Abandoned Wal-Mart, Beaver Dam, WisconsinOver eight months ago, I made a promise to myself that if I needed to buy any large or significant household item, I would buy it used, as part of my anti-materialist, anti-globalist, environmentally friendly personal commitment. Therefore, a couple of months ago, I bought a concrete weight set on Craigslist. While driving back to my house, I noticed a garage sale in progress, so I stopped, as I was (and still am) looking for a good, inexpensive, sturdy dining table and chairs. Unfortunately, I had found this particular garage sale too late to score a dining table, but they did have a collection of cheap paperback books which I perused before buying a few.
One of the books I bought was The Lexus and the Olive Tree (Thomas L. Friedman, Anchor Books division of Random House, Inc., April 2000). The book purports to examine the impact of globalism (the Lexus is used as a metaphor for this), and the tension between neoclassical, “free-market” economic globalism and the local economies and cultures which it supplants (the olive tree being the metaphor for these local economies and cultures). I tried skimming through it, but found myself in violent disagreement with what I perceived to be its premise: that globalism, even with its disadvantages and side effects on local living, is still a good thing, and that it should be embraced. I believe that the opposite is true: that economic globalism has stripped many local peoples and local cultures of their means of being self-sufficient, and has instead forced most of the world's people into dependence on and slavery to an economic system which actually benefits only a few rich oligarchs. And now the signs suggest that the system is breaking. (If anyone reading this thinks that I have misinterpreted the book's premise, or that the book's author is correct in his premise, feel free to comment. I have to admit that I didn't have the patience to force myself to finish the book.)
There are abundant signs that the globalist system is beginning to run into serious trouble. The globalized model on which most agribusiness is based is a case in point. Things got interesting recently for companies such as Mahatma Rice (owned by Riviana Foods, which in turn is owned by Ebro Puleva, S.A. http://www.riviana.com/who_we_are.html), whose business models depend on growing rice in Third World countries where land and labor is cheap, then shipping it to markets in the First World for sale at an elevated price. Recent crop failures and the escalating cost of food, coupled with a worldwide grain shortage, have induced countries such as India and the Philippines to stop exporting rice. This past winter, the Chinese government ordered a halt to coal exports because of record low temperatures and snowfall. And China may well become a net coal importer this year because of the country's generally increasing need for electric power to support its continued industrialization.
But a prime example of a globalist economic system that may get into trouble very, very soon is the big-box retail chain. This week, on the Oil Drum and Energy Bulletin websites, I found a fascinating article from the Canadian newspaper The Globe and Mail. The article, “High Oil Prices Will Hurt Trade, Report Says (http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20080527.woileconomy0527/business/Business/businessBN/ctv-business),” was cited in at least one other newspaper. It described recent research on the effects of high oil prices on the global economy. The research was performed by chief economist Jeff Rubin and senior economist Benjamin Tal, of CIBC World Markets. Their conclusion was that the high and escalating price of oil was beginning to erase the price advantage enjoyed by businesses who established their manufacturing operations in Third World countries with cheap labor rates and weak environmental regulations and who shipped their finished products to the markets of the First World. A case in point: the cost of shipping a standard 40-foot container from Shanghai to the U.S. East Coast has risen from $3000 in 2000 to $8000 this year.
As the cost of transport rises due to the rising cost of oil, the wage advantage enjoyed by globalist big business is steadily eroded. Messrs Rubin and Tal note that the high cost of shipping effectively imposes a “tariff” of over 9 percent on goods imported into North America from China. This reverses the efforts of multinational corporations over the years to persuade governments of nations to remove tariffs and other legislated trade barriers. Unfortunately for the globalists, there is no way to remove this new and growing “tariff.” If the price of oil rises to $200 per barrel, the effects of trade liberalization policies will be entirely wiped out.
This has already begun to affect the Chinese steel industry, which is now facing stiff competition in North America from a revitalizing American steel industry. And the Chinese are at a double disadvantage, since they have to pay for the cost of transporting raw materials from other nations to Chinese factories, then pay again to ship finished goods to foreign markets. But steel is just the leading edge of a trend. A time will come when cheap foreign furniture, toys and produce are a thing of the past, as the cost of transport becomes an ever-larger part of the total cost of goods sold in the United States. The near future does not look good for big-box businesses such as Wal-Mart, Cost Plus, Ikea, Home Depot, Fred Meyer, Target and others which have driven local retailers out of business by buying cheaply manufactured goods in bulk from overseas factories and underselling their competition. Nor does the future look good for the poor people who have become dependent on getting cheap foriegn-made goods from these stores. These stores may not be with us very much longer.
Our lives and livelihoods are about to become a good deal more local. Even regional trade may soon begin to break down beyond a certain distance. Another fascinating article I read this week was about the breakdowns already taking place in the long-haul trucking business (“Soaring Fuel Prices Take A Withering Toll on Truckers”, New York Times, 27 May 2008, http://www.nytimes.com/2008/05/27/business/27ship.html?_r=3&oref=slogin&oref=slogin&oref=slogin). According to this article, more than 45,000 big rigs have disappeared from U.S. highways since last year. And air freight carriers are in even worse trouble.
I believe this fraying of globalism will accelerate rapidly over the next several months, rather like a hemp rope being dragged across sharp rocks. If you're an employee or holder of stock in a big-box chain, you may want to start making other arrangements. Learning to do those things that are necessary to re-build local economies is a good place to start. Start learning necessary skills that are easy to apply locally and are useful to society. And it is time now to start doing difficult things, and to get used to doing difficult things on a regular basis, so that when you are forced to do a physically difficult thing, you are not taken by surprise.
This week, where I live, the highest gasoline price I saw was $4.47 for premium unleaded at one station that I pass on my way to and from work. I have seen an almost literal explosion of bicycles on the streets, in spite of our typically rainy weather and the large number of hills. I have also seen middle-aged men commuting on skateboards (I almost took a picture of one). During my commute to work, I have noticed that the bike racks on the buses are increasingly filled to capacity, forcing cyclists like me to ride farther to get to work. Today the driver of the bus I took rode up to the bus stop on a bicycle. A co-worker, inspired by my cycle commuting example, rode into work for the first time in over a decade. He is over 60 years old and slightly overweight, and he rode on a day that turned rainy in the afternoon, and I think that dissuaded him from trying it again.
Rice is available again in the stores, though it is 10 cents per pound more expensive than it was a couple of months ago. Lentils and dry peas are also more expensive. I will be planting more vegetables this weekend. One day, I'll write a post about my gardening adventures (I'm very much a newbie at this).
P.S. If you want to see the CIBC reports referenced in the news articles cited above, here are some links: “The New Inflation,” http://research.cibcwm.com/economic_public/download/smay08.pdf; and “Will Soaring Transport Costs Reverse Globalization?”, http://research.cibcwm.com/economic_public/download/feature1.pdf.
