Our house of cards

Barry Lynn thinks globalization made America dangerously dependent on foreign companies -- and that disaster is looming.

By Andrew Leonard

Sep 15, 2005 | Critics of globalization see a host of evils in the spread of free trade and free markets across the world: human rights abuses, exploited workers and environmental havoc, just to name a few. In "End of the Line: The Rise and Coming Fall of the Global Corporation," Barry Lynn looks at globalization and sees all that and worse: Imminent disaster is looming, an economic crash of dire proportions. But there's a paradox -- the instruments of this crash are precisely those companies currently regarded as the most successful businesses in the world, the leanest, meanest, best-run corporations.

So while business magazines and Wall Street investors praise the Wal-Marts, Dells, Ciscos and General Electrics that bestride the land, Lynn comes to bury them. The very things that make these companies great -- their mastery of logistics, nimble outsourcing and offshore operations, relentless quest to bring costs down and profits up -- are destined to doom us all.

Who is to blame? For Lynn, a fellow at the New America Foundation and the former editor of Global Business, a monthly publication aimed at executives of multinational corporations, Bill Clinton gets the lion's share of calumny. Under his watch, free trade flourished as never before, and American corporations were given full rein to do whatever they wanted. In a brutal break with American political tradition, as honored by every president from FDR to Ronald Reagan, argues Lynn, Clinton abandoned the time-tested policy of employing trade policy as a weapon for foreign diplomacy and a tool for domestic economic support. Never mind all the economists who maintain that protectionism hurts everyone -- the United States had always been protectionist to some degree, states Lynn, until Clinton unbarred the barn door.

Laying blame for globalization squarely on Clinton's shoulders isn't really fair. It's kind of the obverse of giving Al Gore credit for inventing the Internet; neither man deserves full (if any) responsibility for something that was and is the product of many actors and multiple historical forces. When Lynn holds Clinton guilty "of one of the great snookers in American history" (a bamboozling of the American public that Lynn feels is far worse than George W. Bush's bogus rationale for invading Iraq) and savages him for having committed "the most grave error in the history of the American nation," his rhetoric, and his animus, undermine his more cogent analyses.

And that's a shame. Because the heart of "End of the Line" -- and the reason why this book should be required reading for anyone interested in understanding what globalization has wrought -- is Lynn's fascinating explanation of how the flexibility and interconnectedness that are fundamental building blocks of the global economy are actually its Achilles' heel. Not only are we now in bed with nations who don't share our values and may end up being our enemies (read: China), but our most successful corporations are companies that don't actually make anything, that in fact subtract value from the economy, rather than add to it.

It's a complicated argument, hard to do justice to in the confines of a review. But in Lynn's hands it is thoroughly reported and passionately narrated. Lynn examines the history and evolution of companies such as the above-named blue chips, and discovers that what these corporations have achieved, after outsourcing and moving offshore every possible step of their business, is an economic structure that only seems flexible and infinitely reconfigurable. In truth, argues Lynn, what we have now is more rigid and fragile than ever before. And if one twig snaps, the whole tree is likely to come crashing down.

"The hyperspecialized and hyper-rigid production system that is emerging is, if we are honest, the natural outcome of what happens when globalization and outsourcing are combined with an entire lack of regulation by governments," writes Lynn. "When the borders of the nation and the borders of the firm are both simultaneously ripped open, the result, in industry after industry, is a chain reaction that results very quickly in a single highly networked and highly specialized system of production."

In Lynn's view, being highly networked and specialized creates dangerous new vulnerabilities. As an example of what can go wrong, Lynn cites an earthquake that occurred in Taiwan in September 1999. Taiwan is the world's No. 1 source of made-to-order advanced semiconductors -- the microchips that are the brains of iPods, DVD players, computer graphics cards, cellphones and countless other electronic devices. Although the handful of factories that manufacture such chips were not seriously damaged by the quake, power and transportation systems in Taiwan were severely disrupted for a week. The ripple effect of that turned out to be an economic tsunami of sorts for the global high-tech economy.

"The one-week shutdown in Taiwan cut world output of electronics by 7 percent below predictions, just in the month of October, and disruptions continued well into the new year," reports Lynn. Factories in California -- including some that assembled computers for Dell -- had to shut down their assembly lines.

Dell was shocked to learn that key parts of its computers depended on a single supplier in Taiwan. Dell executives weren't aware of this, argues Lynn, because Dell doesn't actually make computers. Instead, it specializes in logistics, in managing the supply chain made up of the hundreds of companies that actually manufacture the thousands of parts that make up the modern computer. There are so many layers between Dell and the original supplier that no one really knows what's going on, from the top to the bottom of the supply chain.

Next Page: Why we need a backup plan -- desperately

• View blog reactions