On Revitalizing the American Economy • CNN.com