Globalization

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The US economy has spawned a vicious cycle that few people are talking about, but it's one that affects us all. You, right now, are likely caught in that ugly loop. In fact, it's what may one day send you packing from your job. It's called technology-enabled disruption. And the worst part? (There's a worse part!?) You contributed to it in a big way, explains Robert S. Kaplan. Advancements in retail technology gave consumers the power to shop smarter and put pricing pressure on manufacturers. That pressure is "rippling back, through impacts on workers and their wages, and maybe encouraging businesses to increasingly replace workers with technology," says Kaplan. In a nutshell: every time a consumer finds a bargain, a robot gets a job.

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ROBERT STEVEN KAPLAN

Robert S. Kaplan is president and chief executive of the Federal Reserve Bank of Dallas. Previously, he was the Senior Associate Dean for External Relations and Martin Marshall Professor of Management Practice in Business Administration at Harvard Business School. He is also co-chairman of Draper Richards Kaplan Foundation, a global venture philanthropy firm, as well as chairman and a founding partner of Indaba Capital Management. Before joining Harvard in 2005, Kaplan was vice chairman of the Goldman Sachs Group with responsibilities for Global Investment Banking and Investment Management.

He has written several books on leadership and goal development, including

'What You're Really Meant To Do: A Road Map For Reaching Your Unique Potential' published by Harvard Business Review Press. You can read his most recent essay here.

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TRANSCRIPT:

Robert S. Kaplan: So listen, during almost my entire lifetime globalization has been a key element of our economy. It started decades ago as many industries wound up—manufacturing in particular—off-shoring jobs to take advantage of lower labor rates in other countries. And so we lost manufacturing jobs in this country due to globalization. But the other part of globalization is increasingly the S&P 500, the 500 largest companies domiciled in the United States, are increasingly finding a larger share of their revenues and profits are coming from outside the United States.

And the other part is our trade relationships, the nature of them, are changing due to globalization. I’ll take Mexico as an example. Right now, of the imports to the U.S. from Mexico, 40 percent of those imports is U.S. content. So what is that about? It means these are not just trade relationships. These are integrated supply chains and logistics that, in our judgment at the Dallas Fed, are making the U.S. more competitive, likely actually adding jobs in the United States and keeping those jobs from going elsewhere, most likely to Asia.

The last part of globalization that we have to—a couple of more parts I’ll talk about is China is much bigger today than it was 10 years ago and 20 years ago, and I mean much bigger as a percentage of global GDP. China has been growing at much higher rates consistently than almost any other country in the world except for maybe India. It means they are a larger percentage of global GDP and they’re a much larger percentage of global GDP growth. Okay, what’s the impact of that?

They have been—in order to get that growth, and they’ve been growing recently, about 6.5 percent. Unfortunately in order to achieve that growth they’ve been growing debt to GDP. In other words they have been leveraging in various sectors to either build infrastructure or to build capacity in many state-owned enterprises. The impact of that is they’ve got dramatic overcapacity in a number of their industries which creates global overcapacity. And so China bears watching. The world is going to have to get accustomed to lower levels of growth from China and also because of currency outflows. That has the potential, because the world is much more financially integrated, currency outflows in China, which is what happened in the first quarter of 2016, have the potential to create ripple effects and spillovers throughout the world and this happened in the first quarter of 2016 where we saw financial turmoil in China translate into rapidly tightening financial conditions globally.

So those are a number of elements of globalization. What’s the point of it all? The point of it all is: you have to think about the economy in a much more global way. Globalization...

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