Editor’s note: What follows is the first chapter of Caught in the Middle: America’s Heartland in the Age of Globalism, the 2008 book by Richard C. Longworth, former Chicago Tribune correspondent and now senior fellow at The Chicago Council on Global Affairs. While researching the impact of globalization on the Midwest, Longworth spent some time in Peoria talking to a number of our community leaders, including Jim McConoughey, Dr. John Erwin, Peter Johnsen and State Sen. Dave Koehler. “The result of his journey,” said one reviewer on amazon.com, “is a must-read book for our elected officials, for university and college leaders and for the rest of us Midwesterners who are “‘caught in the middle.’”
The Midwest is the bellwether of America, the spearpoint of the American economy.
It was the frontier when the first pioneers moved west, across the Alleghenies. The mills of Chicago and the factories of Detroit powered America’s industrial revolution. Here commerce boomed and labor wars first raged. The great reformers—Debs and Dewey, Bryan and La Follette, Jane Addams and Betty Friedan—sprang from Midwestern soil. The Great Depression began on Midwestern farms, ten years before the Crash. When the nation recovered in the 1940s, the Midwest recovered first, and most spectacularly. When American industry declined twenty years later, the decline started in the Rust Belt of the Midwest, along with the textile towns of New England. Midwestern steel mills, Midwestern auto factories, and Midwestern television makers felt the first sting of foreign competition, especially from Japan, as world markets began to open, long before globalization appeared. Chicago invented the skyscraper. Henry Ford invented modern manufacturing. Midwestern unions invented the weekend.
What happens to America happens first to the Midwest.
It’s happening again. When Americans think about the Midwest, they think about stability, the rhythmic turn of the seasons, the unchanging solidity of towns and cities where everyone knows everyone else, a land of deep roots. Now, for better or for worse, this Midwest has changed. If no part of America is immune to globalization, its impact is felt most here in the heartland, in the great fecund plain that spawned the American dream and nurtured its values. No part of the Midwest, neither Ohio nor Iowa, Michigan nor Missouri, escapes. The problems are similar or the same in each state. The issues facing each state—farming, industry, immigration, rural decline, education—vary in degree, if at all.
Globalization unites and divides. It cements ties across borders while weakening old ties at home. It celebrates the transnational at the expense of old loyalties. It brings people together from around the globe while stirring new xenophobia. It destroys old industries and economies and creates new ones—not always in the same places. It makes some people richer and other people poorer, and this gap is growing.
And like any huge economic revolution, globalization has the power to remake societies—not just their economies but their politics, the shape of their towns and cities, the way their people think and live. The industrial revolution did this. In fact, the entire Midwest is the result of the technology—railroads, harvesters, the telegraph—that powered the industrial era: this era and its machines created the Midwest’s cities, formed its farm economy, shaped its universities. The global era is powered by technology as well, and it, too, is transforming the Midwest.
How Globalization Works
To grasp what is happening, we need to understand how globalization works. At its base, globalization means a revolution in communications—specifically, communications satellites and the Internet. This ease of communication has created a global money market—you can buy dollars or euros or yen for the same price in Chicago or Frankfurt or Singapore. This means that investors can borrow anywhere and invest anywhere. This means that big corporations are no longer cooped up within national boundaries or limited to a few “multinational” operations, such as factories overseas. Instead, these firms have turned themselves into global corporations, viewing the world as one big market and treating frontiers as though they don’t exist. These corporations, which are the driving force for globalization, can put their design, manufacturing, marketing, and almost everything else anywhere they want, so long as it makes economic sense. They can set up business where taxes are low and regulations lax: the biggest corporations, such as Wal-Mart or Exxon/Mobil or Toyota, are richer and more powerful than many of the countries where they do business. It also means that it’s cheap to ship things, and virtually free to ship ideas and services. In turn, this creates more trade: why buy one of something in Ohio when you can buy three from China for the same price? The digital-age communications, then, enable a relative handful of executives in the headquarters back home to control their empire with the click of a computer key.
Mostly, globalization makes it possible to hire workers almost anywhere in the world. This means that the corporations can put operations anyplace where workers are skilled but wages are low.
This all adds up to the one big fact of globalization: companies and workers who used to compete with the next town or the next state now compete with China, India, Ghana, Poland, Costa Rica, or anywhere else that global technology—which is to say, communications and shipping technology—makes investment possible and profitable.
The impact of this is being felt across the Midwest and especially in its old manufacturing towns. Galesburg, Illinois, the home of Carl Sandburg, is a town of thirty-three thousand that had a place in the industrial era but may not have one in the global age. In 2000, the Galesburg area provided 35,000 jobs. Then its Maytag refrigerator plant moved to Mexico, killing 1,600 jobs. The Australian owners of Butler, which had built steel buildings in Galesburg for seventy-five years, closed the plant, firing another 270 workers. A rubber-hose plant, an industrial-screens factory, a plant making landfill liners—all are gone. A local pottery works is down to a skeleton staff. Altogether, the Galesburg area has lost about 7,000 jobs in seven years. The town is too far from Chicago or St. Louis to live off the economies of those cities. Its workforce, basically hardworking high school graduates without the skills or education that the new economy demands, may be unemployable.
Galesburg, like much of the Midwest, is reeling before forces that it doesn’t understand.
Erasing Boundaries and Borders
But really, what’s so new? Trade has been growing since Marco Polo went to China. Distances shrank with every new invention, from the steamship to the telegraph. Multinational corporations have made things in other countries for decades. In a recent speech, Ben Bernanke, the new chairman of the Federal Reserve Bank, said, yes, a lot of this is new, for three reasons.
First, he said, change has shifted into top gear. The Web and the browser, which make all this possible, are younger than today’s high school seniors. China and India have become the two biggest new players in the global economy: China decided to join that economy only thirty years ago, and India’s rise dates back barely a decade. There’s always been trade, foreign investment, flows of money, and they have always changed the way we live. But now the flows are global and the change is coming faster and faster. Globalization today is about where the industrial revolution was in 1790, twenty years after James Watt invented the steam engine. It took two more centuries for Watt’s revolution to run its course. We’re just at the beginning of ours.
Second, Bernanke says, globalization erases the dividing line between the First World and the Third. Once, poor countries and colonies shipped raw materials to the rich countries, which made the goods. Now both processes go both ways.
Geopolitics had a lot to do with it. The collapse of Communism, less than twenty years ago, added two billion new workers to the global economy. But these workers came from countries such as China, Russia and Eastern Europe, plus India, that were poor and added little to the world’s supply of money. In other words, you now have 3.5 billion workers competing for the same pot of money, more or less, that was formerly shared by 1.5 billion workers. These two billion new workers are willing to work cheap. So, the 1.5 billion First World workers will have to work cheap, too. No wonder Third World wages are low and First World wages are going down.
Third, production—of goods and ideas—is fragmented as never before. Once, an auto factory in Detroit produced most of a car, perhaps buying some parts from another factory next door. The boss worked upstairs over the factory. So did the designers, salesmen and bookkeepers. Later, the company opened some factories in places like Europe, but kept everything else in Detroit. Now, as Bernanke says, an American chip producer does research in California, production in Texas, Germany and Japan, and final processing and testing in Thailand, Singapore, Malaysia and China, then sells its product all over the world. If it were cheaper and better to do the research in China and the testing in Texas, that’s how the producer would do it. And that’s what a lot of Midwestern companies, including the auto suppliers that used to sell to that car factory in Detroit, have done.
Only the Big Survive
Globalization transforms the way that even traditional businesses operate. In my hometown, I talked with Stan Redeker, who owns one of the biggest furniture stores in central Iowa. Redeker’s has been a fixture in Boone since Stan’s father started the store in 1930. Stan and his wife, Maxine, both eighty, still go in regularly, but their son runs the store now, with help from his children: it’s a four-generation business.
Stan always bought a few accessories, such as lamps or vases, overseas. But the so-called case goods—bedroom and dining-room furniture, sofas, entertainment centers—were American-made, mostly top-of-the-line brands such as Ethan Allen and Thomasville. “Then, five years ago, everything changed dramatically,” he recalls. Chinese factories started licensing and producing top American brands, using the latest technology, achieving high quality and low prices.
“We get three 48-foot containers a week from China now,” he says. “In major wood furniture, 75 percent of what we sell is Chinese. Maxine and I went over there for two weeks last year. We went through a case goods plant that employs 7,500 people and a leather goods plant that employs 4,000. They house their people in dorms. I watched Thomasville coming out of a chute. Then some Ethan Allen started coming out of the same chute. At the Chinese ports, there were thousands and thousands of containers stacked up. Unbelievable. They’re put on ships that handle 4,000 containers, and then on a railcar to Omaha or Kansas City. They’re put on a truck to our back door. They’re sealed in China, opened in Boone.
“You name the company, they’re over there. Thomasville used to have 14 plants in North Carolina. They have one now and probably are having trouble keeping that going.”
Only big furniture makers can survive this competition. At the other end, only big stores like Redeker’s, which buy enough stock to fill a container, can stay in business. “When I started, every little town around here—Ogden, Jewell, Stratford—had a family furniture store. Jefferson and Perry had three. They’re all gone now.
“The thing that scares everybody is that the Chinese might come over here and open their own stores. They’re making the stuff, and they have the financial capacity to do this.”
It’s like that in every arena. Only big companies can spread production and administration across a dozen countries. Only big stores can afford to deal with these companies. Only big farmers can deliver food to the specifications of the big corporations that dominate agribusiness. Only big cities offer the business services and intellectual pizzazz to compete in global services and global ideas. This is what is happening to small companies, mom-and-pop stores, family farms, and small towns. The implications are endless. Midwest farms and factories compete daily with farms and factories in China and Brazil. So do their workers. This means that jobs that used to be done here are moving overseas, mostly to places where workers can’t follow. All the signs indicate that it’s just beginning.
I drove to Freeport, Minnesota, a little town north of Minneapolis, best known as the place where Garrison Keillor lived when he began to write his Lake Wobegon stories. Keillor modeled much of Lake Wobegon on Freeport, including Ralph’s Pretty Good Grocery, the Sidetrack Tap and the Chatterbox Café: the town epitomized the safe, isolated Midwest of yesteryear. But globalization has come to Lake Wobegon. Freeport’s small industry competes with factories in China. Factory farming, Mexican immigration, big-box retailing—the area has them all. “Globalization?” said Paul Hetland, Freeport city clerk. “It’s here. You bet. We think about it, all the time.”
The Midwest’s Conundrum
We’ve had outsourcing before, of course. The Midwest became the Rust Belt when all those manufacturing jobs went south, to nonunion towns in Dixie, or were driven under by Japanese competition. That’s what happened to the steel industry in Chicago and the auto industry in Flint: these industries collapsed two or three decades ago, before anyone had ever heard of globalization.
The Japanese invasion struck the Midwest first, wiping out the region’s television industry, revolutionizing its steelmaking, shattering the dominance of its Big Three automakers, destroying its machine tool companies. What’s happening now is different. The Japanese were good at what they did, with the aim of achieving dominance for Japanese films, while keeping their own markets firmly closed. Globalization, by contrast, is based on open markets, not closed ones, and it’s American firms, not Chinese or Indian ones, that lead the charge.
Now Midwestern workers see their jobs move to Mexico first, then to China. Many of the cities we will visit in this book, from Dayton in Ohio to Newton in Iowa, are reeling from this second wave of outsourcing.
Most of this earlier outsourcing dealt with manufacturing and factory workers. For people who make economic policy or write editorials, this blue-collar outsourcing happened to uneducated people whom they don’t know and was a regrettable price to pay for free trade and an open market. The newest wave is different. It’s white-collar outsourcing, with jobs mostly going to India, not China, and it can hit anyone whose job isn’t absolutely nailed down. The old globalization dealt with money, goods and factory jobs; the new globalization deals with all this, and with service jobs, too. The color of your collar, the years of your education and the size of your paycheck have less to do with this than the kind of job you have. Suddenly, for those policy-makers and editorial writers, it’s personal.
Basically, any job that does not require face-to-face contact with a customer can be outsourced. Defense attorneys who must appear in a Wisconsin court cannot be in India, but real estate lawyers searching titles can. An Indiana X-ray technician has to be in the same room with the patient; the doctors who read the X-rays can be anywhere. Barbers in Columbus, taxi drivers in Chicago and kindergarten teachers in Des Moines are outsource-proof. Stockbrokers and tax accountants aren’t. All this is happening now. Already, more than half a million American tax returns are being prepared in India each year: all it takes is a smart Indian accountant who understands American tax law.
Nandan Nilekani, cofounder of the Indian IT company Infosys (and the man who gave Thomas L. Friedman the idea that “the world is flat”), told the Financial Times newspaper that we haven’t seen anything yet. “Anything that can be sent over a wire can be outsourced, anything fungible is up for grabs, any tradable service anywhere in the world,” Nilekani said. “Fifty percent of global GDP is services, and a lot of that is tradable.”
Most of the Midwest remains in denial. Other regions of the world, from New England to India, know they are in global competition and are off and running. This truth is just beginning to dawn on much of the Midwest. Heavy manufacturing isn’t just in a slump: it’s going. The family farm has been replaced by the factory farm. Schools that were good enough to train workers for assembly-line jobs aren’t good enough anymore.
Globalization poses a conundrum that will bedevil the Midwest—and America—for the rest of this century. If globalization has a moral justification, it lies in its ability to raise the Third World to the level of economic decency that has enriched the lives of First Worlders, especially Americans.
But this is the question: must this be done on the backs of American workers? Can globalization work for both Chinese peasants and the factory workers of India? Can we raise living standards in India without lowering them in Michigan or Iowa?
Global Peaks and Valleys
So far, globalization has destroyed more in the Midwest than it has created. But there are success stories. Globalization, like any economic trend, is impersonal. It can do great harm and great good, often at the same time. What it does depends on how it is shaped and guided.
Twenty years ago, Chicago epitomized the Rust Belt. Today it is a global city, reborn and revitalized. On a smaller scale, other Midwestern cities such as Minneapolis and Omaha find a global niche. Kansas City, sitting astride the trade route from Mexico, feels reenergized by the North American Free Trade Agreement, or NAFTA. St. Louis has put all its bets on bioscience. Some Midwestern industries—medical instruments, for instance—boom. Some small Midwestern cities thrive: Warsaw, Indiana, is a world center for the manufacturing of implantable joints. Even the clapped-out iron mines of northern Minnesota still produce, thanks to investment from China.
But challenges and problems outweigh the boons. Even potentially positive forces, such as immigration, sit uneasily on a region that distrusts change.
Tom Friedman, the author and New York Times columnist, has written that a globalized world is a flat world. What he means is that global communications have brought previously remote places, like India, into real-time competition with the United States. Thus, there really is a level global playing field, and anyone anywhere with enough broadband capacity can compete on an equal basis with anyone else in the world.
But Friedman’s “flat world” metaphor misses a crucial point. This new world isn’t really flat. Instead, it’s made up of peaks and valleys. On the peaks stand the global cities, global universities, global research center, hubs of global wealth and creativity. Chicago and Minneapolis are such global cities. Madison and Ann Arbor, arks of creativity, share this rarefied atmosphere. Other peaks rise in such places as Shanghai, Guangzhou, Bangalore, and Chennai. The West no longer dominates the world. In that sense, Friedman is right.
But that doesn’t mean that everyone, in America or India, shares this level playing field. From their mountaintops, the happy residents of the peaks—the global citizens—talk to each other and carry on the business of globalization. Far below, down in the valleys, live the rest of mankind, globalization’s have-nots, all but shut out of this conversation. They live in Calcutta’s slums and on China’s farms—and in much of the Midwest, in inner cities and remote rural villages. For these people, globalization is at best a rumor, at worst a threat.
The changes are felt everywhere—in farming, which has always defined the Midwest; in manufacturing, which has put bread on its tables; in education, long a source of pride but now a vital concern; in immigration, which made the region and is now remaking it; in politics, where its greatest divisions lie—as well as its great hopes. In later chapters, this book will deal with each area and introduce the people who are leading the changes, or coping with the effects.
Larry Summers, the former Harvard president and treasury secretary, summed up the pressures in an article a week before the 2006 elections: “The vast global middle is not sharing the benefits of the current period of economic growth. As the great corporate engines of efficiency succeed by using cutting-edge technology with low-cost labor, middle-class workers and their employers—whether they live in the American Midwest, the Ruhr Valley, Latin America or Easter Europe—are left out.” But it’s no comfort to Midwesterners to know that Europeans and Latin Americans share their pain, because this pain isn’t going to stop. As Summers said, globalization is going to grow, and “the economic logic of free, globalized, technologically sophisticated capitalism may well be to shift more wealth to the very richest and some of the very poorest of the world, while squeezing people in the middle.”
Finding Regional Solutions
The Midwest can thrive only if it meets its global challenges on a regional basis. Globalization’s impact in the heartland is different from its impact on the West Coast, say, or the South, or New England. If the problems are regional, then the thinking should be regional, to find regional solutions. But this regional thinking and regional leadership are nowhere in sight.
Both Midwestern politics and Midwestern thinking are fragmented, based on states, not the region. As a result, the Midwest is coping with a twenty-first century problem with a nineteenth-century political and social structure. In my travels, I was astounded to find so many “experts” in these states who had no idea what was going on next door, across the state line.
All over the world, in Asia and Europe, regions are coming together to meet the challenges of globalization. As globalization weakens the reach of national governments, regions with common histories and problems find common cause. The Midwest also is a region with its own particular history, economics, demographics and politics. There’s no reason why it can’t find its own way to cope with the world.
But first it must find its voice.
Big cities, smaller industrial cities, corporations, universities—all face common problems but wouldn’t dream of working together to solve them. It is time for them to talk together, perhaps at a think tank funded by the Midwest’s foundations.
In the Midwest, nostalgia comes easily. All Midwesterners lament the passing of a golden era that, even if it never shone as brightly as we remember it, remains vivid in our minds. But nostalgia is the flip side of denial. The Midwest’s collective myth and memory keep it from dealing with the problems at hand.
The Italian philosopher Antonio Gramsci described the crisis of an era when “the old is dying and the new cannot be born.” The Midwestern crisis is just the opposite. The future is already here, but the past refuses to die. The good news is that globalization is new and can be shaped. The bad news is that the Midwest is already behind.
The American future does not lie in Alabama or Las Vegas. It lies where it has always lain, in the heartland, in the battered bellwether in the very middle of the country. So far, the Midwest is failing the global challenge. This book intends to ask how the Midwest—and America—can win that battle. iBi
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