A funny thing happened on the road to globalization.
It became a two-way street, not a one-way trade superhighway for the developed economies.
The change in traffic — which loosely corresponds with China's entry into the World Trade Organization in November 2001 — has been gradual and subtle during good economic times, but has become stunningly obvious since the arrival of the financial crisis in 2008.
"What we have to to realize is that the dynamic of the whole global economy has changed very dramatically," says Jorge Heine, a Chilean politician, diplomat, policy expert and co-author of the book "The Dark Side of Globalization". "Growth and dynamism is now from the emerging economies. They are the new players."
Forget about BRIC. Try BRIC-A-BRAC. Brazil, Russia, India, China, then fill in the names of any number of countries in the Latin America and Asia-Pacific regions whose initials fit the bill.
"Once countries reach a certain level of development, [economic] growth rates are limited 2-3 percent," says Heine. "And recoveries are muted."
A quick survey of a just released International Monetary Fund's latest "World Economic Outlook" survey appears to support that.
Between 2010 and 2012, the U.S. economy — real or forecast — will average 2.7 percent growth. During the last decade, GDP averaged 1.7 percent. It never once topped 4 percent —which it did five times during the 1990s, when globalization was clearly a mighty tailwind for developed economies.
Growth rates for other developed economies during from 2010-2012 are even more worrisome — Euro Zone 1.8 percent, Japan 2.0 percent, U.K. 1.7. Even commodities-rich Canada's GDP average will only be around 2.9 percent.
Compare that to Brazil (5.2), Russia (4.4), India (8.8) and China (9.8). Oh yes, and Sub-Saharan Africa, which includes South Africa (5.5).
It's The Global Economy, Stupid
"Dark Side", co-authored with Ramesh Thakur, a former assistant secretary-general of the UN, is not simply about economics. It also focuses on a variety of major ills — drugs, terrorism, human trafficking, pandemics.
Nor are Heine's views deeply mainstream. They may, however, partly explain the baffling and disappointingly subpar recovery in the U.S. (and Europe), and present a counterpoint to the more palatable and popular current buzz phrase known as "two-speed recovery" — which is likely to pop up during discussions about the global economy at this year's New York Forum in New York City, June 20-21.
Much has changed with both the U.S. and world economy since the last deep U.S. downturn in the early 1980s, which was followed by a furious expansion, and, in the longer term, tens of millions of new jobs.
In the current environment, consumer demand and job creation are no longer as connected, partly because of enormous change in the trade balance.
"Why we think we get benefits from having lower-priced goods for the lack of jobs in the U.S. mystifies me," says Robert Brusca, chief economist at FAO Economics. "It would be better to have higher-priced goods and more jobs. Our wages are being restrained, being knocked down. In China, their wages are moving up."
Emerging markets now account for about 40 percent of world trade, almost double what they did in 1995, according to the IMF, and more and more are entering the world stage.
Developing country trade is projected to grow 9.5 percent in 2011, more than twice that of developed countries, according to the World Trade Organization.
As capital moves abroad, though, so does production and job growth. Emerging markets are making more of what they need and selling to others. Brazil now produces a variety of high-value manufactured goods for domestic consumption, asnd exports more to China than to the U.S.
"We've turned into a world where everyone wants to export," says Brusca. "It's beggar thy neighbor." And countries from germany To South Korea to South Africa are all doing it.
Though U.S. exports have surged in the past eighteen months, that may have as much to do with quality and competitiveness as with exchange rates, about which Washington is constantly complaining to China. (Most other emerging market currencies have appreciated vs. the dollar recently).
Heine notes that India, which was producing 180,000 cars a year in 1991, now cranks out about 2 million.
Now western steel companies are competing with rivals in China, Russia, Korea, Brazil, India and elsewhere, while some of the same countries are developing national champions in such areas as aerospace.
"Globalization is changing the world's division of labor," he says. "There are now more software engineers in Bangalore [India] than in Silicon Valley.
Not So Fast
There are plenty of skeptics out there, though, and some of them are no stranger to the forces of globalization.
Michael Mussa, a former IMF chief economist now with the Peterson Institute for International Economics in Washington, is one.
"It's not by any means clear that stronger growth in the rest of the world is injurious to U.S. growth on a long term basis, " says Mussa. "The recovery in the U.S., Europe and Japan has been disappointing, while the recovery in emerging market economies has been stronger, but we have not been sluggish because they have been buoyant."
House Of Horros
More than a few economists point to homegrown problems for the U.S. economy — ballooning debt and the collapse of the housing/construction sector.
"Something that isn't international is all this debt in Washington," says Brusca.
Another factor without historical reference is residential construction, which continues to hit news lows by one measure or another.
"Half of the shortfall in the recovery relates to housing," says Mussa, who was among those forecasting a subpar recovery with little or no similarity to the snapback of 1982. He adds that residential investment is a third of what is was in 2005 at its peak, and home building is just a fifth of what it was then.
At that time, residential investment was growing twice as fast as the overall GDP; since 2006, it has been declining — relentlessly and often precipitously.
The same thinking applies to jobs. Mussa estimates about half of the overall loss was in construction (residential and commercial). Nonfarm payrolls are still about 6.9 million below their January 2008 peak. Construction jobs, as categorized by the Bureau of Labor Statistics, are down almost 2 million during the same period, but myriad service sector jobs — from title search to mortgage lending — are directly related.
Meanwhile, manufacturing — which has enjoyed a bit of a boom during the recovery — is still down 2 million jobs from January 2008, having added a quarter million jobs since its December 2009 recessionary bottom.
Mussa and others cite the continuing surge in productivity. "It's a hopeful sign," he says.
At the moment, there may not be many others. The export boom is slowing, as does job growth. Private sector economists have lowered their first-half growth forecasts to about 2.5 percent, after an underwhelming 1.9 percent increase in first-quarter GDP.
The proverbial economic "soft patch" that the economy appears to have entered can be attributed to a variety of factors — the sovereign debt crisis in Europe, the nuclear meltdown in Japan, the latest oil shock out of the Middle East, and even the end of the Obama administration's massive stimulus package.
The U.S. economy hit a similar soft patch in 2004 when interest rates were also bargain-basement low and overly accommodative. Few, if any, gave it much thought.
This time around, it may not be so much a soft patch as a bald patch, which has far more serious implications.
"It's a whole new ball game, " says Heine. "Globalization is basically running out of control."