Think about how the U.S. economy would look if it were fragmented with 50 state fiefdoms, each with their own rules and barriers blocking the free flow of goods and services across state lines. What if Amazon couldn’t open a distribution warehouse in Illinois without onerous tariffs? Imagine California farmers paying tariffs to export avocadoes to Michigan or border patrol and customs agents searching cars going from the republic of Arizona into the sovereign state of New Mexico.
If this were to happen, people would experience reduced standards of living and rampant unemployment almost overnight. Without fluid markets and lack of investment across state lines, the U.S. would collapse immediately into global economic mediocrity. We cannot even imagine such a scenario, yet that is exactly what’s happening—fortunately not across state lines, but across global borders.
The idea of globalization was to raise the world’s standard of living. How else would people in India and China start to afford iPhone and other goods and services we so desperately want to export to keep our economic engine running? We need more globalization, not less, to raise the world’s standard of living.
I’m writing this about a month before the U.S. election. The aftermath of COVID-19 has created an even larger gap between the “haves” versus the “have nots.” Unlike what some claim, this is clearly turning into a K-shaped recovery where a certain portion of the population is thriving even more than before COVID-19, and the rest of the population is jobless. If you’re one of them, it can feel difficult having to depend on government subsidies to maintain a roof over your head and feed your family.
I see this in our own business. We’ve had record revenues since COVID-19 started, whereas many friends are struggling to stay busy. What’s happening in the U.S. is a microcosm of why the result of globalization is critical. The lower and middle class are seeing an almost-overnight decline in their standard of living. The result? There are fewer consumers, even in the U.S., that will be able to afford iPhones.
We have to start the hard work to get globalization back on track. Globalization can be a highly disruptive force. The world saw its first great era of globalization from 1870 to 1914. During this time, there was a mass migration from Europe to the New World. GDP grew anywhere from 50–70% between Europe and “the New World,” including South America, the U.S., and Canada. Migration rates were unprecedented—up to 11% of various Europeans migrated. That globalization brought great prosperity.
As Milton Keynes famously said in 1914, “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could, at the same moment and by the same means, adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages.”
Yet, in spite of this, globalization was one of the forces that led to World War I because it has significant destabilizing effects. When one starts to allocate resources more efficiently—labor and capital, and even land—that creates losers. And people don’t like to be losers; it’s the ultimate seed for going to war.
Globalization disrupted both international power structures and domestic ones. It wasn’t until the 1960s and 1970s that trade recaptured its share of global GDP, and countries like the U.S. started to re-open borders to immigrants in a substantial way. Capital flows started more so in the 1980s. The intervening period between the 1910s and the 1960s saw two world wars and a great depression.
Since the 1960s, the export share of global GDP has more than doubled. New economic powers emerged to challenge American dominance—first Japan, now China, and potentially India. Two big changes have occurred: manufacturing capacity has moved from the developed world to Asia, and technology has rewarded skilled workers and widened pay gaps. Voters rebelled by turning to parties that reject globalization.
Just as in the first era, globalization has disrupted international and domestic power structures. I don’t believe this will lead to another world war as it did in 1914. The real danger is a zero-sum game. Governments will attempt to and appear to grab a larger share of the global trade for their own countries, and this will eventually cause trade to shrink. Much as an un-United States would cripple our own economy, the forces against globalization are on a path to cripple the global economy.
Mehul J. Davé is CEO and chairman of Entelechy Global Inc. and chairman of Linkage Technologies Inc.