Revisiting Globalization

By Matthew E. Daley

The conversation about globalization has begun anew with the onset of COVID-19 and will doubtless continue for a long time to come. The benefits of globalization for consumers have been obvious, even as elites finessed the concerns of American workers whose jobs were exported in the name of lower costs and better profits.  Unions tried to hinder this export, but succeeded mainly in delaying its spread, which accelerated with the proliferation of free trade agreements (“FTA’s).  (Advances in technology have probably been responsible for more job losses than globalization.) The value of FTAs to the United States became a subject of much debate with both 2016 presidential candidates pronouncing themselves in opposition to the Trans Pacific Partnership, but globalization neither began with nor will end with FTAs.

Beyond the benefit to consumers in the developed world, globalization doubtless contributed much to economic development in a great many countries and lifted hundreds of millions out of abject poverty. As we reconsider globalization based on our vulnerability to transnational viruses and disruption of supply chains (whether for political or medical reasons), we should not throw this particular baby out with the bath water. Instead, we have to look at over-concentration of production in a single overseas firm or foreign country as well as the structure of our supply chains and critical design requirements.  The perils of over-concentration should have registered with great clarity when the scale of the Takata airbag disaster emerged. Airbags installed as early as 2002 and up to last year remain on the recall list with NHSTA adding one vehicle type after another in a measured pace so as not to stress the system. As of last year, the NHTSA reported that the backlog of vehicles in the US needing replacement airbags numbered over 41,000,000. Fortunately, deaths have not reached horrific proportions, but the issue is clear.

More dramatically, the effects of allowing a critical system to have a “single point of failure” can be seen in the Boeing 737 Air Max fiasco (which admittedly had other contributing causes).  There is a reason why precious few people choose to parachute from a plane without a reserve chute. The most identifiable economic effects of the 737 Air Max design flaws are seen in the US, but the loss of life has been concentrated abroad; and countries that purchased the 737 Air Max have also paid a high economic price. Like the Takata debacle, the 737 Air Max will probably be a staple for tort lawyers for a decade if not a generation to come.

We also cannot afford to have single points of failure built into critical elements of our health care system. The fatalities caused by COVID-19 are orders of magnitude greater than the Takata and 737 Air Max episodes combined and point to yet another development that has taken place in the context of increasingly efficient economic systems, i.e., “just in time delivery.” This excellent Japanese innovation has been adopted globally and contributes to lower costs by eliminating the need for and cost of maintaining large inventories. From a general perspective, this is a fine way to operate, but not for critical systems such as national security or public health, where the need for reserves in the form of stockpiles is understood, even if judgments on what would be needed to cope with a particular contingency (such as COVID-19) might prove to be off the mark. After the current crisis is past, there will doubtless be a fresh review of that needs to be maintained in US stockpiles, and not just medical stockpiles.

There is at least one new policy step we must take. Just as the federal government reviews foreign investments in the US to determine if a given proposal might be inimical to our national interests, it should also review certain American investments abroad to ensure they do not result in our becoming dependent on a single firm or even country for critical systems such as active ingredients for pharmaceuticals, medical equipment, communications systems, etc. This system has functioned well for inward bound investment. If applied to our reliance on imported “game stoppers” it could increase our resilience and ability to cope with “black swans” like COVID-19.