The Failed Age of Globalization & a New Era of “Homecoming”

CHRISTIANE AMANPOUR, HOST: Now, as the global economy faces increasing pressure, our next guest is making the case that the reign of globalization is over. Rana Foroohar is a global economic analyst for CNN and a columnist at the “Financial Times”. And in her new book, “Homecoming”, she examines how events like COVID and Russia’s war in Ukraine have disrupted fragile global supply chains. And she tells Walter Isaacson that the future for the global economy may lie in local and regional business.

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WALTER ISAACSON, HOST: Thank, you Christiane. And Rana Foroohar, welcome to the show.

RANA FOROOHAR, AUTHOR, “HOMECOMING”: Thanks for having me.

ISAACSON: You know, we always thought that globalization, free trade, was going to make everything wealthier, nations wealthier. And it has in some ways allowed workers to go to Walmart on a Sunday night, get a flat screen TV very cheaply. But I think what we didn’t understand was it might also make it so they couldn’t get the early morning bus and have a decent life because of a decent job. Tell me about the failures of globalization.

FOROOHAR: You know, it — you’ve really hit the nail on the head. Neo- liberal globalization, what we’ve known for the last 40 years, was all about the idea that money, goods, and people could travel across borders, wherever they wanted, and that they were going to land up where it was best for everyone. And so, what we got was cheap capital coming from the U.S. into Asia, the exchange was for cheap labor and we got a lot of cheap stuff. As you say, we got — you know, we got low, low prices in Walmart and on Amazon. But it didn’t make up for the fact that even though there was all of this wealth at a global level within countries, within the U.S., within many European countries, great levels of inequality were growing. And big parts of countries were being hollowed out. In our own country, in the U.S. big chunks of the Midwest, where I’m from. The south, where you’re from. These areas just did not see the kind of wealth that the coast did. And we have this idea that we could become a country in which everyone was going to be a banker or a software developer and that was going to be fine and we outsourced a lot of our industrial base and it just didn’t work well enough. So, you know, all those cheap goods didn’t make up for the fact that the price of the things that making middle class, right, housing, education, health care in America. They were rising at multiple times for inflation, even before we have this latest bout of inflation. And I think that that sense that we now need to reconnect the global economy to national political concerns is really where the action is.

ISAACSON: You call your book “Homecoming”. It’s not just about international concerns, it’s local. It’s like every community. It’s the homecomings for that. Explain the concept of “Homecoming”.

FOROOHAR: Yes, absolutely. So, one of the trends over the last 40 years has been concentration. Concentration of power, concentration of wealth in the handful of cities and in a handful of companies. Lots of statistics show that. My take is that basically if you want to have a functioning liberal democracy, you’ve really got to spread the wealth. You know, you’ve got to get a much broader range of communities feeling that prosperity. And you know, we can look back on the last few elections in the U.S. and see in places where there was a sense of wealth, a sense of optimism, a sense of, you know, the future might be better. Those areas tended to vote for Joe Biden. The areas where they did not have that, they tended to vote for Donald Trump. And you know, we’ve seen populism not just on the right but on the left as well. Bernie Sanders is, sort of, you know, the other side of the coin in that sense. So, you’ve got to start building up local communities. And one of the things that I’m actually very encouraged about is that aside from the political concerns, which are encouraging new production in the U.S. You’ve just seen for the first time in half a century two big semiconductor factories being started in the U.S., one in Ohio, one in Upstate New York. This is great because it’s about building manufacturing. It’s about building resiliency. But there’s lots of new technologies that are in trained that are allowing things to be done more locally. And this is something I look at carefully in my book, actually. I spoke to Eric Schmidt, former head of Google. And we talked a lot about something called additive manufacturing, 3D printing. This used to be something for hobbyists. It is now something that every industry is looking at because it allows you to make parts right on location. You can make a whole car this way now or even a whole house. You know, I went out into Texas and saw houses being 3D printed in six days for $250,000. That cuts out seven different supply chains and all the energy and all the carbon cost to transport those things through far flung areas and to bring that economic growth and activity into local communities. These are just a couple of examples. But it’s happening in pockets everywhere.

ISAACSON: We’ve been talking a lot about China. And especially recently with supply chains disrupted and then the CHIPS Act saying, OK. We can’t be so reliant on chips from Taiwan, as well as from China. Do you think this whole trend is going to mean we’re going to have to wean ourselves away from our strong economic relationship with China?

FOROOHAR: In a word, yes. I do. I’ve thought for a long time that decoupling with China was happening. And it’s not just something that is about the U.S. You know, China is always very clear in its five-year plan about where it’s going. It made a statement many years ago that it wanted to be free of U.S. technology, of western technology. That it wanted to have what it calls a dual circulation economy, which is sort of what we’ve been talking about. It’s keeping production and consumption closer together. That makes sense. To me, China is a bit like the U.S. in the World War II period where it’s a big single language market. It still has room to run. It makes sense for them to keep more production domestic. That’s all fine. The problem is that the U.S. and China have been in sort of a dysfunctional economic relationship for many decades now. And it is going to take time and difficulty to untangle that.

ISAACSON: Here is one problem though. Take lithium, which is really important to the electric car battery and to what the laptops right in front of us. China doesn’t have that much lithium. But a huge amount of the world supply of refined lithium comes from China.

FOROOHAR: Yes.

ISAACSON: Same with most battery component. If you try to start a lithium refining plant, it’s going to take forever. Because we don’t permit, because it’s not in my backyard, because people are kind of afraid of the word lithium processing. We just can’t manufacture in America, not simply because of this globalization neo-liberalism you talked about but because we’ve come so constricted. How do we get over that?

FOROOHAR: These are fantastic points. All of it. It kind of plays to that whole notion of, well, cheap isn’t really cheap when you start looking at, what are the environmental costs? What are the labor costs? You know, we just kind of, send everything overseas and said, let them deal with the pollution, let them employ child labor if they want. Well, now that we are bringing some of these jobs and industries back, we have to make some hard choices. There are, indeed, rare earth mineral companies being launched out west. There is one that actually just reopen in Canada recently. So, the U.S. and Europe are looking for more redundancy in these supplies. And I would say that that word, redundancy, resiliency and redundancy, that’s where the action is going to be. We’ve had efficient systems, meaning, you know, they’re quick, they’re concentrated, they work as long as nothing else is going wrong in the world. But as the pandemic and the war in Ukraine have shown us, the minute something changes, be it a geopolitical situation, a tsunami, you know, some kind of energy spike. Well, these supply chains don’t work so we anymore. So, we are well advised to start creating some more resiliency and redundancy in our systems.

ISAACSON: If we really want to be self-sufficient at home, more so than we are now, we probably need to be less reliant. And Europe needs to be less reliant on energy from Russia, from Venezuela, from Saudi Arabia, other places. But we also have problems in this country saying, yes, let’s have some more oil and natural gas leases mean that, let’s get some pipelines, like Joe Manchin wants.

FOROOHAR: Yes.

ISAACSON: Is it possible to do what you want without saying no, we have to actually in this transition period, wean ourselves from energy from places like Russia and China?

FOROOHAR: A huge issue and a great point. I would’ve liked to have seen more U.S. shale (ph) production online. Of course, energy markets are — they’re very tricky. They go up and down. They’re highly cyclical. When energy costs are low, as they were until pretty recently you, get people saying well, $70 shale (ph) just doesn’t make any sense anymore. And so, they cut off all production. I have thought for a long time that we needed a — what I would call, an industrial policy. You know, when we start to have smart grids that can manage energy community by community. Sensors in everything that can really help us to just do things more efficiently, more locally and move to those green technologies which can create more jobs. You know, imagine if you got every coal miner retrained in clean energy platforms, and guaranteed work, and use federal budgets and purchasing power to do that. That’s what the Biden administration has been trying to do. Not easy though because, you know, we are going out to work with partners. This idea of friend-shoring becomes much more important. And you saw an interesting speech, actually last week —

ISAACSON: And friend-shoring means we rely on Canada, Mexico.

FOROOHAR: Indeed.

ISAACSON: Places that are not as unfriendly as Saudi Arabia or Russia could be at times.

FOROOHAR: 100 percent. Yes, this idea — and, you know, Janet Yellen, actually, I had a conversation with her when she first brought that term up. It’s about thinking about values and not just prices when it comes to trade. Chrystia Freeland, the deputy prime minister of Canada actually gave a very interesting speech about this at the Brookings Institute last week. And said look, we are in a new world. It matters that we get our energy from autocrats. And we are going to need to work together, work with the U.S. and Mexico to come up with clean energy platforms. We need to get Europe onboard with that. And this is something that’s going to be tricky as well. It’s one thing for the U.S. or North America and South America together which are, you know, a big block. We’ve got food, fuel, consumer demand. We can kind of hunker down and do localism. Europe feels anxious about this at the moment. And that’s because Europe is pulled in many different directions. Britain, in particular post-Brexit feels very alone. You know, Germany and France maybe are together still the center of Europe. But will the center hold? You know, southern countries like Greece and Italy are actually being pulled in some ways into the Chinese orbit through the one belt — one road strategy. And so, the world is bumpy. The world is multi-polar. And diplomacy and friendship is still going to be very important even in a more local age.

ISAACSON: Here’s one problem I felt when I read your book — which I love, by the way. But it was —

FOROOHAR: Oh, thank you.

ISAACSON: — but it was that OK, if we are going to be less dependent on cheap goods globalization, free movement of capital and trade, stuff like that. It means a whole lot of things are going to cause a little bit more.

FOROOHAR: Yes.

ISAACSON: The flat screen TV is going to cost more. But so is the oil and gas, so is solar panel that you’ve talked about, so will every component that we buy. We’ve got a really bad inflation problem. The trend you’re advocating, wouldn’t that add up to inflation.

FOROOHAR: It would in the short term. And there’s no getting around that. Cheap isn’t really cheap when you count in the true cost of labor, the true cost of energy, the true price on carbon. All the emissions that companies are emitting to create the things in Walmart that we get so cheaply. So yes, there is going to be some short to medium term inflationary pressure. But I would say that if you asked people — working people making $25,000 a year, would you rather have more cheap stuff in Walmart and Amazon or would you rather have a job, a middle-class job that is secure? That would allow you to provide housing, education, health care for you and your family. I think that they would pick the latter. And that’s what this regionalization and localization is about. It’s about using transformative new technologies, all the things we talked about. The transition to clean energy to start to build productivity and to build a new economy that can bring everyone along. And if you look historically, the periods where we’ve had a lot of shared sustained growth have been when there’s been a transformative new technology like the railroads, let’s say, or the internet. The government puts a floor under it, supports it, and the private sector commercializes it in each country. And if we can harness that opportunity and stop thinking so short term. I think we can be in a good place.

ISAACSON: And what about the consumer who can get their goods cheaper at Walmart or through Amazon?

FOROOHAR: They can get them cheap enough to bolster the fact that housing is up 50 percent year on year. It just doesn’t —

ISAACSON: But doesn’t that hurt these little companies that you write about that are trying to do things in a local good way? Don’t they get crushed by those who know how to play the global supply chain?

FOROOHAR: Well, they have. Although it’s interesting, I think that you’re starting to see a real shift in Washington around antitrust, for example. One of the big initiatives of the Biden administration has been to look at these concentrations of power in agriculture, for example. You know, you remember when the pandemic hit, nobody’s going to restaurants. Everybody’s lining up at the grocery store. You know, you can’t find things. Well, why is that? Because about four companies are controlling our entire act supply chain. There are two separate supplies, one for restaurants, one for grocery stores. It’s a very concentrated, very fragile system. And so, Lina Khan of the FTC, Jonathan Kanter of the DOJ, Tim Wu in the White House, all these folks are starting to think about how can we make sure that there is opportunity for all? Small, mid-size businesses and big businesses but also communities and workers.

ISAACSON: How do you see the prospects of a recession? I know you’re talking about longer-term things. But in order to get there, how do you do that balance that might prevent a bad recession?

FOROOHAR: One of the reasons that we have got an economy that is so financialized and by that, I mean that the financial economy, Wall Street, you know, all the things that are bought and sold on Wall Street, that is now four times the size of the actual economy that we live in. How did we get there? Well, over the last half century, we had politicians of both stripes saying, we don’t want to take those hard guns and butter decisions. We don’t want to choose between interest groups. So, let’s just toss the ball to the market. The market knows best. And what that means in practice is that they tossed the ball to the central bankers. To the Federal Reserve. And the Federal Reserve kept interest rates low, really, for a period of about 40 years. And then of course you got the financial crisis. You get a lot of money being pumped into the economy. Pandemic happens. You get even more money being pumped in. And so, then you get a situation where the economy is so highly financialized and leveraged. And it’s — we’ve enjoyed this kind of saccharin (ph) growth. And I say that because it’s not really the real thing. You know, central bankers can pump up stock prices and house prices. They can’t build a new factory. They can’t invent the iPhone. They can’t really do the new new thing that you need to create growth in an economy. But now, they have to try and bring down the inflation. The asset inflation, in particular, that’s happened from all this, sort of, you know, artificial pumping up of things. And they have to do it fast because the inflation is really hitting real folks. And I have argued, as have many, that they should have started doing some of that right after the financial crisis to give themselves more room to breathe.

ISAACSON: Rana Foroohar, thank you so much for joining us.

FOROOHAR: Thanks, Walter.