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Investing.com -- On Monday, U.S. Vice President J.D. Vance addressed the American Dynamism Summit, where he delivered a succinct critique of the globalization experiment, arguing that it has ultimately failed. Vance pointed out two main flaws in the traditional approach to globalization that, according to him, have led to its downfall.
Vance’s first point addressed the misconception that the production and design processes could be geographically separated without consequence. He explained that while the initial idea was for wealthier nations to handle the high-value design work and poorer countries to manage manufacturing, this division did not hold up in practice. As manufacturing regions developed their capabilities, they also began to excel in design, creating a competitive disadvantage for countries that had offshored their production.
"It turns out that the geographies that do the manufacturing get awfully good at the designing of things," Vance said.
The vice president also discussed the detrimental effects of relying on cheap labor, likening it to a crutch that hinders innovation. Vance argued that the pursuit of lower labor costs, whether through offshoring or immigration, has led to a stagnation in productivity across Western economies. He suggested that higher labor costs could actually incentivize companies to innovate, using the example of increased automation in response to rising minimum wages.
"Cheap labor is fundamentally a crutch, and it’s a crutch that inhibits innovation," Vance added. "I might even say that it’s a drug that too many American firms got addicted to."
Vance emphasized the importance of innovation, especially in the context of American businesses, and encouraged a shift away from seeking ever-cheaper labor. He urged both tech optimists and populists to recognize that the failure of globalization’s logic should not be seen as a failure of innovation but rather as an obstacle to it. In closing, Vance advocated for American innovation as the solution to overcoming the challenges posed by globalization.