When the “Flat World” Shakes

End of the Line: The Rise and Coming Fall of the Global Corporation by Barry C. Lynn (Doubleday, 312 pages, $26.00)

The End of the Line is about the consequences of the “taking apart” of the modern corporation -- the outsourcing of operations to the far corners of the world by companies such as Wal-Mart, Dell, Cisco, General Electric, and General Motors. Most economists and American journalists see the role of these companies in the creation of an integrated global economy -- what Thomas L. Friedman calls a “flat world” -- as generally positive and, in any event, inexorable. Barry Lynn sees the making of disaster.

What makes Lynn's book distinctive is that his critique is not based on the subsistence wages, lack of human rights, and appalling health and safety conditions in many workplaces around the world. Lynn challenges the dominant globalization perspective on its own terms and makes a compelling case that the Achilles heel of the global economy is precisely its most successful organizations -- the ones that have been most relentless about reducing costs, mastering logistics, and outsourcing every conceivable operation.

As the former executive editor of Global Business, Lynn comes to the subject with superb journalistic skills, and he makes a complicated story understandable. Nations no longer exchange finished products; that conception of trade is simply archaic. Instead, there is a single global industrial system marked by extreme specialization. The cutting-edge companies that have led this process, Lynn argues, may seem to be strong and flexible, but they are actually more rigid and fragile than ever before.

All the corporations that Lynn writes about either put together or sell things produced by others. Cisco brags about never touching many of the products it sells. Dell's assembly plants are fed by some 300 suppliers providing some 4,500 parts from Tijuana to Taiwan, from Malaysia to Korea. This production model doesn't only apply to electronics firms. Lynn describes how once a competitor in any industrial sector -- auto parts, aerospace, computers, toys, apparel -- turns to cheap outside suppliers, the resulting price pressures will usually force rivals to follow. These highly specialized production networks, however, greatly increase the risk of cascading economic breakdown.

As an example of what can go wrong, Lynn cites an earthquake that occurred in Taiwan in September 1999. Taiwan is the world's number one source of made-to-order advanced semiconductors -- the microchips that are embedded in iPods, DVD players, cell phones, and countless other electronic devices. Although the quake did not seriously damage the factories that manufacture such chips, it severely disrupted power and transportation systems in Taiwan for a week. Within days, factories were closing in California and Texas. Dell and Hewlett-Packard began shutting down assembly lines and laying off workers because their supply of semiconductor chips was cut off.

Dell executives weren't aware that key parts of its computers depended on a single supplier in Taiwan, according to Lynn, because Dell doesn't actually make computers. Instead, it manages the supply chain made up of the hundreds of companies that manufacture the thousands of parts that go into its computers. While Dell is adept at directing the logistics, no one at the company really knows what's going on from the top to the bottom of the supply chain. There was no backup plan. No other factories could produce those chips in the short term. A bigger earthquake could have had devastating consequences.

The potential economic peril from a major terrorist strike or flu pandemic is obvious. On September 12, 2001, much of the manufacturing activity in the United States came to a halt because companies were cut off from their supplies after the government closed U.S. borders and grounded all flights in the wake of the attacks on the World Trade Center and the Pentagon. “We now live in a world,” according to Lynn, “in which a conflict on the Korean peninsula or between India and Pakistan would create great havoc in the heart of the American economy.”

Cheerleaders of globalization often assume that this hyperdependence will lead to increased support for democratization. But what if it works the other way? As Lynn says: “[T]he depth of our economic integration with China today means that any social upheaval there would hit our economy almost as immediately as it hits the economy of China. No longer would we be mere onlookers, as we were during the Tiananmen massacre in 1989. If anything, to protect our supply lines, we may find ourselves cooperating with Beijing hard-liners to suppress the will of the Chinese people.”

Lynn's message is that just as the government needs to protect Americans from threats to our physical security, so it ought to take steps to protect our economic security. He writes that the “hyper-specialized and hyper-rigid production system” now emerging is “the natural outcome of what happens when globalization and outsourcing are combined with an entire lack of regulation by governments.”

Given the barriers to multilateral agreement on these issues, Lynn limits his recommendations to reforms that the United States can make on its own. For Lynn the fragile production system requires policies that would “compartmentalize” production. Thus he calls for more aggressive use of antitrust power to ensure that no global firm controls more than a quarter of any American market; limiting how much of a product, component, or service importers can obtain from any one nation; requiring firms to double- or triple-source all components from suppliers in two or more nations; requiring companies to disclose their outsourcing relationships; and ensuring workers the right to organize unions.

Lynn's book is not without its problems. The villain of his story is the Clinton administration, which gets the most blame for turning corporations loose on the world, as if there weren't a more powerful alliance of corporate and political leaders in favor of free trade extending across the two major parties. But this should not distract from Lynn's achievement. If you want to feel good about globalization, read Friedman. If you want a report on the underside of globalization, read William Greider. If you want to understand how the dominant business model of our time contains the seeds of future crises, read Lynn.

Mark Levinson is the chief economist at UNITE HERE, a union of 450,000 workers in the apparel, textile, laundry, hotel, gaming, and food service industries. He is also the book review editor at Dissent magazine.

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