What a ride the world has been on over the last thirty years: the fall of the Berlin Wall, China’s reemergence as a major power, the wishful creation of the BRICS, technological innovations, 9/11, conflicts in Iraq, Afghanistan, and Syria, terrorism, the market crash of 2008, the Arab Spring, the Eurozone crisis, America’s reemergence as an energy giant, the rebirth of czarist Russia, and the presidency of Donald Trump. The most important change, though—and the key to America’s future, despite Trump’s views—is globalization.
The Trump administration looks at foreign policy as a cutthroat competition that views the world as a zero-sum arena of economic combat. In The Joint Ventured Nation, author Edward Goldberg explains why this view is fanciful at best and totally lacks any understanding of how globalization has changed America and the world in the last fifty years.
Placing globalization within a larger historical, geopolitical and economic context, Goldberg demonstrates how an America First foreign policy is based on a world that no longer exists. He details how America’s fate is now intertwined with our economic globalized partners such as Europe and China. And he looks at how we should deal with states like Russia that have rejected globalization. Goldberg also looks at America’s allies in the Middle East such as Saudi Arabia and Israel and questions whether America’s commitments in the region need to be seriously reevaluated. But most importantly he explains why the US role in the international arena has evolved from that of the “indispensible nation” to that of an “indispensible partner”—and how America can remain first among equals in a joint ventured world.
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Invasion: America Becomes a Joint Ventured Nation
In the spring of 2012 during the Republican presidential primaries in the United States, Mitt Romney campaigned as if Europe, if not specifically an enemy of the United States, was a very unfriendly place. Europe in the eyes of Romney seemed to have taken over from China as America's leading punching bag. In fact Romney mentioned Europe so often during that time that you couldn't blame someone not familiar with American politics from thinking that Europe was the name of one of Romney's opponents in the primaries.
Romney stated on January 10, 2012, at Southern New Hampshire University in Manchester, New Hampshire, "I want you to remember when our White House reflected the best of who we are, not the worst of what Europe has become." Governor Romney then continued this theme throughout the spring. Interviewed on CBS's Face the Nation on June 17, 2012, he said, "We are not going to send checks to Europe. We are not going to bail out the European banks."
This was most probably a rehearsed comment, because a question about European bailouts was never even asked by the moderator. Not to mention the fact that a European bank bailout by the United States was not even on the mind of any European leaders.
Soon after that Face the Nation remark, the Romney campaign suddenly switched gears and stopped talking about Europe. It is clear that it became apparent to the campaign that these statements were not developing any traction. Europe bashing, which Secretary of Defense Donald Rumsfeld last used in 2003 when he branded Germany and France "old Europe," seemed to no longer resonate with the majority of Republican primary voters.
What is apparent is that the Romney campaign failed to notice how our economy was so integrated with Europe's and how globalization now affected almost every segment of American life, how America now exists in a globalized world, a joint ventured world. A world where major companies had interlocking or joint venture relationships with other companies around the world and where foreign companies, especially European companies, employed a substantial amount of people in the United States. Anti-Europe baiting did not work because many voters, on the most practical level, knew people who worked directly or indirectly for European companies or had investments that made them dependent on foreign markets. Even the ubiquitous french fry had become joint ventured in American life. ConAgra, the American agriculture giant, had along with Netherlands-based Meijer Frozen Food formed a joint venture company called Lamb Weston / Meijer to globally produce and sell frozen potatoes to be used for manufacturing french fries.
The number of Americans now directly employed in the United States by foreign-owned subsidiaries or indirectly linked to such investment, such as the luncheonette worker near the foreign auto manufacturing facility, has grown exponentially.
The latest figures from the Bureau of Economic Analysis (BEA), which are from 2013, show that employment in the United States by majority-owned US affiliates of foreign multinational corporations, or MNCs, was 6.1 million people in 2013, an increase of 3.6 percent from 2012. Interestingly manufacturing accounted for the largest share of these jobs (31.2 percent) and in fact grew by approximately 73,500 workers in 2013. The current-dollar value added to the US economy by these foreign affiliates in 2013 as measure of their direct contribution to US gross domestic product reached $835.6 billion, an increase 5.5 percent from 2012. Exports by these firms of products manufactured in the United States totaled $360.0 billion in 2013, a 3.0 percent increase over the previous year. And in 2013 international firms invested $236 billion in the U.S. economy, a 35 percent increase from 2012.
These figures don't even demonstrate fully the hundreds of thousands of US jobs and their political impact that are dependent on the European Union. In fact, 70 percent of job-creating foreign investment in the United States comes from Europe. Thousands of people work in European banks on Wall Street, in pharmaceutical companies in New Jersey, or in factories such as the BMW factory in Spartanburg, South Carolina, with its 2010 investment of $750 million, which made it the largest car factory in the United States by number of employees. Then there is Siemens, with its 60,000 employees, or Volkswagen, which, after investing more than $1 billion in a plant in Tennessee, produces 150,000 cars per year.
But manufacturing inside the United States does not even show the complete picture. American exports, whether to Europe or to the rest of the world, create more interdependencies, such as the approximate 12.3 million bales of cotton exported annually primarily from Texas and going mainly to China, where it is processed, dyed, and then sent back to the United States in the form of T-shirts and other clothing.
This economic interconnectedness of the United States to the rest of the world is forcing us to look differently at how America relates to the world. Of course, in a democracy, foreign policy must have a domestic base. Examples of this in American history are numerous, whether it was early Jeffersonian Republicans' support of France, Americans of Eastern European descent pressuring Truman during the early days of the Cold War, or the Cuban Americans in Florida continuously pushing for stronger sanctions against Cuba.
Unlike in the past, however, there is a significant domestic base today for a foreign policy tied directly to the vicissitudes of foreign markets and foreign finances. And this is what the Romney campaign failed to appreciate: America was no longer a self-contained, almost isolated continental marketplace but had instead become the creator of the joint ventured world. And to imply otherwise during a campaign directly confronted the everyday experience of many voters.
To understand the need for a foreign policy based on globalization and the needs of a globalized constituency, it is important first to appreciate how we got to this point and how from the early 1970s on, America became a joint ventured nation.
When Theodore Roosevelt assumed the presidency in 1901, the United States had just done something extraordinary in terms of economic history. In the forty years from 1860 to 1900, America went from hovering around the eighth- or ninth-largest economy in the world to being by far the largest with the creation of the first continental marketplace — a trajectory in elapsed time not so dissimilar to that of modern-day China.
Unlike England, France, Germany, and Japan, industrializing America at that time did not require a foreign policy to seek out colonies either as markets or as sources of raw material. And it did not need to see its neighbors as competitors. America had the bounty of the new world supported by a massive open immigration policy. Between 1860 and 1918, more than 28.3 million people came to America legally from thirty-five different countries. America's geographic and economic blessings made American foreign policy different, possibly more naïve, and definitely more insular.
Of course, America was not totally self-sufficient, especially in the areas of capital. As a precursor to our age of globalization, between 1870 and 1903 America received massive capital investments from Europe. These capital flows, however, unlike pre-2008 America, were not used for consumer spending on luxury European items or mass-market Asian products; they were used as investments in America's railroads and factories. These investments further spurred the American Industrial Revolution.
This chain reaction of massive pools of cheap labor, the technological innovations of the Industrial Revolution, a land rich in raw materials, bountiful agriculture, and capital created an almost perpetual machine of growth feeding off of and creating the world's first modern continental marketplace.
Michael E. Porter of Harvard writes about the competitive advantages of nations. He calls both Factors and Demand Conditions. For a late nineteenth-century economy, the United States stood out or was gaining an advantage in all of these areas. On Porter's Factor side, there were human resources, physical resources, knowledge resources, infrastructure resources, and capital resources. On the Demand side, the list included composition of home demand, size and pattern of growth of home demand, and rapid home market growth. America, with its supercharged continental market, played to all these strengths. US industry at the time had the advantages of achieving both economies of scale and levels of learning not available in other countries. To paraphrase Franklin Roosevelt, America was the "arsenal of democracy."
The wealth of the continental market allowed American foreign policy to essentially have two major goals: stability and protection against aggressors. As Alexander Hamilton wrote in the Federalist Papers, "Safety from external danger is the most powerful director of national conduct." Of course there were variants to this, like the need to slightly play the imperialist game under Theodore Roosevelt, or the period of 1970–2008, when America became dependent on imported energy. The economic success of the continental market, however, enabled America to see the world differently than other nations, to feel more secure with its isolationist bent, and yet simultaneously to have the ability to act more freely in the international arena.
But beginning in the late 1970s, changes in business practices, technology, and geopolitics began to take place, creating a dynamic that eroded America's continental market and gave birth to our current age of globalization. These changes, many very subtle and incremental, would end up severely challenging America's freedom of action in its relations with other nations. And unlike America's period of energy dependence, these changes cannot be reversed by technological innovation.
The first major breach after World War II of America's continental marketplace came about with the business practice of offshoring, manufacturing and importing cheaply made foreigngoods into the United States. Ironically, the door was opened to offshoring first by the federal government in Washington. This began during the early Cold War years when the US government, in order to build a bulwark against communism in Asia and not taking into account any domestic economic ramifications, encouraged Japan and Taiwan to export their products based on low wages to the United States.
As Robert Gilpin of Princeton University wrote in his essay The Rise of American Hegemony:
The United States wanted to integrate Japan into a larger framework of economic relationships and thereby remove the attractiveness of the communist-dominated Asian market. However, unlike West Germany, there were no large neighboring non-communist economies to which the Japanese economy could be anchored. To overcome this problem of an isolated and vulnerable Japan, the United States took several initiatives. It gave Japan relatively free access to the American market and to American technology. Furthermore, the United States used its vast financial resources to assist in the rebuilding of the Japanese economy, but it did not demand access to the Japanese economy for its multinational corporations. Instead, the quid pro quo for American economic concessions to Japan was Japanese permission to use their air and naval bases in order to deter the perceived threat of Chinese and Soviet expansion.
By the 1970s this same concept of bringing in products that could be made less expensively abroad than in the United States became a business strategy of major US corporations. People like Jack Welch, then chairman of General Electric, realized that they could avoid union and legal restrictions and of course increase their profitability by manufacturing products for the US continental market abroad. In fact Welch reportedly made the statement that "if he could have his way, he would put all of the GE factories on barges so he could ship them around the world in search of the lowest wages and the least government regulation protecting workers."
Offshoring would change forever the insularity of the American marketplace, while at the same time ironically violating Henry Ford's dictum of paying his workers well so they could afford his cars.
The shift to offshoring would not have taken place without two fundamental technological changes that empowered world trade: First was the introduction of the fax machine or facsimile machine by Xerox in 1964. The fax machine allowed purchase orders, manufacturing schematics, and banking documents to be sent instantly around the world. A designer in the garment center in New York now could have his or her design immediately in the hands of a manufacturer in the Far East. Simultaneously the banking documents could be instantly delivered to that manufacturer so that he or she would know that there would be no financial risk in beginning production of that design.
By the mid to late 1970s, especially because its adaption by the leading Japanese firms, the fax machine became ubiquitous in international trade.
As Ian Wallis writes in 50 Best Business Ideas That Changed the World:
Between 1983–1989 the number of fax machines in use worldwide soared from 300,000 to over four million.
In fact some business people argue that the fax machine had a greater impact on the business world than email. Certainly it enabled almost instant communication multinationally, facilitating substantial growth in international trade.
Second was the invention of the shipping container, which seems so simple and logical now, but at the time was a major revolution in the shipping of goods around the world.
Although the shipping container was first conceived and used by Malcom McLean in 1956, like many basic technological changes it need the impetus of war to prove its practicality; in this case it was the Vietnam War. In the early 1970s, with the practicality of containers being proven on a massive wartime scale, SeaLand and other major steamship companies ordered and took delivery of new ships that were specially designed for both speed and to maximize the number of containers they could carry.
With containerization, products were loaded into a container at the foreign factory; the container was then put on a flatbed vehicle and brought to the port where a crane lifted it onto the boat. Once the ship docked in the United States, a crane lifted the container off the boat, put it on a flatbed truck or train, and delivered the container straight to the warehouse or the retailer. The process tremendously simplified and reduced the cost and risk of loss in shipping of product. Essentially no human hands were involved in loading and unloading product from the time the goods left the factory to the time they arrived at the customer's facility. And of course, without a need to manually lift products from a truck on and off a boat, containerization greatly reduced pilferage.
Containerization, along with the rapidly growing post–Vietnam War East Asian economies, did one other thing — they once again offered de facto proof for Jan Tinbergen's Gravity Model of Trade theory. Tinbergen was a Dutch economist and along with Ragnar Frisch, a Norwegian economist, became the first winners of the Nobel Prize in Economics in 1969.
Tinbergen, who besides being an economist was a physicist, looked at trade flow formulas in a similar manner to Newton's law of gravitational force, thus the name the "Gravity Model of Trade." In Tinbergen's theory, which he first proposed in 1962, trade between two economies will equal the size of the two economies multiplied together and then divided by their distance. Obviously the size of markets plus the cost of shipping play the major role in the theory, and of course trade flows will decrease when shipping costs increase because of distance. But with the growth of the South Asian economies and the decrease in shipping cost due to the efficiency of containers, in effect reducing the cost of distance between Asia and the United States, trade as per the theory exploded.
While offshoring was beginning to take hold, a fundamental shift was taking place within one of America's basic industries — automobile manufacturing.
For the first half of the twentieth century, imports of cars into the United States were hardly noticeable. In 1950, only 21,287 units were imported. The big three US automakers were content and asleep in terms of quality and innovation in their isolated continental marketplace. They were able to ignore globally made autos, claiming that the American market did not want small-size cars that were of "lower quality" and less reliable.
Then came the 1973 fuel crisis and smaller, more fuel-efficient cars became an economic necessity, a product that Detroit in its isolation had shunned. By 1977, imports surpassed domestically manufactured cars by two million cars per year. American consumers were also finding that the quality of the imported cars on the whole surpassed the domestic-made car, and by 1986, 4.1 million cars were imported.(Continues…)
Excerpted from "The Joint Ventured Nation"
Copyright © 2016 Edward Goldberg.
Excerpted by permission of Skyhorse Publishing.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Chapter One Invasion: America Becomes a Joint Ventured Nation,
Chapter Two The Roots of the Joint Ventured World — Or Whatever Happened to Old-Fashioned Sovereignty?,
Chapter Three The Paradox,
Chapter Four The Refusenik: Russia,
Chapter Five Do We Have Skin in the Game? America and the Middle East,
Chapter Six The US Federal Reserve — The Impotent Hegemon,
Chapter Seven The Reluctant Hegemon,
Chapter Eight The Network, Leadership, and the Netherworld,