The Perils Of Techno-Globalism


The Perils of


Alan Tonelson

Don't get me wrong. I admire ideology as much as anyone. It's an integral part of all public affairs. It enables us to organize our knowledge in useful ways, and it gives essential direction not only to our planning but to our speculation and investigation.

But there are ideologies that are grounded in nothing but dreams about the future and ideologies that are grounded in observable present-day realities. U.S. technology policy today is in danger of becoming dominated by the former.

Techno-globalism is as good a name as any for the ascendant approach. Its main ingredients: a not entirely coherent mixture of early 19th- century economics; a corresponding contempt for national governments; an absolutist, Wilsonian faith in international institutions; and the interdependence theory embedded in Walt Disney's "It's a Small World" theme song. Its main message: Americans should trust in the steadily accelerating forces of international economic and technological integration to serve their national and individual interests. P.S.: They have no real choice in the matter. And any attempts by national authorities to influence these forces for their country's benefit are bound to backfire to everyone's regret.

Since the 1994 elections awarded control of Congress to the Republican party, techno-globalists in its ranks have been taking aim at many of the U.S. government's programs for promoting the commercialization of new technologies, at conditions that have been placed on foreign participation in these programs, and at numerous export-promotion programs that spring from these interventionist impulses.

None of these programs is beyond criticism, and in a period of budget austerity, all expenditures of public funds should be scrutinized carefully and held to the most exacting standards. But the rise of techno-globalism heightens the odds that these programs will be judged not empirically--on their record or capability for enhancing U.S. national interests--but ideologically--on how closely they conform to a dogma that all but defines national interest out of existence. As a result, many of the most effective and promising tools for improving U.S. economic competitiveness could be cavalierly cast aside.

WHO ARE THEY? Techno-globalists have strongly influenced government policy since the end of World War II, and even since major popular concerns about U.S. economic competitiveness first emerged in the early 1980s. They come in several different varieties. Some, such as the quasi-libertarian analysts of the Cato Institute and the only slightly less dogmatic laissez-faire champions of the Heritage Foundation and the American Enterprise Institute, deny that international economic or technological activity can be strategic at all. They do not believe that countries can win or lose in any meaningful sense in these interactions (provided all parties call themselves capitalists), or that countries are even significant actors at all. These analysts have also indiscriminately endorsed all forms of international capital flows as beneficial to investor and recipient alike, and they have criticized recent government initiatives in trade and technology development that question the belief that markets never fail. In the 15 months, their attacks on the very notion of national competitiveness have been joined by Stanford University economist Paul Krugman, whose pioneering work in strategic trade theory gave impetus to the competitiveness movement.

Other analysts bolster techno-globalism by arguing that technology development is rapidly pushing humanity into a new era that will alter our politics, our work, our families, and our values beyond recognition. Their techno-utopias differ in some important details, but whether it is Japanese management-guru-turned-political reformer Kenichi Ohmae; free- market crusader George Gilder; or Newt Gingrich's prophets of choice, the Tofflers, all foresee an age in which the dizzying pace of technological change will place a premium on smallness, individualism, and improvisation rather than on bigness, institutions, and order. We are living, in other words, in a modern Cretaceous period, in which agile economic mammals are about to dethrone lumbering economic dinosaurs.

Finally, techno-globalism has been greatly strengthened by the writings of Labor Secretary Robert Reich. Struggling throughout the 1980s to reconcile his concern for faltering U.S. competitiveness and his desire to avoid a protectionist label, he squared the circle by sharply distinguishing between the U.S. workforce and the U.S. companies that had always provided the bulk of their jobs. In his influential Harvard Business Review article "Who is Us?" he insisted that multinational corporations and the globalization of economic and technological activity had greatly loosened the link between the prosperity of a nation and that of its companies. Therefore, Reich argued, competitiveness policy should focus on upgrading the workforce, on the assumption that multinationals from all countries are equally inclined to perform manufacturing, research and development (R&D), engineering, and design wherever qualified workers can be found.

Reich and other techno-globalists vigorously deny that they are ideologues at all. Their analyses, they insist, reflect nothing more than unblinkered descriptions of objective reality. Their prescriptions flow as logically and inevitably from their descriptions as a sum flows from two addends. But economics and public policy are not hard sciences, and it is precisely because techno-globalists have so successfully cultivated images of neutrality and detachment that the subjective bases of their positions--their ideology--must be spotlighted and scrutinized.

GOOD STORYTELLERS The superficial appeal of techno-globalism today, and especially its sweeping disparagement of the public sector, is easily understood. A government that struggles to deliver the mail on time seems a poor candidate to manage exploding amounts of information and instantaneous, multibillion-dollar capital movements. Moreover, the benefits of largely uncontrolled technology advance and diffusion are visible in every shopping mall in the country. The media is filled with the kinds of Horatio Alger stories that Americans love of individuals winning high-tech fame and fortune armed with nothing but great ideas, pluck, and a little venture capital. Those left behind are easily dismissed as too dumb or lazy to invest in an education.

In this environment, concepts such as the national interest seem downright retrograde, and the abdication of core public responsibilities is readily described as visionary leadership. The techno-globalists find receptive audiences for their position that the only proper purpose of government economic and technology policy is to promote the fastest possible global diffusion of technology and the greatest possible degree of capital mobility, irrespective of how these flows affect individual countries or groups within countries, or of other countries' efforts to gain advantage.

Meanwhile, powerful political, media, and financial elites in the United States, who are benefiting the most from the new global economy, are especially attracted to the benign techno-globalist view of international economic and technological relations. True to the assumptions of 19th-century neoclassical economic thinking (but contrary to the remarkably nuanced writings of Adam Smith), the techno-globalists maintain that even unilateral laissez-faire policies will leave the United States better off than will a policy of unilateral countermoves. In their view, the United States does not need to worry about its relative international position as long as the open world economy to which it belongs is growing healthily.

When disputes among countries do threaten to slow growth for all, the techno-globalists say, they should be resolved by impartial international bodies applying universally accepted principles of equity and efficiency. These organizations, moreover, should seek to prevent such disputes from breaking out to start with and work proactively to enhance global well-being by organizing international technology cooperation programs.

As shown by the latest developments in the U.S. debate over technology policy, and over economic policy in general, techno-globalism has mounted a comeback in Washington. Just a few short years ago, competitiveness concerns had generated strong bipartisan support for the judicious use of trade and technology policies to improve the United States' relative economic performance. But today, even these limited programs are on the chopping block. Relatively new initiatives such as the Advanced Technology Program and the Technology Reinvestment Program, more established presences such as export promotion efforts, and the Department of Commerce itself--in many ways the lead U.S. competitiveness agency--have all found not only their administrative competence but their very existence challenged.

Saving money and shrinking government for its own sake are clearly the dominant concerns, but the techno-globalists have provided a crucial intellectual fig leaf: the assurance that none of this is necessary anyway. More specifically, they have attacked these programs' explicit attempts to promote increases in the number of high-value jobs, chiefly in R&D, engineering, and advanced manufacturing, in the United States.

THEORY TRUMPS REALITY Techno-globalist positions can be attacked on relatively narrow policy grounds. For example, for entirely understandable reasons, if Congress is going to appropriate public funds for technology development, it is going to insist that most of the benefits flow to Americans in readily identifiable ways. Those techno- globalists who do favor a national government role in technology development may believe that any addition to the world's stock of technology automatically will benefit the United States. But in their current skeptical mood, taxpayers and members of Congress will expect more direct payoffs.

Moreover, unfortunately for the techno-globalists, most of them live in the Anglo-Saxon countries. Their doctrine is neither practiced nor even taken seriously elsewhere. Therefore, techno-globalists wishing to dismantle all worldwide barriers to economic or technology flows face a major practical problem: Their call for unilateral U.S. disarmament in technology policy ignores the most elemental precepts of diplomacy. Without the leverage created by U.S. conditions on these flows, what incentives will foreign governments have to eliminate their own more formidable barriers?

In addition, the techno-globalist argument that investment conditions and performance standards will scare foreign capital and technology away from the U.S. market (see Richard Florida, "Technology Policy for a Global Economy," Issues, Spring 1995) is a triumph of theory over reality. No country on earth provides a more open investment climate, a deeper, more diversified capital market, and such a rich variety of investment opportunities as the United States. A country that still accounts for nearly one-fourth of world output (representing a $6.8 trillion annual market for goods and services), that boasts international technology leadership in numerous sectors, and that offers tens of millions of highly skilled (and increasingly cheap) workers in a remarkably stable political climate will always loom large in any international company's investment plans. To argue that conditioning foreign companies' access to a handful of miniscule government technology programs will lead them to boycott this market ignores fundamental economic and business realities.

DUBIOUS ASSUMPTIONS Techno-globalism's major weaknesses are its assumptions about the workings of international politics and economics. Techno-globalists persuasively describe a world that sounds highly desirable but, like history's other failed ideologies, bears little relation to the world we live in. And techno-globalism gives us no realistic advice on how to get there.

The most important and weakest of these assumptions are:

* Inward foreign direct investment (FDI) is always good for the recipient; therefore any attempts to restrict or channel it are foolish.

* Globalization, interdependence, and integration can either only assume one form or can be influenced constructively only by market forces and not by governments.

* Ceding sovereignty to multilateral dispute-resolution systems is always in the interest of the United States.

The first assumption is at one level trivial and at another misleading. It is trivial because increases in the world's capital stock are, of course, generally good. FDI certainly can and has added not only to recipient countries' wealth but to their wealth-creating capabilities (the real measure of an economic policy's worth). This has been true when the investments have been made voluntarily as well as when they have been induced through performance requirements imposed by recipient countries.

But not surprisingly, a phenomenon as large as FDI (flows of which, after all, now significantly exceed worldwide trade flows) comes in many different varieties. As a result, the broader the generalization about FDI's effects, the less accurate it will be. For example, a "greenfield" investment, involving the construction of a new facility, usually adds more to an economy than does a takeover of an existing facility. Only 15 percent of the FDI in the United States during the foreign investment boom of the 1980s was greenfield investment.

The reasons may not be obvious to techno-globalists, but they are obvious to businessmen and policymakers around the world. Already- existing successful companies are very attractive investment targets. Successful companies with leading-edge technologies or those that provide key components to U.S. industries upstream in the manufacturing process are even more appealing targets or partners. Recall, for example, the 1988 takeover of Monsanto Electronic Materials (the only U.S. merchant manufacturer of eight-inch silicon chips) by the German company Heuls A.G.

Similarly, investments in manufacturing, design, or R&D add more to an economy than does investment in distribution networks, whose main effect is to pull in imports that often displace domestically made products. Further, transplant factories that engage in assembly of imported parts and components can hurt an economy when their products capture market share from indigenous factories that engage in higher-value manufacturing, perform more R&D and engineering, and use more local content. This is precisely what has happened in the U.S. auto industry.

The competitive effects of FDI are not always positive, either. As Laura D. Tyson, chair of the National Economic Council, noted in her 1992 study Who's Bashing Whom?, FDI can sometimes not only displace or deter indigenous investment by U.S. producers (as the auto industry discovered), it can also reduce overall market competition both nationally and globally by creating a more concentrated industry able to exercise market power. Last but not least, the acquisition of essential military or militarily relevant technologies can threaten U.S. autonomy in matters of national security.

Finally, investors from different countries tend to behave in different ways, frequently reflecting the different kinds of capitalist systems they come from. The most striking differences among foreign direct investors in the U.S. economy are found between West European and Japanese entities. Investments by the former are heavily concentrated in manufacturing and R&D; investments by the latter are more evenly split between manufacturing and R&D facilities on the one hand and distribution networks on the other.

European manufacturers in the United States also usually use many more locally made parts and components than do their Japanese counterparts. By a similar token, local content levels achieved by Japanese direct investors in Europe lag well behind those achieved by U.S. companies, although European Union efforts to push for higher local content levels seem to be making progress.

The most important point, however, is that national policy must address the varying real world consequences of different kinds of FDI. Policy recommendations that ignore the inevitable complexity of foreign investment can only advance ideological agendas, not national interests.

GLOBALIZATION ON WHOSE TERMS? Techno-globalists also completely mischaracterize and misunderstand the related phenomena of globalization, interdependence, and integration. They disagree among themselves about the consequences of government attempts to influence the forces and arrangements described by these terms. Yet both major views held by techno-globalists dominate the thinking of economists and foreign-policy specialists alike, inside and outside the U.S. government.

Techno-globalists all believe that globalization represents trends whose nature dictates that they can emerge according to only one pattern; a pattern consistent with the triumph of free market forces. Moreover, they all believe that if allowed to unfold naturally, globalization will transform international economic and, in turn, international political affairs from largely competitive into fundamentally harmonious enterprises. National power, considerations of relative national position, and the struggle among nations for advantage in world affairs (all uniquely responsibilities of government) would fade from human experience. Freed from obsolete national shackles, capital and technology would flow around the world influenced only by considerations of efficiency, and the greatest good for the greatest number would automatically be achieved.

Some techno-globalists believe that the forces of and the rationale for globalization have become so strong that governments ultimately will be forced to acknowledge their supremacy and step out of their way. More pessimistic techno-globalists fear that government will still have ample power to muck up the works and even plunge the world into a repeat of the trade wars and worldwide conflagration of the 1930s and 1940s.

Yet what both kinds of techno-globalists forget is that globalization, interdependence, and even cooperation describe arrangements so complex that they will inevitably have content. That is, they will be able to take different forms and will therefore entail different kinds of terms, which will carry enormous consequences for different actors.

To cite an extreme but illustrative example, the master-slave relationship can be a highly interdependent relationship, but it is not a relationship equally desirable to both parties. Analogously, countries that produce and export raw materials and countries that produce and export manufactures may have highly interdependent trade relationships, as was the case with Britain and the 13 colonies. But as the Founding Fathers recognized, continuing this relationship would have guaranteed Britain's economic as well as political dominance over America and greatly constrained economic growth opportunities.

In theory, the specific terms of interdependence need not entail such high stakes if, for example, we assume that all the major actors in the system will have the same preferences as to how to cope with challenges and opportunities. But if a consensus on preferred policies and practices does not exist because different groups of actors bring to their decisionmaking processes different sets of present-day or historical circumstances, different value systems, or different cultures, the terms of interdependence can matter greatly. And with the stage consequently set for a struggle for advantage (whether peaceful or not is unimportant), considerations of power and relative position necessarily assume critical, even decisive, importance. For only national power can ultimately decide which preferences prevail. Operating from a position of economic and technological strength is important not only at the bargaining tables and other negotiating forums that will increasingly characterize our interdependent world; it is also essential in more conflictive situations such as U.S. attempts to achieve foreign policy goals with unilateral economic pressures.

Once humanity rises above its tendency to separate itself into fully sovereign units (whether comparable to our current nation-states or larger or smaller entities), and in the process shows that the broad consensus required for apolitical globalization exists, considerations of relative power will indeed become obsolete. Until that time, however, the United States will need to pay even more attention to accumulating and maintaining national power than it has to date in order to prevail in conflicts and negotiations alike and to strike the best possible balance between efficiency and equally essential goals of public policy such as national security, a vibrant democracy, and a healthy society.

In fact, some of the strongest evidence against the techno-globalist view comes from actors that have allegedly made the most progress toward globalization (and which are allegedly steadily globalizing the rest of human society in the process): multinational corporations. Techno- globalists repeatedly argue that, to a great extent, multinationals' operations are already mocking the idea of national boundaries because the new realities of international business leave them no choice. Worldwide economies of scale in not only manufacturing but in R&D and engineering and design must be achieved to cut costs and maintain price competitiveness; the specific needs of local markets must be understood and satisfied; and the best and most abundant supplies of capital, technology, and skilled labor in a bewildering array of product areas must be tapped even though they are scattered throughout more different countries than ever before.

Thus, multinationals must continually seek the highest returns in a truly global market, investing wherever constantly shifting patterns of comparative advantage dictate and forging alliances with foreign counterparts at every opportunity, even when those firms are direct competitors. As a result, it has become impossible to link the fortunes of multinationals with those of their countries of origin. Not only have national borders become irrelevant, but constantly emerging and shifting cooperative relationships among companies are blurring the lines of competition within the private sector.

Yet the facts show that the globalization of technology development is much less advanced than the techno-globalists claim. According to a 1994 study by the congressional Office of Technology Assessment, multinationals still develop the overwhelming majority of their core technologies in their home countries. In 1982, for example, U.S.-based multinationals conducted 8.7 percent of their R&D abroad. By 1991, this figure had reached only 12.7 percent of the total (which itself had risen 43.2 percent during that period). R&D spending within the United States by U.S. affiliates of foreign-based multinationals also increased, from $4.5 billion in 1982 to $10.7 billion in 1991, partly reflecting the porous nature of the United States' state-of-the-art technology infrastructure. But this figure still represented less than one-sixth of total business R&D spending within U.S. borders. Moreover, much of the increase registered by these foreign firms stemmed from their acquisitions of R&D-intensive U.S. companies, not from higher spending by existing facilities.

In addition, although the globalization of manufacturing is proceeding faster, a June 1995 Economic Strategy Institute study places it in badly needed perspective. From 1970 to 1990, actual capital outflow from the United States averaged less than one percent of nonresidential, fixed domestic investment. Meanwhile, ratios of assets, employment, and sales

between U.S. foreign affiliates and U.S. parent companies remained almost unchanged between 1977 and 1991.

The aforementioned differences in behavior among multinationals based in different countries also reveal important limits to globalization. For these differences reflect the different priorities--not only economic but social, philosophical, and national security-related--held by the world's different systems of capitalism. Not surprisingly, they result in different attitudes toward technology diffusion in particular.

Thus, although even Japanese investors have vigorously exported technology to recipient countries (for example, to U.S. steel companies with whom they have formed joint ventures), they generally focus on securing foreign technology with their international operations, not disseminating their own. Indeed, much of the Japanese investment in the U.S. steel sector as well as in the auto industry resulted from highly successful import relief measures imposed by Washington in the 1980s. Even more troubling are Chinese policies, which frequently extort technology from foreign companies by linking export contracts to technology transfer requirements (as well as to local content requirements).

All the same, identifying specific techno-mercantilists is less important at this stage of the debate than is recognizing that when these different systems of capitalism and their different (entirely legitimate) priorities encounter each other, U.S. capitalism's priorities do not always give U.S.-based multinationals the upper hand. Harmonizing the world's different capitalisms may be a worthy goal, and important progress has been made, but as long as major asymmetries exist and as long as Americans care about the results of their interactions with other systems, activist government policies will be needed from time to time to ensure that U.S. businesses and workers can compete effectively.

NATIONAL POWER MATTERS The continuing centrality of power politics in international affairs and the deep differences among systems of capitalism explain why the third major assumption of techno-globalism-- its faith in multilateralism--cannot effectively guide U.S. policy either. Like globalism, interdependence, and cooperation, multilateralism is seen by techno-globalists as a way to exorcise retrograde nationalism and power considerations from world politics, and turn international economic and political affairs into nothing less than a love feast. In this case, the fatal flaw is the belief that creating international organizations and institutions is tantamount to solving a problem.

More specifically, techno-globalists, like other globalists, insist that international institutions have the capability to affect the behavior of states autonomously, independent of power considerations. Indeed, their very purpose is to create an approximation of civil society, where law is the ultima ratio, out of a fundamentally anarchic international society.

Again, this may be a great idea in theory, and it works great in practice in the United States and many other countries, which have managed to create genuine civil societies out of something much less organized. But a system of laws, not men (meaning "law not power," in this instance), is only possible within these countries because they have become genuine communities. They have developed consensus on a wide range of political, economic, social, and moral issues. Their citizens feel a sense of obligation toward each other, and they have agreed to authorize governments to develop laws based on this consensus in order to infuse their affairs with a measure of organization and stability (not to mention efficiency), even at the expense of some personal liberty and autonomy.

Despite certain limited cooperative arrangements among nations, these conditions (above all, consensus on fundamentals) do not exist on the international level, and the creation of international organizations in and of itself can do nothing to change this. True, habits and traditions of cooperation can be developed and strengthened, but even the most successful international organizations, such as NATO, the European Union, or the international financial institutions, are ultimately structured by the distribution of power. In the case of the EU, for example, the power of the United States to offer public goods such as military protection or a key currency to its parties has been crucial to its success. NATO also has been continually roiled by bitter disputes among members about burden-sharing and more substantive policy issues such as strategy toward Russia.

The bottom line is that international organizations today are fundamentally political, not legal or judicial, entities and will remain so into the policy-relevant future. Their staffs, moreover, will long be composed of foreign nationals dedicated to pursuing their own countries' interests. These organizations are certainly capable of fostering significant degrees of international cooperation in the technology field and others, but as is the case with issues involving globalization, interdependence, and cooperation, member states will constantly struggle to secure the best possible terms of cooperation. National representatives will continue to battle over questions such as: Who pays? Who benefits? Who benefits the most? Who is in charge?

If the United States wants answers that are consistent with its national interests, it will need the national power to negotiate from strength in these institutions. For some reason, however, techno-globalists who recognize the role inevitably played by politics, even in domestic communities where law is a meaningful concept (they argue that national technology programs are bound to become pork-barreling exercises), pretend that politics can be avoided or transcended in the much more divisive international setting. Their commitment to the globalist dream has blinded them to national needs and international realities.

Techno-nationalism is an ideology as well. Unlike techno-globalism, however, its defining assumptions recognize and accept the world as it is, power politics and all, and understand that sound public policymaking must involve more than drawing up wish lists of objectives that would be nice to achieve if Kant proves to be wrong and men prove to be angels. At this point in our debate, however, the specific forms that techno-nationalism takes, which could range from import relief for designated industries to tight performance standards on FDI to the kinds of partnership efforts greatly expanded by the Clinton administration, are less important than is understanding its rationale: In order to survive and prosper in today's world (and to make whatever progress is possible toward a better world), the United States must have the national wherewithal to influence significantly the terms of globalization, interdependence, and cooperation.

Because integrative forces are a prominent feature of the global economy and can enhance national and world welfare, achieving this goal will require defining the national interest in increasingly sophisticated ways and making increasingly intricate tradeoffs among worthy but not always totally compatible priorities. In the process, techno-globalists will have much to teach us, but not before they learn the difference between ideology and utopianism.

Alan Tonelson is a fellow at the Economic Strategy Institute in Washington,


Recommended reading Lawrence Chimerine, Andrew Z. Szamosszegi, and Clyde V. Prestowitz, Jr., Multinational Corporations and the U.S. Economy. Washington, D.C.: Economic Strategy Institute, 1995. Robert L. Kearns, Zaibatsu America: How Japanese Firms are Colonizing Vital U.S. Industries. New York: The Free Press, 1992. Paul Krugman, "Competitiveness: A Dangerous Obsession." Foreign Affairs (March/April 1994). Clyde V. Prestowitz, Jr., Ronald A. Morse, and Alan Tonelson, Eds., Powernomics: Economics and Strategy After the Cold War. Lanham, Md.: Madison Books, 1991. Robert Reich, "Who Is Us?" Harvard Business Review (January-February, 1990). Wayne Sandholz et al., The Highest Stakes: The Economic Foundations of the Next Security System. New York: Oxford University Press, 1992. Linda Spencer, Foreign Investment in the United States: Unencumbered Access. Washington, D.C.: Economic Strategy Institute, 1991.