A Review of The Globalization Myth: Why Regions Matter

Almost twenty years ago, Thomas Friedman claimed that globalization had made the world flat. From Shannon O’Neil’s point of view, the topography is a bit more rugged.

The Globalization Myth: Why Regions Matter, by Shannon O’Neil (New Haven, Conn.: Yale University Press/Council on Foreign Relations, 2022, 240 pp.)

O’Neil’s manifesto to nearshoring—the practice of offshoring manufacturing to proximate neighbors—is both descriptive and prescriptive. First, she shows that intraregional economic integration has predominated in recent decades. The numbers are convincing: Close to 70 percent of trade by European countries is with other countries in the region, followed by about 50 and 40 percent within Asia and North America, respectively. O’Neil weaves in historical detail from around the world to lend further insight: The post-war mittelstand industrial boom in Stuttgart, the enterprising Japanese keiretsu, and the trinational supply chain of North American Bombardier jets will stick in the readers’ minds as regional manufacturing success cases. In the latter chapters of the book, O’Neil urges a doubling down on regional supply chains, particularly in North America.

As a scholar of Latin American political economy, my reading of this book raised important questions about the Mexican development model and the diverse actors who stand to win and lose from this country’s ongoing integration into the North American economic community. It is clear that stronger collaboration with its continental neighbors is a core element in the ongoing modernization of the Mexican economy. However, we are still left with the question of how domestic policymakers may exploit North American ties to cultivate economic opportunity for the masses that have seen only marginal improvements in living standards over the past few decades.

The central chapters of the book lay out the historical paths to regional cooperation in the globe’s three major economic blocs: Europe, Asia, and North America.  O’Neil highlights broad similarities: Wealthier countries industrialized and then spearheaded agreements with less-wealthy neighbors, sending less-advanced industry offshore and expanding markets for consumer goods. A strength of the book is its adroit description of the important contrasts between these three regional economic communities. Particularly noteworthy are the drastically different role of the state in the building and maintaining of these communities, ranging from dense multilateral governance in Europe to a much more laissez faire approach in North America.

In reading O’Neil’s discussion of these distinct paths to regional supply chain economies, my mind was drawn an earlier process of economic transformation—industrialization. In his 1962 Economic Backwardness in Historical Perspective, Alexander Gerschenkron observed that later national processes of industrialization were accompanied by a greater role of the state. State planners were largely absent from “early” industrialization (pre-Victorian Britain), quite active in “late” industrialization (19th-century Germany), and domineering in “late-late” industrialization (Stalinist Russia). The implication was that those who came later to the game had to “catch-up” and thus required a more concerted coordinating and financing role by the government.

O’Neil’s account suggests that the reverse is true for regional economic integration. The first of these regional economic blocs—the European Union (EU), constructed amidst the ruins of post-war Europe—is the most thickly governed of the three. This community was formed with the most explicitly geopolitical goal: sustaining peace and a united front against the Communist threat. To this end, the continent eventually adopted a common currency, central bank, regulatory institutions and internal immigration system. While recent events such as Brexit and the rise of nativist populism in most member countries have placed strain on the European economic community, the EU remains the sine quo non of regionalism.

The Asian economic bloc—the second to emerge—featured a middling role for state. It was facilitated by thick sets of domestic industrial policies, but lacked the regional governance institutions found in Europe. Economic integration in Asia was driven by the East Asian Tigers (first, Japan, then Korea and Taiwan), whose mature stage of industrialization found them seeking to outsource simple manufacturing jobs to Indonesia, Malaysia, the Philippines and Thailand. Thus, the protagonists of this economic community are highly coordinated state-aligned conglomerates—Japanese keiretsu and Korean chaebol.

The North American community was the last to solidify, in the 1994 North American Free Trade Agreement (NAFTA), which permitted relatively unfettered movement of investment and products between Canada, Mexico and the United States. Here, the role of the state is quite limited, and the main actors driving the integration are multi-national corporations—mainly from the US and Canada—seeking efficiency and lower wages south of the border.

Arguably, NAFTA’s central achievement has been the construction of Mexico’s maquila (i.e. export processing zones) industrial sector, which today employs about one million workers and accounts for over half of Mexico’s manufacturing exports. According to O’Neil, integration with Mexico keeps U.S. and Canadian manufacturing firms competitive by allowing them to finely pick and choose stages of the production process to outsource to Mexico. Despite this role in sustaining more advanced economic activities domestically, the outsourcing of industrial jobs has generated considerable political controversy in U.S. politics. This controversy is widespread in Mexico as well, where analysts question whether the short-term low-skilled jobs created by maquilas contribute to the growth of a sustainable industrial model. The implication is that NAFTA is designed to perpetuate the extractive nature of the U.S.-Mexican economic relationship and lacks the frameworks that might foment a more robust transfer of high-value productive capacity to the Mexican economy.

In my present research on high-value agricultural export commodities in Mexico, I find support for both the optimistic and pessimistic perspectives on regionalism. The berry sector, in particular, has been completely transformed over the past two decades through economic integration between the United States and Mexico. Today, supermarkets in the United States are stocked year-round with fresh strawberries, raspberries, blackberries and blueberries. This is made possible by the incursion of U.S. berry companies—Driscoll’s, Naturipe and many others—into contract farming in Mexico. Since the early 2000s, these corporations have set up buying operations in western and northern Mexico, entering into agreements with local landowners to grow berries for the U.S. market during the cold-weather months.

A highly delicate and short-lived commodity, berries are an obvious candidate for nearshoring. (Berries rank alongside other similarly delicate fruits—avocados and tomatoes—as the top agricultural exports from Mexico to the United States.) Mexico’s role in the berry industry is quite like that in the well-studied maquila industrial sector. Inputs come from the North in the form of seedlings. Mexican labor oversees the maturation of these plants. Most of the product is enjoyed by U.S. consumers. And most of the profits accrue to the U.S.-based corporations.

By many measures, the binational berry industry has been a booming success. U.S. consumers enjoy fresh berries year-round, agribusiness corporations’ revenue has exploded, landowners in the Western states of Jalisco and Michoacán generate more income through this contract farming than through prior products—typically cheap commodities like corn.

For other actors, the results have been more mixed: Mexican low-skilled workers—mainly from poorer southern states—welcome the relatively high-paying jobs as berry pickers, yet also suffer from unstable incomes, chronic health conditions and the need to migrate far from their hometowns. Communities neighboring these farms benefit from increased economic activity, yet lament the presence of chemical runoff in drinking water, clearcutting to make way for berry farms, strain on underfunded public services from migrant laborers and increased presence of criminal organizations that appear to extort berry farms.

Should Mexican policymakers consider the transnational berry industry a success case in regional economic integration? How much are berries—or other regionally integrated sectors, such as auto parts and crude oil—contributing to economic growth, the creation of good jobs, or the transition to a more dynamic and environmentally sustainable economic model for Mexico? Is the expansion of these nearshoring success cases the key to unlocking Mexico’s escape from the Middle-Income Trap? 

While I am much less familiar with them, I suspect that the same questions may be asked of other junior partners in regional economic blocs that O’Neil analyzes: Romania and Slovakia in Europe or Thailand and Vietnam in Asia.

To be clear, none of these questions raise doubts about the economic promise of regional integration in the aggregate. When compared with transregional trade, the efficiency case for regional supply chains is easy to make. Carbon emissions and shipping times decrease, time zones align, and cross-border flows of technology, creativity and capital proliferate. Nor is it front-page news that economic liberalization has produced winners and losers amidst its overall boon to efficiency. But I would suggest that O’Neil’s convincing case for more regionalism leaves open the question of which regionalism would help narrow economic inequities, both within and across countries.

As O’Neil shows, NAFTA—and its successor, the USMCA—have worked remarkable well at some things, especially in fostering cross-border value chains and facilitating the efficient movement of investment and job opportunities. North American economic integration has been less successful at coordinating cross-border investments in high-tech human capital, exchange of advanced knowledge across borders or improvements in the rule of law. These advances do not emerge organically through the magic of open borders, but would require intense coordination between states, labor unions, universities, banks, local governments and other stakeholders. Here we may ask if something closer to the original vision of the EU is necessary for a North American economic community that contributes to broader wellbeing, particularly south of the Rio Grande.

O’Neil’s book concludes by making a case for economic policymakers to harness the promise of regional integration, particularly in North America. She claims that the redemption of Rust Belt cities like Akron, Ohio, demands not the rejection of offshoring, but the harnessing of regional value chains. Akron can only keep the good high-skilled R&D and manufacturing jobs if it outsources the rote assembly line work to cheap maquila labor in Ciudad Juárez or Saltillo. To this end, O’Neil’s proposed policy solutions are eminently reasonable: further reduction of trade barriers, stronger border and port infrastructure, bi- and tri-lateral cooperation on regulatory policy.

Here she is fighting a battle on two fronts: First, she dispatches the “world is flat” globalists who were already on their last legs following the 2017 U.S. withdrawal from the Trans-Pacific Partnership. This message is likely to be well-received in Washington, as tough-on-China rhetoric is one of the few things that Democrats and Republicans can agree on, particularly given the recent ballooning of bilateral tensions.

More ambitiously, O’Neil pushes back against rising mercantilism in the United States and other wealthy countries that are attempting ambitious reshoring operations, such as Biden’s recently approved CHIPS and Science Act, which aims to bring semiconductor production back to the United States, reducing dependence on Asian manufacturing. For O’Neil, this may be a step too far; the United States has moved past most manufacturing, especially given that automation promises to extinguish manufacturing jobs in the medium term anyway. The future of good jobs is in services and tech. To US policymakers, O’Neil is urging a Goldilocks solution: maybe Akron can no longer go it alone, but China wasn’t the answer either. The path forward has been Mexico all along.