In America, war between old and new industries challenges culture

In America, war between old and new industries challenges culture
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The 2016 election brought into daylight two sharp fissures in the American electorate created by globalization. The first fissure is between the “newocracy,” America’s new aristocracy that benefits from globalization, such as the multinational manager, the technologist, and the aspirational members of the meritocracy, versus the refugees from globalization. The second fissure more hidden from the headlines, but equally important, is the outright political war between the new globalized technology industries and the old industrial industries, such as steel and coal.

What has made the United States the principal creator of the knowledge age is its ability to adapt to change, an ability derived from American cultural respect for the freedoms to take risks, to innovate and to be entrepreneurial. Innovation by definition brings about change, creates winners and losers, and challenges the power of the entrenched interests that have become accustomed to the status quo.

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Intensifying the war between the old and new industries is that in the American system, the notion that government and industry are totally independent of each other is a simplistic myth. How long the losers survive, and how quickly the winners can grow, is partly determined by which industries get government support, and which do not. For instance, the old industries today want government protection from imports with penalizing duties, while the new industries want free trade. While  “made in America” is an important slogan for U.S. Steel, protectionism is an anathema for Apple with its need for global sourcing and exchange of ideas.

Although the old industries under the banner of “Trumpism” won the election, they have lost the war. Globalization, the breeding ground of the new industries, is not going back into the genie’s bottle. Consider the current protectionist crusade against China in support of American steel and ask yourself which side will win. The steel industry in the United States last year employed one-tenth of 1 percent of the American workforce, or approximately 87,000 workers, while ironically, the steel import industry employed more than 60,000 workers in the United States.

However, these numbers have little to do with imports. Instead, the problem is automation. The truth is that in the late 1970s, it took 10 workers to make one ton of steel, while today it only takes one. Compare this to the American auto industry, a truly globalized player with its integrated global sourcing, manufacturing and marketing.The largest market for General Motors is now China, which is the second largest market for Apple. A trade war with China to protect the U.S. steel industry would almost certainly threaten General Motors and Apple.

Or look at what happened last month when there were two almost opposite headlines in The New York Times, which together could be read as a tomorrow versus yesterday piece. One was about China’s big push for electric cars, while the other was about the U.S. Environmental Protection Agency and its rollback of the Clean Power Plan. The former story followed a separate report that General Motors, in response to the Chinese government, is working on 20 electric car models.

Look at Boeing, the crown jewel of American sophisticated manufacturing. Although it assembles its planes in the United States, it sources its parts from all over the world. Parts for 787 Dreamliner come from 5,000 factories worldwide. The forward fuselage comes from Japan, the engines from England, the entry doors from France, the rudders from China. The Boeing 787 might be trademarked as “made in America,” but in the air it is the flying definition of globalization.

The Boeing 787 represents another sharp contrast between the old industries and the new. The new industries straddle globalization, seeing the world as the marketplace, understanding that in order to sell to the world they need to buy from the world. Boeing would need to shrink tremendously as a company to be a supplier of just domestic commercial aircraft, as around 70 percent of Boeing commercial revenue comes from outside the United States. General Electric is similar, as almost 70 percent of its revenue will be from outside the United States this year.

One of the important features of American culture is that the view toward the future has always won out. Old industries are not protected and rarely get a major seat at the political table. The Trump administration, more regressive than conservative, is trying to change that. It is trying to do the impossible by bringing back yesterday and fails to recognize that in the process, it is only aiding our competitors.

Edward Goldberg is a professor of international political economy at New York University’s Center for Global Affairs and a scholarly practitioner at Baruch College’s Zicklin Graduate School of Business, where he specializes in globalization. He is the author of “The Joint Ventured Nation: Why America Needs A New Foreign Policy.”