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Want to Retain American Jobs? Stop Blaming Globalization
Everything is cheap and nobody has jobs. Welcome to the future. President of the Federal Reserve Bank of Dallas fills us in on how we got here.
Robert S. Kaplan is president and chief executive of the Federal Reserve Bank of Dallas. Previously, he was the Senior Associate Dean for External Relations and Martin Marshall Professor of Management Practice in Business Administration at Harvard Business School. He is also co-chairman of Draper Richards Kaplan Foundation, a global venture philanthropy firm, as well as chairman and a founding partner of Indaba Capital Management. Before joining Harvard in 2005, Kaplan was vice chairman of the Goldman Sachs Group with responsibilities for Global Investment Banking and Investment Management.
He has written several books on leadership and goal development, including 'What You're Really Meant To Do: A Road Map For Reaching Your Unique Potential' published by Harvard Business Review Press. You can read his most recent essay here.
Robert S. Kaplan: So listen, during almost my entire lifetime globalization has been a key element of our economy. It started decades ago as many industries wound up—manufacturing in particular—off-shoring jobs to take advantage of lower labor rates in other countries. And so we lost manufacturing jobs in this country due to globalization. But the other part of globalization is increasingly the S&P 500, the 500 largest companies domiciled in the United States, are increasingly finding a larger share of their revenues and profits are coming from outside the United States.
And the other part is our trade relationships, the nature of them, are changing due to globalization. I’ll take Mexico as an example. Right now, of the imports to the U.S. from Mexico, 40 percent of those imports is U.S. content. So what is that about? It means these are not just trade relationships. These are integrated supply chains and logistics that, in our judgment at the Dallas Fed, are making the U.S. more competitive, likely actually adding jobs in the United States and keeping those jobs from going elsewhere, most likely to Asia.
The last part of globalization that we have to—a couple of more parts I’ll talk about is China is much bigger today than it was 10 years ago and 20 years ago, and I mean much bigger as a percentage of global GDP. China has been growing at much higher rates consistently than almost any other country in the world except for maybe India. It means they are a larger percentage of global GDP and they’re a much larger percentage of global GDP growth. Okay, what’s the impact of that?
They have been—in order to get that growth, and they’ve been growing recently, about 6.5 percent. Unfortunately in order to achieve that growth they’ve been growing debt to GDP. In other words they have been leveraging in various sectors to either build infrastructure or to build capacity in many state-owned enterprises. The impact of that is they’ve got dramatic overcapacity in a number of their industries which creates global overcapacity. And so China bears watching. The world is going to have to get accustomed to lower levels of growth from China and also because of currency outflows. That has the potential, because the world is much more financially integrated, currency outflows in China, which is what happened in the first quarter of 2016, have the potential to create ripple effects and spillovers throughout the world and this happened in the first quarter of 2016 where we saw financial turmoil in China translate into rapidly tightening financial conditions globally.
So those are a number of elements of globalization. What’s the point of it all? The point of it all is: you have to think about the economy in a much more global way. Globalization is likely putting downward pressure on prices because we have more overcapacity. And also our trading relationships have to be thought about differently because, particularly in this hemisphere, it’s actually helping U.S. companies become more globally competitive and therefore is likely growing jobs in the United States. So as a central banker, it’s no longer an option in thinking about U.S. monetary policy to think just about the United States. I have to understand economic conditions around the world and the inner relationships between economies and financial markets around the world because the ripple effects, the spillovers, are much more likely to happen.
And this is one reason why when we talk about the currencies, particularly the U.S. dollar, as a central banker I’m much more sensitive and aware of the impact on the dollar of central bank actions and also much more sensitive and aware of the potential ripple effects of either a strong or weak dollar not only on the United States but also on economies around the world. We’re just much more globally interconnected and so we have to think about the economy in a different way. It’s my view though, and I get to the third secular driver, the next one, which is technology-enabled disruption.
Increasingly I think globalization is sometimes now being confused with technology-enabled disruption. What do I mean by that? Twenty years ago, and in history, jobs were lost in a number of locations in the United States because they were lost overseas. And while there were a number of benefits of global trade and globalization in the United States, we did a poor job in this country helping local communities and workers adjust to the negative effects of globalization. And I’ll come back to that. Today, if you lose your job in a city in this country it’s probably as or more likely that the reason you’re losing your job is not globalization but it’s technology-enabled disruption. It’s changing. People are attributing it to globalization but it’s probably as or more likely to be due to the fact that businesses are increasingly replacing workers with technology. Whole industries are being disrupted out of existence. Think: the film industry, the camera industry. While it still exists it’s been dramatically disrupted by digital technology and by handheld phones. But this is going on in retail, even in higher education. It’s going on in every industry. And so what’s happening is, I think it’s accelerating. Workers are far more likely today to lose their jobs or have their functions changed because of technology-enabled disruption. Technology is replacing people.
And in addition, because of technology-enabled disruption, consumers have much more pricing power. They have the ability to shop with technology. That’s putting much more pressure on businesses in terms of pricing pressure. And businesses don’t have as much pricing power, and that probably is rippling back through impacts on workers and their wages, and it may even be encouraging businesses to increasingly replace workers with technology.
So the reason this diagnosis is important, if you think that this is happening because of globalization you might take one set of actions. If it’s happening because of technology-enabled disruption you might take a different set of actions and, in particular, back to the trade relationship with Mexico: I’ve been arguing that our trading relationship, as I said earlier, with Mexico helps improve U.S. competitiveness and keep jobs here. And if instead we misdiagnose that relationship and think that it’s actually hurting U.S. workers we might actually take steps to dismantle part of those trading relationships. And I think unfortunately that may actually hurt U.S. GDP growth. I don’t think it’s going to help workers locally or it may not help workers locally because technology-enabled disruption is a bigger issue that’s affecting our workforce.
On both those trends though, regarding both of them, it highlights the need for more workforce development. I think of the worker of today—if you’ve got a college education you have a better chance to manage this. If you have some college or your educational attainment is either high school or less than high school you are much more likely to be at the end of this impact and have much less ability to adapt to it. So much more likely in people’s careers—and when I was a professor at Harvard I used to tell my students: you are far more likely to get fired than I was. You will be. You’re far more likely to have to fire people than I was. And you’re far more likely to have the industry you start in not be the industry you end in, because the industry you start in may not exist or it’s going to be so different that you’re going to have to adjust.
So I think it’s critical, first because of globalization but now in particular because of technology-enabled disruption. We need to do much more to help workers adjust to these trends and help them improve their ability to adapt. And the more educational attainment, either college or some type of skills training, the more of that you have the much more likely you’re going to be able to adapt to these trends. So that’s the third trend, is technology enabled-disruption; but I think that and globalization are related, and today I think some of the effects of technology-enabled disruption are being attributed to globalization and I think in some cases inaccurately.
The US economy has spawned a vicious cycle that few people are talking about, but it's one that affects us all. You, right now, are likely caught in that ugly loop. In fact, it's what may one day send you packing from your job. It's called technology-enabled disruption. And the worst part? (There's a worse part!?) You contributed to it in a big way, explains Robert S. Kaplan. Advancements in retail technology gave consumers the power to shop smarter and put pricing pressure on manufacturers. That pressure is "rippling back, through impacts on workers and their wages, and maybe encouraging businesses to increasingly replace workers with technology," says Kaplan. In a nutshell: every time a consumer finds a bargain, a robot gets a job.
But tech-enabled disruption isn't prominently on the public agenda. Currently a multitude of loud voices are blaming globalization for America's waning job market but, as Kaplan explains, it seems to be a case of misdiagnosis. It is crucial to identify the correct cause of the coming job market crash because if the problem is globalization, policy makers will take one set of actions (like withdrawing from trade deals). However, if it's technology-enabled disruption, that calls for an entirely different set of actions. The danger of this is most easily understood through US-Mexico trade, which Kaplan argues does not milk jobs from the US, but rather creates jobs, keeps US businesses competitive, and actually grows US GDP. It's time to re-think America's plan of action, and hopefully get the solution right the first time around. You can read Robert S. Kaplan's latest essay at the Federal Reserve Bank of Dallas.
Higher education faces challenges that are unlike any other industry. What path will ASU, and universities like ASU, take in a post-COVID world?
- Everywhere you turn, the idea that coronavirus has brought on a "new normal" is present and true. But for higher education, COVID-19 exposes a long list of pernicious old problems more than it presents new problems.
- It was widely known, yet ignored, that digital instruction must be embraced. When combined with traditional, in-person teaching, it can enhance student learning outcomes at scale.
- COVID-19 has forced institutions to understand that far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted.
What conditions of the new normal were already appreciated widely?<p>First, we understand that higher education is unique among industries. Some industries are governed by markets. Others are run by governments. Most operate under the influence of both markets and governments. And then there's higher education. Higher education as an "industry" involves public, private, and for-profit universities operating at small, medium, large, and now massive scales. Some higher education industry actors are intense specialists; others are adept generalists. Some are fantastically wealthy; others are tragically poor. Some are embedded in large cities; others are carefully situated near farms and frontiers.</p> <p>These differences demonstrate just some of the complexities that shape higher education. Still, we understand that change in the industry is underway, and we must be active in directing it. Yet because of higher education's unique (and sometimes vexing) operational and structural conditions, many of the lessons from change management and the science of industrial transformation are only applicable in limited or highly modified ways. For evidence of this, one can look at various perspectives, including those that we have offered, on such topics as <a href="https://www.insidehighered.com/digital-learning/blogs/rethinking-higher-education/lessons-disruption" target="_blank">disruption</a>, <a href="https://www.nytimes.com/2020/02/20/education/learning/education-technology.html" target="_blank">technology management</a>, and so-called "<a href="https://www.insidehighered.com/sites/default/server_files/media/Excerpt_IHESpecialReport_Growing-Role-of-Mergers-in-Higher-Ed.pdf" target="_blank">mergers and acquisitions</a>" in higher education. In each of these spaces, the "market forces" and "market rules" for higher education are different than they are in business, or even in government. This has always been the case and it is made more obvious by COVID-19.</p> <p>Second, with so much excitement about innovation in higher education, we sometimes lose sight of the fact that students are—and should remain—the core cause for innovation. Higher education's capacity to absorb new ideas is strong. But the ideas that endure are those designed to benefit students, and therefore society. This is important to remember because not all innovations are designed with students in mind. The recent history of innovation in higher education includes several cautionary tales of what can happen when institutional interests—or worse, <a href="https://www.insidehighered.com/news/2016/02/09/apollos-new-owners-seek-fresh-start-beleaguered-company" target="_blank">shareholder</a> interests—are placed above student well-being.</p>
Photo: Getty Images<p>Third, it is abundantly apparent that universities must leverage technology to increase educational quality and access. The rapid shift to delivering an education that complies with social distancing guidelines speaks volumes about the adaptability of higher education institutions, but this transition has also posed unique difficulties for colleges and universities that had been slow to adopt digital education. The last decade has shown that online education, implemented effectively, can meet or even surpass the quality of in-person <a href="https://link-springer-com.ezproxy1.lib.asu.edu/article/10.1007/s10639-019-10027-z" target="_blank">instruction</a>.</p><p>Digital instruction, broadly defined, leverages online capabilities and integrates adaptive learning methodologies, predictive analytics, and innovations in instructional design to enable increased student engagement, personalized learning experiences, and improved learning outcomes. The ability of these technologies to transcend geographic barriers and to shrink the marginal cost of educating additional students makes them essential for delivering education at scale.</p><p>As a bonus, and it is no small thing given that they are the core cause for innovation, students embrace and enjoy digital instruction. It is their preference to learn in a format that leverages technology. This should not be a surprise; it is now how we live in all facets of life.</p><p>Still, we have only barely begun to conceive of the impact digital education will have. For example, emerging virtual and augmented reality technologies that facilitate interactive, hands-on learning will transform the way that learners acquire and apply new knowledge. Technology-enabled learning cannot replace the traditional college experience or ensure the survival of any specific college, but it can enhance student learning outcomes at scale. This has always been the case, and it is made more obvious by COVID-19.</p>
What conditions of the new normal were emerging suspicions?<p>Our collective thinking about the role of institutional or university-to-university collaboration and networking has benefitted from a new clarity in light of COVID-19. We now recognize more than ever that colleges and universities must work together to ensure that the American higher education system is resilient and sufficiently robust to meet the needs of students and their families.</p> <p>In recent weeks, various commentators have suggested that higher education will face a wave of institutional <a href="https://www.businessinsider.com/scott-galloway-predicts-colleges-will-close-due-to-pandemic-2020-5" target="_blank">closures</a> and consolidations and that large institutions with significant online instruction capacity will become dominant.</p> <p>While ASU is the largest public university in the United States by enrollment and among the most well-equipped in online education, we strongly oppose "let them fail" mindsets. The strength of American higher education relies on its institutional diversity, and on the ability of colleges and universities to meet the needs of their local communities and educate local students. The needs of learners are highly individualized, demanding a wide range of options to accommodate the aspirations and learning styles of every kind of student. Education will become less relevant and meaningful to students, and less responsive to local needs, if institutions of higher learning are allowed to fail. </p> <p>Preventing this outcome demands that colleges and universities work together to establish greater capacity for remote, distributed education. This will help institutions with fewer resources adapt to our new normal and continue to fulfill their mission of serving students, their families, and their communities. Many had suspected that collaboration and networking were preferable over letting vulnerable colleges fail. COVID-19's new normal seems to be confirming this.</p>
President Barack Obama delivers the commencement address during the Arizona State University graduation ceremony at Sun Devil Stadium May 13, 2009 in Tempe, Arizona. Over 65,000 people attended the graduation.
Photo by Joshua Lott/Getty Images<p>A second condition of the new normal that many had suspected to be true in recent years is the limited role that any one university or type of university can play as an exemplar to universities more broadly. For decades, the evolution of higher education has been shaped by the widespread imitation of a small number of elite universities. Most public research universities could benefit from replicating Berkeley or Michigan. Most small private colleges did well by replicating Williams or Swarthmore. And all universities paid close attention to Harvard, Princeton, MIT, Stanford, and Yale. It is not an exaggeration to say that the logic of replication has guided the evolution of higher education for centuries, both in the US and abroad.</p><p>Only recently have we been able to move beyond replication to new strategies of change, and COVID-19 has confirmed the legitimacy of doing so. For example, cases such as <a href="https://www.washingtonpost.com/education/2020/03/10/harvard-moves-classes-online-advises-students-stay-home-after-spring-break-response-covid-19/" target="_blank">Harvard's</a> eviction of students over the course of less than one week or <a href="https://www.nhregister.com/news/coronavirus/article/Mayor-New-Haven-asks-for-coronavirus-help-Yale-15162606.php" target="_blank">Yale's apparent reluctance</a> to work with the city of New Haven, highlight that even higher education's legacy gold standards have limits and weaknesses. We are hopeful that the new normal will include a more active and earnest recognition that we need many types of universities. We think the new normal invites us to rethink the very nature of "gold standards" for higher education.</p>
A graduate student protests MIT's rejection of some evacuation exemption requests.
Photo: Maddie Meyer/Getty Images<p>Finally, and perhaps most importantly, we had started to suspect and now understand that America's colleges and universities are among the many institutions of democracy and civil society that are, by their very design, incapable of being sufficiently responsive to the full spectrum of modern challenges and opportunities they face. Far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted. And without new designs, we can expect postsecondary success for these same students to be as elusive in the new normal, as it was in the <a href="http://pellinstitute.org/indicators/reports_2019.shtml" target="_blank">old normal</a>. This is not just because some universities fail to sufficiently recognize and engage the promise of diversity, this is because few universities have been designed from the outset to effectively serve the unique needs of lower-income students, first-generation students and students of color.</p>
Where can the new normal take us?<p>As colleges and universities face the difficult realities of adapting to COVID-19, they also face an opportunity to rethink their operations and designs in order to respond to social needs with greater agility, adopt technology that enables education to be delivered at scale, and collaborate with each other in order to maintain the dynamism and resilience of the American higher education system.</p> <p>COVID-19 raises questions about the relevance, the quality, and the accessibility of higher education—and these are the same challenges higher education has been grappling with for years. </p> <p>ASU has been able to rapidly adapt to the present circumstances because we have spent nearly two decades not just anticipating but <em>driving</em> innovation in higher education. We have adopted a <a href="https://www.asu.edu/about/charter-mission-and-values" target="_blank">charter</a> that formalizes our definition of success in terms of "who we include and how they succeed" rather than "<a href="https://www.washingtonpost.com/opinions/2019/10/17/forget-varsity-blues-madness-lets-talk-about-students-who-cant-afford-college/" target="_blank">who we exclude</a>." We adopted an entrepreneurial <a href="https://president.asu.edu/read/higher-logic" target="_blank">operating model</a> that moves at the speed of technological and social change. We have launched initiatives such as <a href="https://www.instride.com/how-it-works/" target="_blank">InStride</a>, a platform for delivering continuing education to learners already in the workforce. We developed our own robust technological capabilities in ASU <a href="https://edplus.asu.edu/" target="_blank">EdPlus</a>, a hub for research and development in digital learning that, even before the current crisis, allowed us to serve more than 45,000 fully online students. We have also created partnerships with other forward-thinking institutions in order to mutually strengthen our capabilities for educational accessibility and quality; this includes our role in co-founding the <a href="https://theuia.org/" target="_blank">University Innovation Alliance</a>, a consortium of 11 public research universities that share data and resources to serve students at scale. </p> <p>For ASU, and universities like ASU, the "new normal" of a post-COVID world looks surprisingly like the world we already knew was necessary. Our record breaking summer 2020 <a href="https://asunow.asu.edu/20200519-sun-devil-life-summer-enrollment-sets-asu-record" target="_blank">enrollment</a> speaks to this. What COVID demonstrates is that we were already headed in the right direction and necessitates that we continue forward with new intensity and, we hope, with more partners. In fact, rather than "new normal" we might just say, it's "go time." </p>
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