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Globalization Is Killing The Globe: Return to Local Economies

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Globalization is killing Europe, just as it's already wiped out much of the American middle class.

Spain and Greece are facing immediate crises that many other European nations see on the near horizon: aging boomer workers are retiring with healthy benefit packages, but the younger workers who are paying for those benefits aren't making anything close to the income (or, therefore, paying the taxes) that their parents did.

Globalists/corporatists/conservative "free market" and "flat earth" advocates say this is a great opportunity to cut benefits for the old folks (and for the young folks in the future), thus bringing the countries budgets back into balance, and this story is the main corporate media storyline.

But it overlooks the real issue (and the real solution): how globalization is killing these nations' economies and what can be done about it.

From the days of Adam Smith, classical economics pointed out that manufacturing and extraction are the only two ways to "create wealth."

"Wealth" is different from "income." Wealth is value, which endures at least for some time. Income is simply compensation for work. If you wash my car for $10 and I mow your lawn for $10, we have a GDP of $20 and it looks like we both have income and economic activity. But no wealth has been created, just income.

On the other hand, if I build your car, I'm creating something of value. And if you turn my lawn into a small farm that produces food we can all eat, you're creating something of value. Not only do we have an "economy" with a "GDP," we also have created wealth.

A stick on the ground has no commercial value, but if you add labor to it by carving it into an axe handle -- a thing of commercial value -- you have "created wealth." Similarly, metals in the ground have no commercial value, but when you add labor to them by extracting, refining, and forming them into products, you "create wealth." Even turning seeds and dirt and cows into hamburgers is a form of manufacturing and creates wealth.

This is the "Wealth of Nations" that titled Adam Smith's famous 1776 book.

On the other hand, when a trader at Goldman Sachs makes a "profit" trading stocks, bonds, or currencies, no wealth whatsoever is created. In fact, to the extent that that trader takes millions in commissions, pay, and bonuses, he's actually depleting the wealth of the nation (particularly to the extent that he moves his money offshore to save or invest, as many do).

To use the United States as an example, in the late 1940s and early 1950s manufacturing accounted for a high of 28 percent of our total gross domestic product (and much of the rest of the economy like agriculture that, in a classical sense is "manufacturing" wasn't even included in those numbers), and when Reagan came into office it was at a strong 20 percent. Today it's about ten percent of our GDP.

What this means is that we're creating less wealth here, because we're not making much anymore. (And the biggest growth in American manufacturing has been in the military sector, where goods are made that are then destroyed when they explode over foreign cities, causing even more of our wealth to vanish.)

The main effect of the globalism fad of the past 30 yearrs -- lowering the protective barriers to trade that countries for centuries have used to make sure their own local economies are self-sufficient -- has been to ship manufacturing (the creation of wealth) from developed nations to developing nations. Transnational corporations love this, because in countries with lower labor costs and few environmental and safety regulations, it's more profitable to manufacture products. They then sell those products in the "mature" countries -- the places that used to manufacture -- and people burn through the wealth they'd accumulated in the earlier manufacturing days (home equity, principally, along with savings and lines of credit) to buy these foreign-manufactured goods.

At first, it looks like a good deal to consumers in developed nations. Goods are cheaper! But over a decade or two or three, as the creation of real wealth is reduced and the residue of the old wealth is spent, the developed nations become progressively poorer and poorer. At the same time, the "developing" nations become wealthier -- because those are the places that are producing real wealth.

Which brings us to Spain and Greece -- and the problem of all developed nations including the USA. So long as globalism continues apace, the transnational corporations and their CEOs will continue to become fabulously wealthy. But, more importantly, they also acquire the political power that comes with that control of economies.

So they tell us that instead of putting back into place tariffs, domestic content laws, and other "protectionist" policies that built America from the time the were first proposed by Alexander Hamilton in 1791 (and largely adopted by Congress in 1793) until they were dismantled by Reagan/Bush/Clinton/Bush, we should instead simple "accept the reality" that we're "living beyond our means" and we have to "cut back our wages and social programs."

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http://www.thomhartmann.com

Thom Hartmann is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program on the Air America Radio Network, live noon-3 PM ET. more...)
 
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Thoughtful article by the consummate writer Thom H... by JohnPeebles on Tuesday, Feb 9, 2010 at 4:00:39 PM
I agree with all of the above, with the possible e... by Dick Thomson on Tuesday, Feb 9, 2010 at 6:29:13 PM