Thursday, April 19, 2007
Corporate Insider Slams Globalization
A former Senior VP at IBM, Ralph Gomory, has been tentatively hailed as a possible Martin Luther in The Church of Free Trade. During his tenure at IBM, he watched formerly backward nations like Singapore vault their way to international prominence by doing low-level factory work for U.S. companies first, then gradually invading and taking over more high tech domains. The experience caused him to doubt whether or not unrestrained free trade was in the best interest of his homeland. With economist William Baumol, he published a book in 2000 entitled Global Trade And Conflicting National Interests. After receiving little attention for years, this book and its ideas have become a topic of discussion among politicians and executives.
Gomory contends that to outsource manufacturing to developing nations to take advantage of cheap labor will ultimately provide a springboard from which such nations can rapidly evolve more sophisticated economies that will compete directly with the most advanced industries in the United States. So long as labor remains relatively less expensive in those nations, U.S. corporations will continue to outsource the development of products that require increasingly more complex skill sets. In the beginning, the influx of goods manufactured more cheaply overseas will generate wealth for American corporations, and provide more diverse and affordable products for American consumers. But eventually, when all products and services can be provided more cheaply - and of comparable quality - overseas, the commercial power of the United States will decline both domestically and internationally. What is worse is that the price of imported goods and services will inevitably increase at a time when both the earning power of Americans and the level of their own skills are falling, putting the nation in a double bind. According to Gomory, the end stages of this process are happening now.
Gomory emphasizes not only that action needs to be taken promptly, but that such action must be orchestrated on multiple fronts. Imposing changes to the tax code that penalize corporations for outsourcing will only force corporations to transfer their headquarters overseas. Tax penalties on outsourcing must be combined with restrictions on imports that will, in effect, penalize American corporations if they attempt to shield the profits of outsourcing from higher taxes by hiding themselves behind the cloak of foreign ownership.
These ideas may be as hard for some to take as the concept of global warming was, say, five years ago. They also fly in the face of both global ethics and corporate expedience. Many might say that for poor nations to grow richer while the United States grows poorer is cosmic justice. Maybe so, but it is not in the best interest of the United States, and that means you and me. Corporations will say that they have a mandate to earn the highest profit possible at any cost. And that, as it turns out, is not in the best interest of either the United States or cosmic justice.
"The Establishment Rethinks Globalization" from The Nation