Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.
Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ISIS exchanges and clearing houses around the world. And now, welcome inside the ICE House, here's your host, Josh King of Intercontinental Exchange.
Josh King:
Okay. Here's a few thoughts on a topic that some consider taboo so strap on your seatbelt, or as Mark Anthony might say, in Julius Caesar, lend me your ears. We're talking about globalization. Let's wrap a working definition around it. Call it the increasing interdependence of world economies. It's a word that's been creeping further into the lexicon since I was working in Bill Clinton's White House back in the '90s, coursing with increasing frequency through conferences and summits and fireside chats for the last few decades.
And there hasn't always been welcome by a lot of folks talking about globalization. And there's debate over the origin of the term and which historic moments catalyzed its agenda. We could, for example, go back to December 11th, 2001. That's the day, rude in some circles, that China joined the World Trade Organization. A year and a half earlier in May 2000, Clinton had this to say, when Congress first approved the move. He said, "Today the House of Representatives has taken a historic step toward continued prosperity in America, reform in China and peace in the world."
And he went on, and it'll do my Clinton imitation here, "It'll be a new open door for trade in America, a new hope for change in China." A succession of Chinese leaders Zhang Xumin at the time followed by Hu Jintao and since 2012 and for the next five years at least, Xi Jinping, smelled opportunity in Clinton's words, expressing the promise in hope of furthering free trade and the opening of China's then isolated economy to the world.
Globalization Clinton added is not something that we can hold off or turn off. It is the economic equivalent of a force of nature like wind or water. Now, it wouldn't be until the 2008 global financial crisis, eight years after Clinton was well into his next act, leading his foundation, that the scope and potential dangers of globalization would be etched in high relief. The President taking off as of that year, Barack Obama, had earlier warned at a commencement address at UMass Boston, as the world continues to change and we become more connected to each other, globalization will bring both benefits and disruptions to our lives.
But either way, it's here and it's not going away. We are reminded of those vulnerabilities. It seems now every day particularly clear with our experience during COVID-19 and the war in Ukraine. The sort of resignation to fate that Clinton offered in 2000, it's not whether globalization will proceed, but how is resurfacing with the vengeance now 22 years later. Our guest today, Rana Foroohar, is making the case that the reign of globalization, as we've known it is over. In her latest book, Homecoming, the Path to Prosperity in a Post-Global World published on October from Crown, Rana serves up a study of how the paradigm of globalization is now shifting and investigates the negative consequences of its unchecked expansion.
In a minute, we'll hear from Rana on her views on why globalization has failed and what it really means for the US and the world economy, as well as taking a walk through her career as an international journalist for some of the world's leading financial publications. That's all coming up right after this.
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Josh King:
Our guest today, Rana Foroohar is associate editor and global business columnist at the Financial Times. She also serves as CNN's global economic analyst and is an award-winning author of three books. Rana is joining us today from Brooklyn, a few miles from us here at the NYSE. Rana is known for advocating the slogan Main Street, not Wall Street, but I promise we won't bite here at the corner of Broad and Wall Streets. With that, welcome, Rana inside the ICE House.
Rana Foroohar:
So nice to be here. Thanks for having me.
Josh King:
So before we get to the book, a scan of your Twitter feed gives us your latest piece, political arms race ends in a coin flip, your analysis on the results of the midterm elections. You also did a post-game analysis with your colleagues, Ed Luce and James Politi. What's your take?
Rana Foroohar:
Well, as a registered Democrat, in some ways I was a little bit relieved because we didn't see the red tsunami that it seemed like we were going to. But look, let's face it, our politics are still very bifurcated. In the context of this larger conversation that we're having about globalization, de-globalization, I think that the midterms are actually going to lead to hotter rhetoric in the US around de-globalization.
Now, I think that some of this is going to be necessary from a policy standpoint. I think that regionalization, more redundancy and supply chains is a good thing. But I am worried that the battle for the American working class is going to mean that both sides of the aisle, Democrats and Republicans, are going to be participating, a lot of anti-China rhetoric. Some of that is going to be seen as xenophobic and nationalistic by our allies.
And the world is going to be bumpier before it gets flatter again. It never really was flat, which is something I'm arguing in my book as well. But we're in for a tumultuous couple of years.
Josh King:
Biden and Xi meeting around the periphery of the G20 next week. What's your expectation? What may come out of that in terms of cool rhetoric, warm rhetoric, hot rhetoric?
Rana Foroohar:
The meeting next week is going to come around the same time that the US China Commission, which is the Congressional Commission that looks at investments between the two countries, is coming out with its new report, which is going to be hawkish. Let's face it. And so, I don't expect Biden to back down from any of the key policies that the US has instituted. The high-end semiconductor export ban, I think you're going to see actually maybe more calls for decoupling.
In a best case scenario, my hope for Biden and Xi would be, let's get some red lines going, let's get some communication going. Let's get an organized plan for how decoupling happens. Because the last thing you want is fuzzy lines, blurry lines. We don't really, in this country, have a clear day one, day two, day three plan for what would happen if let's say there was a blockade of Taiwan. So I think it's important that we take down some of the provocativeness and come up with some clear lines for what's going to happen next.
Josh King:
So when you wrote your midterm piece and then published more stuff in the FT, Ed Luce parried your thoughts by invoking the Einsteinian quantum coin tossing that the total number of heads is uniform regardless of how big the number of coins are used. But if the biggest coin of them all, Donald Trump, gets in the 2024 race next week as expected, how does that change maybe Ed's calculus or yours?
Rana Foroohar:
It's interesting. If you look at the midterm results, you saw very mixed results for Trump backed candidates. So, this is not a clear victory. I think what happened in Florida shows you that Ron DeSantis has a real shot at the whole game. Again, I think, it's going to come down to which side can convince working people in America that they have their back economically. And this is my whole unified thesis of how the world economy works. I think global markets have simply become too disconnected from national politics.
And I think that you see both sides of the aisle, certainly the kind of MAGA coalition on the right, but also a lot more moderate, some in the middle, and certainly far left. The Sanders Warren contingent saying, look, we've got to re-moore place and wealth. You cannot have the majority of Americans feeling that the global system is not working for them.
Josh King:
So, let's skip back to the prior week before the midterms, Rano, when we all watched the weird goings on at the 20th party Congress in Beijing. Your piece was titled, Preparing for the Reality of the US China Chips War, in which you wrote, "The only thing worse than willful blindness is not being prepared for reality." Let's unpack that. What are the main issues you're trying to unveil to Americans in terms of willful blindness?
Rana Foroohar:
Well, look, I've been going to China for over 20 years and I remember my first trip there looking around as a business reporter and thinking, "Oh my God, this is an incredible market, incredible opportunity, a rich old deep country that is many ways more diverse and vibrant than the US in certain ways." But it was certainly not, to me, a country that was seamlessly going to come into the Washington consensus. And yet policymakers and business leaders have been pretending, really, since 2001, that was going to be the case.
We know why that is. In the case of CEOs, they were looking for the next quarter of growth and hoping beyond hope that what is the world's largest consumer market is ultimately going to be profitable for them from a policy standpoint, you had, frankly, I think a lot of hubristic leaders thinking that, oh, trade will make them free like us. It'll make everybody more similar. I think that that was arrogant and I think it was wrong-headed.
I'll tell you another anecdote, maybe 15, 20 years ago, I was in China talking to, at the time, a wind executive, a Danish wind executive. And I had asked him, he was number one in the wind market in China at the time, had a conversation with the executive team. And I said, so how are things going? And they said, yeah, they're going pretty well. I think in the next five years, we'll probably be in the number four or five spot. And I was like, well, wait a minute. Okay, why is that good news? And B, how do you know so precisely? And they said, well, that's what Beijing told us. And I thought, okay ...
Josh King:
Until they get the blueprints and the plans for how to build a windmill themselves.
Rana Foroohar:
Right. Why are we all pretending that the rules of the road are the same here? And so to me, there's always been willful blindness. All right, so 2015 comes round, you get the made in China 2025 plan, which says, look, we want to be a dual circulation economy. That's the wonky state language for, we'd like to hug more production and consumption at home. We have enough consumers now. We don't have to just be the factory of the world. We can do more regional production, which frankly, as many of your listeners will know, makes sense for all kinds of reasons from speed of innovation to reduction in emissions to lower fuel costs.
A lot of companies have been thinking about regionalizing and localizing production for some time. Chinese said, we're going to do that and we want to be separate from US technological supply chains within the next few years. That was a pretty big statement about decoupling. The Chinese make these five year plans, they do not divert from them vectorially, the details may change, but the direction does not.
You then have Trump coming into office, and I personally don't think he had much of a coherent plan about anything. But I was a fan of his USTR, Bob Lighthizer, who frankly lifted the veil, lifted the scrim and said, we're not going to pretend that China is playing by the laws of the WTO. We are not going to pretend that there is an even playing field here. We are going to slap these tariffs on and we're going to rethink how this relationship works. And I think that was a brave decision.
You then see the Biden administration and Katherine Tai, the new USTR, basically following those trade policies, but then starting to wrap the US response in a little bit more coherent industrial strategy. And the question for business leaders, I think at this point, and I know many of them are lining up at door of the commerce department to get some answers, is where to place the bets now? What are the rules of the road going to be?
I mean, we have seen in the last few weeks after the export ban on high-end chips, more changes in the semiconductor supply chain than you saw in the entire Trump presidency. What comes next? And that's really the big question for the next few weeks, months and years.
Josh King:
Let's shift a little bit, and we'll come back to China a little bit later, Rana, but just last week, the FT broke the news of Russia's decision to rejoin the deal to allow shipments of Ukrainian grain throughout the Black Sea to help alleviate the global food crisis. As Ukraine is the leading supplier of grain and other agricultural products. What weight does this hold on the ongoing global supply chain issue that you've been covering?
Rana Foroohar:
Well, it's definitely going to help somewhat with commodities inflation and that's a big deal. But is it going to mean that we're going to somehow reset to the mid 1990s? I don't think so. I think that between COVID and the war in Ukraine, you've seen a lot of people finally wake up to the fact that there is a politics in the political economy. We've been pretending now for 40 years, Friedman esque, Chicago school markets are efficient, all those will rise, put things where they're cheapest. That paradigm works when all things are equal and there is nothing else bad going on in the global economy from geopolitics to climate change to major monetary policy shifts.
We have all of those things happening now. I mean, all of the underpinnings of the last half century of globalization, cheap capital, cheap labor, cheap energy, all those things are changing. And so, what I see, and the statistics back this up, is most big ... and even medium and small companies looking for redundancy, looking for if not localization or regionalization, at least let's have three or four places we can get supply, not just one.
Josh King:
And we're going to talk about that a little bit more as well. I mean, you mentioned the last half century, so let's talk about the sort of half century journey that led to the creation of Homecoming. So, from CNN to the FT to authoring your three books, you wear a lot of hats. I mean, last year we had on the podcast, one of your colleagues from the FT, Gillian Tett, to talk about her book, Anthro-Vision. And we saw a photo on Twitter of you celebrating the launch of Homecoming. How's the book launch been going so far and what's been the response you've been getting?
Rana Foroohar:
Well, I feel very blessed it's gone swimming late, to be honest. I'm a little exhausted, in fact ...
Josh King:
And we're a little late. We didn't quite get the podcast upon publication date, but I'm glad we got you on.
Rana Foroohar:
Well, me too, and I'm really grateful. I would love to hear from your listeners and be in conversation with people. The book has been very well received. And, again, I think it's testament to the fact that it's the right time. I mean, people are really finally connecting the dots, I think, between the crisis of 2008, the pandemic and the shifts in supply chains, the war in Ukraine and the return of real politic and saying, all right, we are in an economic pendulum shift and this happens about once every half century, to be honest.
One paradigm, in this case, I'm arguing the neoliberal paradigm is giving way to a new one. And that happens throughout history. I mean, you look back into the 18th century mercantilism kind of worked until it didn't. Then you got laissez faire, then you got Keynesianism, then you got neoliberalism. Now, my book argues that while the last half century of neoliberal globalization produced a huge amount of wealth at a global level, it also tremendously increased inequality within countries, which was problematic, not just for the US but really for certainly all the OECD countries and many others as well in the sense that it made a lot of people on the ground, particularly in liberal democracies, feel like, wait a minute, are the markets existing in their own sphere? Are they actually working for us? Are the technocrats that lead our countries making policies in the interests of national voters? Or are they kind of floating 35,000 feet above us in a global economy?
Josh King:
I want to figure out if I can unpack where your perspective was formed from. And you were born in rural Indiana to a Turkish immigrant and a small business owner. How did your upbringing begin to shape your worldview?
Rana Foroohar:
Well, it was profound. For starters, my dad, he was an engineer educated in the US-ran factories in the components, essentially the components sector for Detroit, automotive components. And so, two things that I always really took. I saw how he worked and did research and development, and it always struck me that manufacturing mattered. I never bought into this neoliberal idea that it doesn't matter whether you make potato chips or computer chips. I could see that having research and development and sales and labor and leadership in a hub talking to one another was profound for innovation.
And in fact, if you look at the top innovation hubs in America, Silicon Valley, being chief amongst them, you always had that ecosystem. I was then a foreign correspondent for many years in Europe. I traveled in the Middle East and Asia, and in particular in Germany, I saw that model being replicated in the German export economy where you were able to keep those pillars of community, not just the top end of business, but labor, the public sector, R and D, everybody talking to one another and then it was really beneficial.
The other thing though that really shaped my felt experience growing up in Indiana in the '80s and '90s was the sense that free trade was everywhere and always working perfectly. I just never saw it that way. I lived through the consolidation of family farms, the loss of manufacturing jobs, which frankly devastated entire communities leading to deaths of despair. I can remember actually, in fact, I was at my colleague Gillian's house in the run-up to the 2016 elections that Trump won.
I was at a dinner party at her house, and there were a lot of high level Republican donors there. There were some politicos. And I remember the Indiana primaries were playing on the TV in the background, and people were talking about Trump like he was going to be out of the race in minutes. And I just thought, I don't think so. And I said to one of the big conservative donors, what are you offering the people in my town that have a high school degree and the factories and farms that have made up this community are dead? What are you offering them aside from trickled down economics? And they really didn't have a good idea. And that's why my hometown of Frankfurt, Indiana and my county, Clinton County went 76% Trump in that election.
Josh King:
So we have a sense now of your perspective. Now, I just want to get a sense as you sort of look in the screen and start writing your book about your process. And when I spoke to Gillian last year, she told us about a concept well known and practiced at the FT called a scoop of interpretation, which means not a scoop of actual factual knowledge, but a scoop of interpretation about how the world's changing. What's your scoop of interpretation on how the world's changing today? And how do you balance both your factual scoops with the subjective interpretation in your journalism?
Rana Foroohar:
The thing about journalism is it's a profession of inductive reasoning. We go out and we look at what's happening in the real world and we try to connect the dots and make some inferences. And if we're lucky, we've been doing it a long time. I've been a journalist, economic journalist, on three continents for 32 years. And you start to get a sense of what are the models telling you should happen and what's really happening? And that was sort of at the core of my book.
Coming up as a business and economics reporter, we were told that markets were efficient. We were told that cheaper was always better. As long as you're driving down consumer prices and raising share prices, everything's fine. But I saw over many decades the risks, the hidden risks, that were built up in the system, be it intense corporate concentration or an unlevel playing field in which you've got state capitalists and free market societies trying to compete by the same rules and failing.
And at the end of the day, economics is about data, it's about ideas, but really it's about people. And so, generally, when I write a book, there's one or two kind of galvanizing moments that help kind of propel me forward. And for this book, it was a conversation in fact that I had a number of years ago with Richard Trumka, who's the late head of the AFL CIO, former coal miner, then lawyer, then activist. I went down to see him because I wanted to talk to him about what the conversations were during the Clinton administration in the '90s and in the naughties, in the run-up to NAFTA, China into the WTO in 2001.
And he told me about a conversation he'd had with a former Clinton administration official who came to him to talk about these deals. And Trumka said, some of these trade deals are really going to kill us. It's going to be very compressed. We're going to see a lot of outsourcing. How are we going to cope with this? And the policymaker said, well, we know it's definitely going to lower wages in the rich world. But don't worry, eventually there's going to be a kind of leveling up, a leveling out to use those terms. And Trumka say, well, okay, but how long is that going to take? And the policymaker said three to five generations.
And that kind of summarizes what I think is an absolutely false narrative within economics that place doesn't matter, that you can create jobs anywhere. Create them in Brooklyn, people will come from Kentucky and take them, no problem. Give me a break. Place has always mattered. The world has never been flat.
Josh King:
For some of the terms that we've been throwing around, let's define neoliberalism for the listener. And what's the difference between the type of neoliberal globalization you write about versus what you also just mentioned, world is flat definition of globalization that many of us would imagine when thinking about the term?
Rana Foroohar:
Yeah. So, neoliberalism actually, it's a confusing term in some ways. It gets thrown around in a political sense, in an economic sense. In some ways, it's used differently in Europe versus the US. The way that I define it is the way that the IMF, which is one of the sort of core neoliberal organizations would define it, which is the idea that capital goods and people will all travel seamlessly across borders and end up where it is most productive for them to do so. That's really the core of the Washington consensus. It's the core of how globalization has run and been assumed to work over the last certainly 40 years or so.
The problem is that there was a chink in that argument. Capital always moves faster than either goods or people. And you can see that in the stats. I have some research from one of the trade departments of the UN that found that over the last 20 years, the major beneficiaries of this kind of neoliberal globalization were big multinational companies, a handful of them and China. And that's because there was this cheap capital for cheap labor bargain.
A lot of companies outsourced labor to the cheapest areas, China and Asia in particular provided most of that. But that bargain is kind of tapped out now. We can get into that in a minute. The shorthand for this is that the world is flat that it doesn't matter where you are. You can be in Bangalore, you can be in Beijing, you can be in Boise, and you have equal opportunity. I am arguing that, in fact, that is not the case at all. And it's interesting because there's now a real push in many academic centers. I'm involved with projects at the Harvard Kennedy School, at Columbia, at Johns Hopkins to look at place-based economics because there is of course a huge difference.
Your zip code matters profoundly in terms of your fortune. And we now know that you can't just put jobs everywhere and say, if you build it, they will come. You have to think about how to nurture local communities and make sure that the entire economic ecosystem works not just for a handful of companies or a couple of big countries.
Josh King:
In times of crisis, we tend to look at recent history for answers. You and I have talked about it a little bit already in the conversation. Looking at the history of economic trends is what your book explores, this moment, 2008, the financial crash. How did that help unveil the neoliberal reality to Americans and what are the biggest takeaways from that period?
Rana Foroohar:
My first book. Makers and Takers, was about this. And one of the things that I looked at in Makers and Takers is why is Wall Street incentivizing so many American businesses to do such short term thinking? I mean, we are all familiar of the concept of quarterly capitalism now. But I was coming at this as a business reporter, seeing business leaders, knowing CEOs, knowing most of them to be really decent, honorable, thoughtful people that want to do the right thing. And yet seeing them do the next share buyback instead of investing in the seed corn that would create the product in five or seven or 10 years.
Well, why do they do that? Because the average CEO has a tenure of three years, and if you're going to try and invest in a product that isn't going to pay off till 7 years or 10 years, well you're probably not going to get to see it come on to the shelf, you're going to be fired. So, I started looking at how the markets themselves, the financialization of the market and the creation of this kind of closed loop of buying and selling of existing assets rather than investment into the future was undermining US style capitalism.
And then, as I worked with the FT, as I began to think more about the US China relationship, it just seemed to me, wow, this kind of quarterly capitalism, this neoliberal model, is so ill-suited to competing against a state-run economy that is looking for the 50 years, the 100 years, the 500 years. And we have got to bridge that gap somehow.
Josh King:
I mean, as you're talking about the state-run economy, one of the anecdotes in your book comes from the Chinese Communist Party, their prediction that the US would fall from poll position to fourth place following the 2008 financial crisis. Now, a couple weeks ago, I interviewed the US Deputy Treasury Secretary, Wally Adeyemo, where I asked him where he sees the US ranking on the global landscape. And he's quite positive, but I'd like to ask you the same, where do you see the US ranking now and what would you say those communist party leaders predictions, do you think they've been born out?
Rana Foroohar:
Well, it's such an important and profound question. I feel like we're on a knife's edge right now. And I feel that this country could either move to a real golden age of prosperity if we get it right, or we could end up being Brazil. And let me sketch out those two possibilities for you. I look in my book at how historically the way that you get big bursts of shared prosperity, not just asset growth, not just growth that enriches the C-suite, but two or three decades of broad-based middle-class job growth. It's when there is a big transformative new technology and the government comes in and puts a floor under it and then the private sector commercializes it.
This is what happened in the advent of the railroads and the race to the west. This is what happened with the internet. You've got DARPA inventing something, the defense department putting a floor under it, Silicon Valley commercializing it. We are clearly at that place now between the opportunities in a clean tech transition, AI, biotech. I mean, there are just a handful of very transformative new technologies, internet of things, that are poised to bring tremendous growth.
But, A, we need policies that are going to put a floor under it, not just in this country, but ideally along with allies because you need scale in order to reach demand for companies to invest. And you're seeing that happen in semiconductors, knock on wood, that will continue. But you also need a trained workforce. You need to start connecting the dots between job creators and educators. And it's like we have forgotten in this country. We invented modern industrial policy. Alexander Hamilton was all about that.
China took a page out of our playbook and yet that's still kind of a third rail term. I'm in all these conversations right now between public officials and business leaders about tracking and mapping the supply chain. And I just see these huge gaps of knowledge where we don't even know how to make our own secret sauces anymore. We're not talking about picking winners and losers here. We're talking about just connecting a few dots between the public and the private sector and then allowing the beauty of the more decentralized, innovative American system to bubble up and allow innovation to happen.
But if we don't make some of those policy tweaks, if we don't improve education, if we don't really start to bridge the inequality gap because there's like 25% of the population that's doing fine and everybody else that is just in a totally different ballpark, then we really are going to end up with an economy like a Latin America and highly bifurcated sort of economy where rich people are taking helicopters from building to building, and everybody else is down living like a troglodyte.
Josh King:
I mean, notwithstanding what may come out of a readout or communique from Biden and Xi's meeting next week, presuming that at some point near down the road there is a decoupling, what do you see as the biggest effects of China's decoupling on the rest of the world? And what does that mean for America in terms of its global leadership potential?
Rana Foroohar:
Okay, so I'll play the scenario in a positive way and in a less positive way. In a positive way, I have always thought that it was a good thing for there to be more local production and consumption hubbing. It makes sense for all kinds of reasons. Business was moving towards it even before COVID or the war in Ukraine. It never made sense to have 92% of all the world's high-end semiconductors produced in Taiwan. In what world is that a good thing when you've got climate change, geopolitical stripe?
We've seen frankly with tsunamis in Japan and how they've disrupted the auto industry. Or how factory collapses because of multiple layers of outsourcing have resulted in brand degradation for retailers. There's risk in far flung supply chains. So, if there can be a kind of regional hubbing, a tri-polar world, Asia, Europe and the US doing a little bit more redundancy, resiliency kind of production, that could be a good thing.
And I could imagine that that little bit of re-mooring of wealth and place could actually lead to better politics. I'm not saying that there's not going to be bumps in the road. There always are during paradigm shifts, but that's the best possible outcome.
Now, the darker outcome is China under Xi has become a surveillance, and let's say an even harder line surveillance state, forced labor is a real issue. There is no assumption of privacy. Free speech has been utterly squashed, not that there was much to begin with in China. If those values remain the values of the party and of the state, and you start to see countries like let's say Germany saying, well, we're okay being in the Chinese orbit, we're going to just replicate this whole business of getting our gas from an autocrat and we're going to do business and get on the same tech standards with China and move away from the US and move away from liberal democracy and those values.
And you've already got countries like Italy and Greece kind of being pulled into the one belt, one road supply chain ecosystem, then I'm worried. I'm worried. I'm worried for Europe in particular. I think the Germans are once again being very shortsighted about how they're thinking about their trade relationship and their political alliances. But I'm also worried for the US because I don't think it's ideal to go it along. Do I think we could? Well, we're in a better position than many regions because we have food, fuel, and consumer demand here.
But no, ideally, I mean, it's not efficient to be trying to go it alone in a world where you want to build more demand and more networks of allies,
Josh King:
Food, fuel and consumer demand the world is ever changing and far from rational and economic policy has to reflect that as Rana says. After the break, we'll dive deeper into Rana's book and how she sees the global economic pendulum swinging back toward a more local, less global world. All that's happening coming up right after this.
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Josh King:
Back now with Rana Foroohar, author of Homecoming, the Path to Prosperity in a Post-Global World out now from Crown. So, let's go back to one of your trips to Beijing. You're talking to a people's liberation army general about potential military conflict between the US and China. Yesterday, right here at the New York Stock Exchange, we had the Chairman of the Joint Chiefs, Mark Milley and the Navy Secretary, Carlos Del Toro. And if maybe we were once distracted by Pakistan, Afghanistan, and the Middle East, I assure you, they are now focused squarely on China, South China Sea, the Straits of Taiwan, et cetera.
As you note, most of what we buy at Walmart has to travel through the supply train route in that area. How did that prove to be the inciting question in this book?
Rana Foroohar:
Again, as somebody that is an inductive reasoner, a journalist that's just been looking on the ground for some time, it was always amazing to me that we didn't connect the dots between politics and economics. I mean, I remember actually being at Paycom many years ago, and this was way before anybody was talking about conflict in the South China seas and they put up a heat map showing immediate conflict, midterm and then longer term. And the immediate was at that point, all focused on Afghanistan. You were starting to see some Iraq issues.
The midterm was kind of moving east, but then the long term was all in the South China seas. And I remember looking at that map and thinking, oh my God, why is every CEO in America not thinking about this? Well, because we were buying into the world as flat model. We were looking at getting costs off the balance sheet, doing what finance 101 would tell us to do, which is move things where they're cheap, look at labor as a liability, not an asset. I mean, these were things that business leaders were taught to do.
It's not like they were making totally irrational decisions, they just were not looking at the hidden risks. And you mentioned this conversation I had with the PLA general, it was a woman interestingly, and I remember it was around the time in the Edward Snowden leaks that I was there. And people were, as they say in Casablanca, shocked, shocked that there was this overlap or information sharing between tech companies and the government. And she laughed and she said, in China, there's no difference between companies and the country. They are one and the same.
So it was yet another one of those moments that said to me, wow, we've got fundamentally different models here and let's stop pretending that they are ever going to seamlessly be conjoined.
Josh King:
As we were reading your book and thinking about the other places that you've been talking, one of the conversations that struck us was your recent interview that you did on Amanpour & Company. I want to hear just a brief clip of what you said on that show.
Rana Foroohar:
Price of the things that make you middle class right, housing, education, healthcare in America. They were rising at multiple times core inflation even before we had this latest bout of inflation. And I think that that sense that we now need to reconnect the global economy to national political concerns is really where the action is.
Josh King:
So Rana, if we're going to be less dependent on cheap goods, globalization and the free movement of capital and trade, wouldn't that mean further rises in inflation and consumer goods for us here at home? How do you justify the negative setbacks that'll come as a result of Walmart's products being a lot more expensive?
Rana Foroohar:
Right, so you're hitting the big key question. If the cheaper is always better model is going away, we're at the end of cheap capital, cheap labor, cheap energy, then that does imply higher levels of inflation. We're going to have to buffer that short term and I think for working people anyway. And I think the Biden administration has done a decent job of doing that throughout the pandemic. But ultimately, you have to increase productivity and you have to increase wages, not by just jacking them up to compensate for structural shifts, but by changing the way the economy works.
If you look at our economy in this country over the last 20 years, we've moved from being a country that makes things to a country that eats things. I mean, if you discount the recent reassuring of manufacturing jobs, which is down to a few different factors, including higher energy prices in Europe, which is pushing certain European countries to put production in the US. The loss of manufacturing jobs in the last 20 years or so was met by an almost equal rise in fast food jobs and service work.
The idea that a cheaper flat screen television at Walmart is going to make up the difference between a $15 an hour job and a middle class life is just craziness. Housing, healthcare and inflation were rising three times core inflation before we started seeing the fed shift gears. Now, housing year on year, if you look at both the recent increases in housing prices, they've started to soften a little bit, but not enough. And the rate hikes, it means it's over 50% more to hold a mortgage year on year. And yet 5% wage inflation.
I mean the cheaper is cheaper model just doesn't work. Now, I do think that we are moving at a global level towards really starting to price the true cost of goods and services. So, if you look at was that cotton harvested in Xinjiang? Was that garment made with child labor? How many thousands of miles was it toted and what was the cost of fuel and carbon emissions for that journey?
Those are the sorts of things that regulators, really, in all three regions, US, Europe, and China are starting to price into the model. And once you get those prices, and I do believe that ultimately we're going to move to a system in which you're almost going to have a nutritional label on products so that you'll be able to really see the cost, the true cost, of what's there. I think that that's going to fundamentally change not just consumer buying patterns, but the way we think about the economy. And I think federal policymakers are going to, and all policymakers actually are going to be thinking much more about the production side and not just about redistribution.
Josh King:
Do you see that as a source of potential bipartisanship?
Rana Foroohar:
I 100% do. If you look at the industrial policy blueprints of like a Marco Rubio versus an Elizabeth Warren, there's not that much air between them.
Josh King:
So, if we are headed toward more regionalization, as you say, I want to go to another quote from your book. "Regionalization and localization are the future and the world is already resetting countries, cities, individual communities are increasingly shaping their own future supply chains. Shortening the capital labor divide is finally shrinking away from the technology for innovation. It's making it possible to move jobs and wealth to a far greater number of places, including back home."
So if it seems like we're headed on track, as you point out, what do you see as driving the trend and mostly how hopeful are you that we're going to achieve it and what time frame?
Rana Foroohar:
So, a few different tailwinds. Let me start with one that we haven't talked too much about, which is technological disruption. We are with decentralized manufacturing, additive manufacturing, 3D printing combined with big data like the internet of things. All the things that we have in our phones are moving into the industrial space. We're on the verge of a disruption that is going to mirror 2007, but this time in the business sphere. That's going to have incredible productivity enhancing effects. It also may be very deflationary, which is interesting. That could be a big deflationary trend in the economy.
Already you can see throughout COVID the rise of additive manufacturing, it's up 22% year on year. You're seeing big companies start to say, we have the technology now to make things locally. It just does not make sense to have large complex supply chains. You can print industrial products, you can print cars, you can even print houses. There's a company in Austin called ICON that is 3D printing, $250,000, 1500 square foot, middle class housing, very cool looking houses. That's helping to solve the housing crisis in Texas.
So all of these things, vertical farming, moving away from big, very polluting, expensive industrial farming to these kinds of more decentralized, resilient systems that allow you to actually grow produce up a wall. Google feeds its entire campus this way in California. These things are going to just gain more and more steam. And I think, particularly for an economy like Americas, that decentralization is just a huge strength. That is our traditional strength.
Josh King:
Speaking about regional blocks, last month in Washington DC, the deputy prime minister of Canada, Chrystia Freeland, talked about her global vision embracing a de-globalization tactic that she referred to as friend shoring. I've also heard it talked about by Treasury Secretary Yellen and the Deputy Secretary Wally Adeyemo when I talked to him a couple weeks ago. How do you see the US working with our neighbors, again, like Mexico and Canada in the near future?
Rana Foroohar:
Well, my hope is that we would get a smarter regionalism this time. And I thought Chrystia's speech was great and I also thought that it was a real landmark in a way because Chrystia is a former FT colleague, she's quite a centrist and she's a bit of a globalist, I would say. But she's saying, look, it doesn't make any sense to get your energy from an autocrat. It does matter whether you can create middle class jobs as well as cheap products. And so, you're starting to see Canada and the US cooperating on EVs. I think that you could do a lot more in that area together. I mean, in my dream, I would love to see a US Canadian Mexican industrial policy around the whole stack, starting with lithium batteries, because you've got a lot of the intellectual property for those things that are held in small companies in both the US and Canada.
You've got energy from Canada. You've got production and consumption in Mexico and in other Latin American countries. And you've got all three of those things in the US. So it just makes sense to have that kind of regional hub. Ideally, I would love to see Europe coming on board with some similar standards. I think that they should certainly do their own incentivization of green technology. I think that it's great that they're making their own semiconductors. Again, it's about resiliency. My friend Barry Lynn at the Open Markets Institute came up with this idea called the Rule of Four, that in critical supply chains you want to have four companies, four locations, you want to create more resiliency and redundancy so you don't run into the kind of roadblocks that fueled inflation over the last few years.
Josh King:
So you mentioned vertical farming a little bit earlier. You talked about how Google is feeding its campus. In some ways, food security is an issue that we are totally preoccupied. I've had guests on this show who are very much into the hog and pork business in China. And when that whole herd goes down because of disease, suddenly people can't get their bacon here. This is an issue that you dive a lot deeper into in your four-part film series with the FT. I want to just listen to one of the farmers from the film talk about the big ag industry.
Speaker 16:
I think the one thing that I would love to see is for government and policies to be shaped around people, not industrial ag. That's talking in their ear all the time. They have the money, right? And a lot of time that feeds what policies we create. You see it every day. And so, we really need to be working with producers who produce what I would consider real food, not just commodities.
Josh King:
What were some of the biggest takeaways you had when you visited small farms and spoke with the farmers yourself? What surprised you about it?
Rana Foroohar:
Oh gosh, so much. I mean, agriculture is one of the most broken markets and one of the markets that show how markets just aren't always efficient. One example, in a lot of rural areas in America, you could have, let's say, a small pork producer that cannot walk six miles or drive six miles down the road and sell their meat to a local school or a hospital because there are three or four middlemen from a commodities trader to a large food packager to a giant industrial grocery chain that are sitting between that farmer and the market. That's crazy.
I mean, that leads to things like the overproduction of commodity crops in this country. And that is a model that was based on the Great Depression, the idea that we are subsidizing the extremely low margin production of corn and soybeans. I grew up in rural Indiana. Most of the corn that I grew up in was for cattle. The cattle feed and the cattle operations ...
Josh King:
Still is.
Rana Foroohar:
Still is one of the most polluting industries on the planet. And yet we're not producing enough calories in this country of healthy fruits and vegetables. And what we do produce is often produced just because it can be transportable. The biggest produce cash crop in America is iceberg lettuce, which I think of as a vehicle for blue cheese myself. Nobody really thinks I want to get up and eat some iceberg lettuce today. But we farm a lot of it because guess what? It can survive in a truck for six months, although it's losing half of its weight, which is water. And think about the transport costs, think about the energy costs, think about the lack of nutrition, think about the fact that our food systems are leading to obesity, which is one of the reasons we have the most expensive healthcare system in the country.
None of these things make sense when you look at risk more holistically. And all these things are driving, I think, just a rethink of big cheap as the solution.
Josh King:
So, to bring it all home, Rana, as we wrap up literally, I want to leave our listeners with your final thoughts on how you see this post global world unfolding. As Coach Norman Dale says in the iconic Indiana based movie, Hoosiers, "There's a tradition in tournament play, not talk about the next step until you've climbed the one right in front of you." That's Gene Hackman if you can visualize him saying it. So Rana, what is the next step we have to climb in this post global world?
Rana Foroohar:
Dot connection. We have so many resources in this country. I mean, one of the really hopeful things in my book is going around and talking to the business leaders that have done amazing things in the last few years. One of my favorite stories is going into the textile supply chain in the Carolinas and talking to these small and mid-size manufacturers who did survive China's entry into the WTO. And they're kind of like Darwinian case studies for how you want to run a business. They're oftentimes, they don't have the pressure of the public market, so they can sometimes think a bit longer term. They tend to be family owned. They're working together in a collaborative model. The pandemic hits, nobody's buying t-shirts, so they retool in 48 hours and start making masks.
There are areas of industrial capacity like that all around this country. We are still the technological leaders. We are the leaders of the information economy. We have success stories at a local level. All we have to do is start connecting the dots and believe that there is a different kind of future available to us.
Josh King:
All we have to do is start connecting the dots. Maybe a little more complicated than it sounds, but perhaps we can get there. Rana, thank you so much for joining us inside the ICE House.
Rana Foroohar:
Thank you so much for having me.
Josh King:
That's our conversation for this week. Our guest was Rana Foroohar, author of Homecoming, the Path to Prosperity in a Post-Global World. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show or to hear guests like Rana, email [email protected] or tweet at us at icehouse podcast. Our show is produced by Isabella Bezzone and Pete Ash, with engineering from Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitution offered to sell a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
