As we enter the 21st century, globalization is affecting nearly every aspect of our lives. Ushered in with this new era are dynamic global trends that are impacting every nation, every level of industry, and virtually every business. Consequently, many economic assumptions no longer seem to apply, yet new realities still need to be defined. Basing decisions on old assumptions may lead to undesirable outcomes.

Entering the 19th Century... Again

Entering the 21st century is in many ways similar to entering the 19th century. The shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Industrialization created anxiety and fear, and demanded that workers learn new skills.

Today, with the advent of globalization and the information economy, new skills again are demanded — but they are much more sophisticated. The internet, which in some sense is eliminating distance, has become what the railroads and electricity were for earlier ages. And these changes are having a profound effect on nations, companies and their employees.

The New Competitive Advantage

In the past, an abundance of natural resources secured a nation’s competitive advantage. Today, intelligence and technology are the new resources. As such, for companies to prosper in the 21st century, they need to harness these new resources and manage their global supply chain better than their competitors.

Education and Unemployment

Since the late 1970s, the wages of less skilled American workers have decreased relative to those of more skilled workers. Similar patterns are occurring in the United Kingdom. In contrast, countries with relatively rigid wages, such as France, Germany, and Italy, have experienced higher unemployment rates.

In the United States, unemployment bears some correlation to the level of education and skills. For example, in May 2000, the annual U.S. unemployment rate for the civilian labor force averaged 4.1%. However, of the civilian labor force age 25 years and older, the rate of unemployment was 6.1% for workers without a high school diploma. It declined to 3.7% for high school graduates, 2.9% for those with some college education, and 1.8% for college graduates.

The occupational groups projected to decline or be among the slowest growing are more likely to be dominated by workers who do not obtain education beyond high school. Conversely, occupations having the highest rates of growth are more likely to have workers with higher educational attainment.

Life-Long Learning Is Required

According to the U.S. Department of Labor’s report, Futurework, we are living in a new economy powered by technology, fueled by information, and driven by opportunity.

As the new economy emerges, it is essential that America’s young population develop the skills needed for tomorrow. It is very clear: as globalization creates opportunity, it generates more for those workers who are better educated. Because the uneducated could be left behind, life-long learning policies are essential in today’s economy and more so in tomorrow’s economy.

The Impact on Manufacturing Jobs

According to the International Monetary Fund, “nearly all research finds only a modest effect of international trade on wages and income inequality.” Thus, technology, not trade, is the real displacer of jobs. Productivity gains generated by new technologies in manufacturing have consistently outpaced productivity gains in other sectors of the economy. As a result, the United States can produce more goods with fewer workers, contends the CATO Institute, a Washington, D.C.-based think tank.

Contrary to claims made by anti-trade organizations, the vast majority of U.S. manufacturers who invest abroad are not seeking low-wage production in developing countries. In fact, in 1999, high-wage countries captured almost 90% of U.S. manufacturing foreign direct investment. This reflects greater importance of non-wage factors in overseas investment decisions.

Services Industries Are Flourishing

Every year for almost three decades, the U.S. service sector has enjoyed a trade surplus that has consistently reduced the U.S. trade deficit. In 1999 alone, U.S. exports of services decreased the overall trade deficit by more than $80 billion — that’s a 25% reduction.

Since 1980, U.S. exports of services have grown 130% faster than exports of goods. This reflects a growing importance of services both domestically and internationally. The U.S. service sector is extremely advanced and internationally competitive. With the recent introduction and availability of new, inexpensive technology — led by telecommunications, computers, and the internet — millions of people and companies worldwide now have the ability to purchase services from anywhere.

It is anticipated that the export of business, professional and technical services (accounting, advertising, engineering, franchising, consulting, public relations, testing and training, etc.) will increase rapidly. As a result, nations, companies and their employees who support trade in services are developing an edge in this era of rapid change.

The New Role of Government

Globalization has put a premium on good government and increased the costs of poor government. Consequently, governments must redefine their role in light of heightened competition among countries and companies. This is forcing governments to adopt policies that support international trade, privatization, economic stability, deregulation of capital markets, investment attraction, a fair and enforceable legal system, etc. And since economic activity is now mobile, governments must provide the technological infrastructure that supports a cluster of related industries.

Business Survival 2001

Of the 500 companies originally comprising the S&P 500 in 1957, few currently remain on the list. Why? According to Arie de Geus, author of The Living Company, “The average life expectancy of a multinational corporation — Fortune 500 or its equivalent — is between 40 and 50 years.” Long-lived companies, he contends, are sensitive to their environment, cohesive with a strong sense of identity, tolerant, and conservative in their financing.

With the fast-paced changes brought on by globalization, greater pressure is put on companies to adapt or perish. Lester Thurow, author and MIT professor, states that “businesses must be willing to destroy the old while it is still successful if they wish to build the new that will become successful.” He points out that four of the five makers of vacuum tubes never successfully made transistors after transistors replaced vacuum tubes, and even the fifth is today not a player.

High Risks With High Rewards

Successfully navigating in unfamiliar territory without a map is not easy. But there is a big upside. Globalization is presenting tremendous opportunities never seen before. Those who welcome its changes and carefully adapt will be well positioned to seize the opportunities that arise, while minimizing the risks that follow.

This article appeared in September 2001. (BA)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author and an international columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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