Is History Repeating?

Everyone knows the old adage: Those who do not know history are doomed to repeat it. There is a lesser known corollary (probably because I just made it up): Those who are unable to recognize historical patterns in the present day are doomed to repeat the historical result.

In the eighteenth century, European nations were establishing settlements throughout North America and beginning trade with the various Indian tribes. Initially, the trade benefited both parties: Indians gained advanced technology like metal fish hooks, steel traps and guns to replace their bone hooks, snares and bow and arrows; Europeans gained the furs of animals long extinct or in short supply in their home lands - skunk, muskrat, fox, mink, wolverine, etc. – they could once again use in ostentatious adornment. This mutually beneficial arrangement made Indian lives less arduous and increased the wealth of Europeans. Everyone was happy.

For many years, the relationship flourished. Both sides content with the arrangement and the minor adjustments each had to make to their lifestyles. They were on equal footing, both needing the other. Eventually, it changed. The Indians became dependent on the Europeans for their technology. They were unable, or at least unwilling, to use bone knives and fish hooks when they knew they could acquire steel and iron from the Frenchman up the river, or from the Spaniard in the south. They also were unable to make these goods for themselves. Conversely, because Europeans were establishing settlements throughout the American Midwest, they were able to find, trap, and shoot their own animals. They no longer needed Indian expertise for finding resources in the new frontier, and a power imbalance ensued.

When the European nations began fighting for ownership in the New World, they exploited this power imbalance to create allegiances the various tribes otherwise were uninterested in forging. Over time, this continued dependency on goods the Indians could not produce for themselves led to forfeiture of land, cultural assimilation and, eventually, ruination. Europeans settled the Americas and the various tribes either fought to extinction, dissolved, or otherwise became historical footnotes.

Fast forward three hundred years. Western companies, driven by market forces and consumer demand, begin an endless pursuit of high profits with low costs. Developing nations fill the demand by offering low cost labor in exchange for technology. If Western multi-nationals will agree to build factories on their land, and train their populace, they will create and enforce labor laws the suppress wage growth.

Initially, this was a mutually beneficial arrangement. Western companies gained a competitive advantage of having low cost labor and third world nations benefited from the acquisition of advanced manufacturing technology. Slowly, quietly, inconspicuously and almost capriciously, the benefits shifted.

It began with a trade imbalance. Western nations ran trade deficits with their low cost manufacturing partners. A few expressed concern and were quickly dismissed as alarmists. The smart money said that Western society had technological and social advantages that would, in the long run, overcome short term deficits. But the deficits not only continued, they grew. And they grew at an accelerating rate.

Undeterred, Western nations increased their manufacturing presence in developing nations, lured by the ever-enticing price of labor. As more manufacturing jobs moved to poor countries, decreased levels of unemployment in those nations led to increased demand for goods. Luxury goods. Western goods.
Western multi-nationals were elated. They looked at the size of these untapped markets and had visions of doubling, tripling and quadrupling of revenue. Emboldened by the sales projections, they predicted deficit reductions were just around the corner. They moved even more manufacturing to these nations to prepare for the onslaught of new demand. But a funny thing happened.

The technology they had exported was no longer their own. The technological barriers to entry were gone. It was not a difficult task for local companies to acquire the laborers trained by Western companies and utilize their expertise to develop and produce competing products. Western companies had lost their advantage. Local companies, national companies, could produce the same luxury goods, and do it with the same quality. In fact, the luxury goods these new markets demanded were already being produced locally, because Western companies had built factories there.

Today the transition is nearly complete. The mutually beneficial arrangement is eroding. Developed economies are dependent on cheap labor, and many developing nations are no longer dependent on developed nation’s technology. They have their own technology. They have monopolies on raw materials like rare earth minerals used in everything from iPhones to fighter jets. They lead the world in the production of alternative energy solutions like wind turbines and solar panels. They are driving the global economy.

They don’t need foreign expertise in the new frontier of advanced technology. They’ve established settlements in the world’s most prominent universities and have their own expertise. They don’t need foreign financing. They hold large reserves of Western currency thanks to decades of trade surpluses. They don’t even need Western influence. Their economies are growing at such a high rate that, in many of the key metrics, they are the top global consumer.

Do you see the pattern? I hope so, or you are doomed to repeat it.