The United States’ Identity Crisis

Globalization, in the most stealth-like manner, has radically changed the United States of America over the last 30 years. It has caused a crisis of identity — a feeling of national insecurity which, in many respects, is more similar to Germany's pre-war Weimar cynicism and nastiness than to American optimism.

This is because, in every practical sense, globalization has de-industrialized the United States' traditional manufacturing base — and that process is forcing us to redefine who we are.

What is apparent now, but was difficult to discern in globalization's early days, is how rapidly the U.S. economy has lost much of its old line-manufacturing base.

In 1982, industrials made up 67% of the companies included in the Dow Jones Industrial Average. Today, they represent only 30%. Meanwhile, the number of technology firms increased from 3% of the Dow to 17% — and financial companies rose from 3% to 13%.

Today, 75% of the Dow's components could be classified as nonindustrial.

The Dow's composition, as drastic as the change may seem, does not truly reflect how the U.S. economy has changed. For even though industrials still make up 30% of the index, it fails to show that much of U.S. manufacturing in the new globalized economy is not what it once was.

For many companies, manufacturing today is not manufacturing at all. It is instead sourcing, assembling, designing, marketing and financing: essentially, international trading. For example, a car made in the United States today easily could have its engine, tires and other components made in factories abroad.

In the technology sector, the so-called growth business, this is even more likely than not — with cell phones, computers and various other products that don't even go through the assembly stage in the United States.

The decimation of manufacturing in the United States calls into question one of the country’s unique economic advantages: its continental market. It was an advantage so strong that it had a profound influence on the American character.

From colonial times, the United States was in the eyes of its beholders a special place — different, like a city on a hill, unlike the unwashed urban masses of Europe. This myth of American exceptionalism was strongly reinforced by overwhelming achievements and the can-do attitude of the U.S. industrial revolution after the Civil War.

From 1860 to 1900, the United States went from hovering around being the eighth- or ninth-largest economy in the world to being by far the largest — a trajectory in time not too dissimilar to that of today's China.

Unlike Britain, France, Germany and Japan, the industrializing United States did not have to seek colonies as markets or as sources of raw material. And it did not need to see its neighbors as competitors. The United States at that time had the bounty of the New World supported by a massive open immigration policy.

The chain reaction of massive pools of cheap labor, the technological innovations of the industrial revolution and a land rich in raw materials and agriculture, created an almost perpetual motion machine of growth feeding off of and creating the world's first modern continental marketplace.

It was a marketplace so plentiful that its very existence proved the reality of American exceptionalism. America was the arsenal of democracy.

Michael E. Porter of Harvard University writes about the competitive advantages of nations. He calls them "factors" and "demand" conditions.

During the second half of the 19th century, the United States was gaining an advantage in all of these areas. By "factor," Porter means human, physical, knowledge, infrastructure and capital resources.

His "demand" side of the list includes the composition of home demand, size and pattern of growth and rapid home market expansion. The United States, with its supercharged continental market, played to all of these strengths.

U.S. industry, geographically free from nearby international competition, had the advantage to achieve economies of scale and learning that simply was not available in other countries.

But globalization has erased Porter's advantages — and has thus challenged the United States' belief in itself. The United States' continental market has been taken over, in a semi-nonfriendly way, by the international marketplace.

The traditional American manufacturing industries, which were the economic legs that supported the American ideology of exceptionalism, have withered.

And once again, as under Franklin Roosevelt, the United States is being forced to go through the wrenching political process of redefining its myth.