You’ve probably noticed that the world has become smaller. Okay, maybe it’s not actually smaller, but it is definitely more connected. Improvements in technology, transportation and communications have helped integrate countries around the world. As a result, our economies and societies have also become more connected than ever before.
While all this is happening, you have probably also begun to hear more people use the term globalization. And it’s likely that the discussions you’ve heard have been long on emotion and short on facts.
On the whole, globalization has been and continues to be extremely positive. But it’s difficult to see the overall positive effects, which have been gradual and steady over time. Some of the benefits of globalization include a higher average income for the American worker and more product choices at lower prices for consumers. But unless you’re an economist, it’s hard to connect dots between these benefits and globalization.
Unfortunately, the perceived negative impact of globalization is easier to identify. We hear about isolated job losses and “preserving America’s dwindling middle class.” Consequently, there’s an abundance of fear surrounding the issues. And we’re left with the perception that our nation and all of us as individual citizens are not participants in a global economy, but victims of globalization.
So let’s focus on the facts and look at some examples of the rewards of globalization, specifically as it relates to free trade.
Free trade and open markets have a profound impact on economic growth, both at the national and individual levels. In the last century, global per capita incomes increased almost fivefold. The fastest growth occurred in the last half of the 20th century, when trade and capital movements increased rapidly. The slowest growth was during and between the two world wars, when isolationist practices and capital restrictions reigned.
Countries that opened their markets and interacted with the world economy during the 20th century saw huge gains. For example, China opened its economy in the 1970s and has since averaged around 12 percent annual growth with a 10 percent annual increase in per capita income.
To bring it back home, a study by the Institute for International Economics shows that as the world has gradually opened markets over the last 50 years, the average annual American household income has increased by $10,000. And future policy liberalization could add another $5,000 per household per year.
Increased trade not only puts more money in our pockets—it also gives us more options on which to spend it. American consumers can choose from the highest quality and most competitively priced products in the world. This is especially important for our lowest-income citizens. Trade barriers actually hurt the poor the most, because some of the highest U.S. import taxes are charged on everyday items like clothes, shoes and food.
Better living standards
Economic gains aren’t the only or most important benefits of globalization. Through trade, we improve quality of life.
According to the World Bank, in the last decade alone, free trade and open markets have lifted 200 million people worldwide out of poverty—the largest and fastest reduction ever recorded. A recent study by the International Monetary Fund shows that quality-of-life indicators like access to education and life expectancy also improve with increased trade. No government aid package or corporate philanthropy effort can have this kind of impact.
Globalization success plays in Peoria
Globalization doesn’t just impact governments, economies and people in the developing world; it also provides tremendous benefits to our communities and employers.
Take Caterpillar. In 2007 the company exported more than $12.7 billion in products from the United States—a level of production that helps provide jobs for tens of thousands of Caterpillar and supplier employees in the United States. With more than 46 percent of products built at Caterpillar’s Aurora, Decatur and East Peoria facilities exported internationally, it’s no exaggeration to say that Cat employees in these locations depend on the international economy for their jobs.
At the same time, Caterpillar has also become a major manufacturer and exporter in the United Kingdom, Brazil and China—just to name a few of the 40 countries in which Cat operates production facilities today.
“Throughout the 20th century we have built our global footprint in anticipation of changing economic conditions and increasing global competition,” says Caterpillar Chairman and CEO Jim Owens. “In doing so, we have discovered that competing against the best of the best internationally makes us a better company. By expanding globally, we maintain our ability to grow locally.”
Caterpillar has also invested for local access in the countries in which it does business. For example, over the past few years, Caterpillar has more than doubled its Chinese workforce. This prompts the critics to say, “There goes Caterpillar, sending U.S. manufacturing jobs overseas.”
But as Caterpillar has increased its presence in China, the company has also increased its U.S. exports to that country by more than 50 percent. In fact, Caterpillar exports to China about four times as much as it imports from them. That’s one reason Caterpillar has been able to add more than 11,000 new U.S. production employees since the start of 2006, more than 4,000 of them in Illinois.
Overall, in markets where the United States has secured free trade agreements, Caterpillar is enjoying tremendous growth. For instance, since the implementation of a free trade agreement between the U.S. and Chile, which completely eliminated most tariffs, Caterpillar’s U.S. exports to Chile have nearly doubled, and that country has become Caterpillar’s fifth-largest U.S. export market.
A call to action
We can’t protect ourselves from globalization. We must embrace this new, small world we live in and take advantage of all its opportunities. After all, the United States has only five percent of the world’s population. That means 95 percent of potential customers for U.S. products and services are located outside this country.
Fear of globalization implies that America believes its workers and companies cannot compete globally. But that is simply not true. Our nation has the innovative companies and people who can design and build products to compete in the world market. We know how to determine what our customers want and need, and we’ve demonstrated over the years that we are resilient.
Given a level playing field with the same access to foreign markets that other countries have here, American companies and their workers can compete and win. But to do so, the United States not only needs to become a more active participant in the global economy—we also need to play a real leadership role through the expansion of trade agreements and foreign investment. It is time to end the Fortress America mentality. Our country cannot build walls to greatness. Instead, we must build bridges, promoting ideas and values linked to market-based competition and democracy—long the keys to America’s success. IBI