Tuesday, July 10, 2007

Globalization and Protectionism

In a previous post, “A Different Globalization for Labor,” I discussed some benefits of globalization and expanded international trade for workers in the U.S., other industrialized nations, and the developing world and the need to rethink how globalization works (resisting globalization per se seems to me futile because it’s not going away and wrong-headed because there are some real benefits) in order to produce economic patterns more beneficial to labor and the average person.

In an engaging article in the most recent issue of Foreign Affairs (July/August 2007, pp. 34 – 47), and as their title indicates, Kenneth F. Scheve and Matthew J. Slaughter call for “A New Deal for Globalization.” Focusing their discussion on the U.S. context, they recognize that globalization and expanded and freer international trade have benefits for the U.S. economy and to some extent for U.S. workers. They also recognize growing protectionist sentiment in the U.S., both on the part of average Americans and those involved in thinking about and making economic policy.

They recognize a variety of common explanations for the rise of protectionism and dispense with these (see p. 38 of their article). One of these common explanations is most pertinent to their own argument and to my discussion here. One is “that policymakers and the business community have failed to adequately explain the benefits of freer trade and investment to the public. But in fact, public-opinion data show the opposite: large majorities of Americans acknowledge these broad benefits. If anything, the public seems to understand certain benefits better than ever – for example, that its enjoyment of relatively affordable toys, DVD players, and other products depends on globalization.”

In other words, globalization has led to a rise of a certain sort of affluence for consumers in the U.S., specifically an affluence of things, where lower consumer prices for DVDs, or toys, or sushi (see “Sushi and Globalization”) leads to material benefits for consumers.

Scheve and Slaughter recognize two things that many commentators on politics and economics seem not to.

First, they recognize that what’s good for the economy isn’t necessarily good for lots of people. George Will argues that the growth of income inequality in the U.S. recently isn’t a problem because the economy is thriving, and presumably this is good for everyone (see "Income Inequality isn't the Problem"). On the growth of protectionism, Scheve and Slaughter argue (p. 38):

“Policy is becoming more protectionist because the public is becoming more protectionist, and the public is becoming more protectionist because incomes are stagnating or falling. The integration of the world economy has boosted productivity and wealth creation in the United States and much of the rest of the world. But within many countries, and certainly within the United States, the benefits of this integration have been unevenly distributed – and this fact is increasingly being recognized.”

Second, they recognize that people can benefit from globalization and freer trade in some ways (and realize it – e.g. their arguments about the benefits of lowered consumer prices) and at the same time incur heavy costs from globalization in other ways (and realize that, too). In other words, globalization can have contradictory effects for people, and more people are beginning to see this.

Thomas Friedman seems to half recognize this. In his much read and much reviewed book, The World is Flat, he recognizes that some workers will be hurt by globalization when their specific jobs are outsourced. The U.S. government again half recognizes this through its Trade Adjustment Assistance program, which helps workers in specific job sectors affected by outsourcing or other effects of globalization.

Scheve and Slaughter point out that the effects of globalization are not restricted to workers in particular sorts of jobs. When workers on an auto assembly line or at a phone call center lose jobs through offshoring, they then have to enter new lines of work, placing stagnating or downward pressure on wages for U.S. workers in general. They point out that workers in almost all sectors have in recent years faced stagnation if not decreases in wages in real terms – with the only large exceptions (for now) being those with Ph.D.s or professional graduate degrees (e.g. M.D., J.D.). (Frankly, I suspect that even within these exceptions, there are more specific groups experiencing wage stagnation, or that will soon. For example, Ph.D.s teaching in academia could soon face these sorts of wage pressures as online teaching becomes more common and it becomes increasingly possible for American university courses to be taught by Ph.D.s elsewhere for lower wages.)

The overall upshot is that typical American consumers are simultaneously experiencing material affluence with the availability of a plethora of consumer goods cheaper than ever before (or sometimes simply not available before) and stagnation of wages and growing economic insecurity. Many Americans can now take for granted a tremendous variety of material goods and comforts while seriously worrying about how much longer they can keep the house.

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