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Creative Rebirth

10/12/2021

One of my favorite economists was Joseph Schumpter, who died 71 years ago.  In my opinion, his greatest contribution was his study of  “creative destruction,” which argued that good things happen when bad things happen.  Inefficient industries would be destroyed and replaced by new, more efficient ones.  You’ve probably already heard someone say that capitalism is efficient but cruel.

That was part of my thinking that globalization was a good thing.  Industries in inefficient countries would be replaced by those in more efficient countries.  Cheaper production costs win!  There are even mathematical models demonstrating this, called “comparative advantage.”  I was pleased when Bill Clinton and Newt Gingrich gave birth to NAFTA.  Globalization boomed!

I vividly remember economists testifying before Congress that globalization was also efficient but cruel.  They explained that our nation would benefit from globalization but many individuals would be hurt, fired, or displaced.  Congress was told they needed to provide re-skilling and relocation of the victims.  Of course, Congress accepted the benefits of globalization without paying for the cost to the victims.  Much of Trump’s base was born from those victims.

Those victims lived in a  “hollowed-out” America, in small communities or factory towns.  With no work and with no way to feel good, they readily fell into opioid addiction.  I didn’t blame them, and my faith in globalization suffered.  I worried that the election of Trump and his “America First” agenda could be the death knell of globalization.  I should have remembered Schumpter’s “creative destruction.”

The globalization borne of Clinton, Gingrich, and NAFTA relied on cheap labor in Asia, particularly China.  However, with China’s cost of labor rising rapidly, production costs are already cheaper in Vietnam, Thailand, Mexico, Poland, and other places.  Plus, the fragility of  our “just-in-time” supply chains makes Mexico much more attractive.  Fortune magazine says “A supply-chain revolution is underway.”

Schumpter was right!  Despite neglect from Congress and despite attacks from Trump and despite the supply chain collapse, globalization will survive . . . and I’m glad!

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