ARTICLE: "Shipping Costs Start to Crimp Globalization: Fuel Prices Shortening Many Supply Chains," by Larry Rohter, New York Times, 3 August 2008, p. A1.
The globalization that we've had up to now, much like the Old Core's relatively rich lifestyle, was accomplished in an era of cheap energy.
Now, with globalization's massive expansion, that era ends, meaning now globalization becomes another incentive for smarter energy use rather than just another excuse for being profligate in the same old, same old way.
Up to now, accessing virtually any cheap, reliable labor made sense, given the cheapness of energy. Now, only those who can figure out how to make that happen with commensurately lower energy costs will be able to do so, and frankly, that should produce a better globalization. We've long let several crucial sectors of our economy off the hook in terms of serious innovation because there was no great incentive to pursue it.
Now, we have those incentives.
In the near term, the "heaviest" local industries will benefit the most, meaning the transportation costs will overwhelm the labor/capital-savings from going elsewhere, but it's hard to see much change happening in the service sector, although tourism is likely to be made less global and more regional.
The knee-jerk reaction here is to assume a clear regionalization trend that "reverses" or signal's globalization's end. Be careful on that one. Globalization has historically ebbed and flowed between big pushes to regionalize and big pushes to globalize, much like trade treaties. So a China that imports iron ore from Australia instead of Brazil due to transportation costs isn't exactly a great reversal of globalization, but more its cost rationalization--when energy is more accurately priced.
I would expect to see a lot of glocalization by global corporations: continuing to "go global" by "going local," meaning they become truly "globally integrated enterprises" of the Sam Palmisano mode (R&Ding locally, hiring and resourcing locally, and producing and selling locally--all the while remaining a global corp). So the Ikea that imports everything now starts producing locally, creating local manufacturing jobs. Sure, expect jobs to be "saved," just don't expect to get unduly picky about who the employer is. You can call that a "reversal" if you want, but that's what a lot of economists and business types have been describing as the next stage of globalization anyway.
In the end, though, we have to thank ourselves for this wonderful challenge: if we don't succeed so brilliantly in spreading globalization, we don't create all that new demand for energy, which in turn drives up prices and pollution, forcing us (more collectively now) to address those issues with far more seriousness than in the past. By going to locations with less stringent environmental laws, we expand globalization, but that expansion now rewards greater efficiency, so watch companies now demand better environmental rules as a cost-saver.
It is never a question of not having problems. It is always a question of having better problems over time. Helping Steve run a start-up has taught me that. It never gets easier, it just gets more rewarding.
If globalization has taught us anything to date, it's that every new challenge creates a new market to exploit.
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Comments (6)
Sam Palmisano is not the initiator of the the IBM global model. The company's founder, Thomas J. Watson, built his over-100 nation operating construct on the premise (and ultimately motto): "World Peace Through World Trade." The WTC (World Trade Corporation) with components Europe, Middle East,& Africa (EMEA) along with the Americas Far East (AFE) unit, plus Canada/Latin America and the U.S. are threaded into the Corporate whole. They build "bridges", respect cultures, transfer technology, offer jobs, provide education, develop the communities in which their plants and labs and offices reside, and all the while, offer products and services that are world-wide paragons of efficiency, productivity, and in the truest network sense, "connectivity."
Posted by Joe Brenner | August 5, 2008 9:33 AM
If anyone is interested in the background of technical logistics ground rules and techniques that enabled this continuously evolving mix of local/regional/global manufacturing Teams & agents, check out the Commerce Department web site for National Institute of Standards & Technology (NIST). Then follow through with DOD counterparts that tested the techniques and then made them a key part of military contract logistics standards.
A key step involved a national digital part description standard for design and manufacturing of parts. It was pioneered by DOD, then electronics, auto and aircraft companies. Then NIST negotiated to make it an international standard. DOD made in key to relationships with NATO, Japan and other long term military players.
This technical logistics approach was started during Bush 1 administration, expanded during Clinton and then became part of the unnoticed background of globalized manufacturing. It was not an accidental trend.
Posted by Louis Heberlein | August 5, 2008 1:20 PM
Tom,
Short time listener, first time caller. I have long thought that the path to peace and relative prosperity lies through globalization for many of the reasons you state (and I appreciate your adding to them). Your assessments of that theory and the integration of those thoughts with political and social development are, from where I sit, spot on.
There is one thing that troubles me. If there is a significant Achilles heel to all of this, it seems to rest with the issue you touch on in this post - the fact that globalization treats the planet like an indestructible Timex watch. Until historically recent mass industrialization and the even more recent green revolution, we didn't have the capacity to exhaust natural resources. It may be we still haven't reached that point, but there are a lot of very smart people who think we at least need to be concerned about these issues.
If those saying we have passed the peaks in a number of non-renewable natural resources are anywhere near right and if we are using renewable resources at unsustainable rates, and if global warming is as significant as it appears to be, and issues of fresh water, disease and ecosystem sustainability are truly problematic, then the path towards greater globalization only exacerbates these problems.
The suggestion you and others make is that innovation and economic incentives will get us out of any jams by creating new markets that incent people to step in and find solutions. I certainly hope you are right, but it seems that is a doctrinaire response that, given your other work, is a bit too facile when set against the magnitude of the problems raised by the critique.
Those who suggest that we are near to or passed peak oil give us another 20-50 years of relatively cheap oil. If they are right, the ramifications for transportation, energy production, agriculture, plastics and a host of other applications are significant. And this is only one of the major problems identified as the significant issues affecting economic sustainability.
It seems that the often undiscussed flexion point in the innovation argument is that the 1) basic discovery, 2) technology development, 3) adaptation, 4) development of adaptive infrastructure and 5) manufacturing and deployment of cost effective solutions requires a relatively long time horizon. If the time horizon is limited, we are talking about potentially, interlocking and systemic innovation on a scale of unprecedented proportions. All of this seems to require unparalleled private sector and governmental cooperation on both national and international fronts on a scale for which we have no real precedents. Ironically, the innovation solution also requires massive consumption and redeployment of the very resources we are seeking to replace - a problem not associated with most other innovation issues. If there is, indeed, a clock running on this, the whole thing could throw a rather significant monkey wrench into our shared faith in globalization.
While I am a believer in the promise of globalization as you are - and believe in humanity's inherent march of progress, I cannot help but be somewhat disquieted humanity's commensurate participation in the all too common March of Folly. Isn't it always the unquestioned assumptions and blithely dismissed difficulties raised by the Cassandras among us that bite us in our collective asses? I find that usually we solve the problems ex post (and sometimes we don't) and, while life goes on, we could have avoided a lot of grief if we paid some attention.
We may well be right - and I very much hope we are - but it seems that if the globalization model suffers a significant potential blind spot it rests with this constellation of issues. While I am new to your work, I have poked around a bit and I don't see you addressing these with the same depth of insight as the rest of your model reflects. (And, if this is unfair and I need to read more of your work please let me know.) If you are inclined, I would very much like to hear much more from you on the entire constellation of issues dealing with sustainability.
Posted by Matt Wesley | August 5, 2008 5:57 PM
Matt, since this is your first time, i'm going to let it go, but that comment is way too long. please check the comment policy.
Posted by Anonymous
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August 5, 2008 9:15 PM
Hello Tom - Google’s Blog alert sent me to this post because of the term “regionalization.” As a CSPAN watcher I'm familiar with your work. Thought my 35 years experience has been with local government cooperation, I now see that as small scale geo-politics. I will include a link this post in the August 13 issue of Regional Community Development News. http://regional-communities.blogspot.com/ Please visit, check the tools and consider a link.
Posted by Tom Christoffel | August 5, 2008 9:51 PM
Matt,
I would try Bjorn Lomborg's "Skeptical Environmentalist" first. I talk sustainability in both of my first two books and have addressed in many columns and blog posts over the years.
You seem to have a doubting Thomas sort of perspective on the private sector's ability to manage this via markets and suggest that unprecedented public sector involvement is required. I, for example, don't see the shift to non-gas combustion transportation to be a fantastic task. Rather, I see high oil prices (more a demand function than a supply one) finally forcing that evolution and I see it unfolding all over the place, with almost no government role.
We have a tendency, born of the Cold War, to assume Manhattan Projects are required for every down-the-road trainwreck we spot. I am not of that mindset. To me, good grand strategy avoids the Chicken Little dynamic at all costs because it creates over-reactions.
Posted by Tom Barnett | August 6, 2008 9:09 AM