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The Angry Economist
Due to my (and I believe everyone's) stake in globalization, this is an argument I've been following closely. It's time for everyone's favorite armchair economist — that's right, me! :) — to enter the fray. Gather 'round and cozy up with your neighbor, you'll be here a while.
My contribution is in two parts.
First, I have published a new essay presenting the general positive case for globalization. You should read that essay before reading the rest of this article.
Below, I make specific responses to globalization concerns.
Dr. Paul Craig Roberts, whose work I've linked to previously, is an outspoken and influential guy. In the pile of links above, more than half are things he wrote. Of particular note is the statement he made before the U.S.-China Economic and Security Review Commission on September 25th:
His statements, and similar statements by others, place me in the uncomfortable position of trying to save capitalism from the capitalists.
Roberts laments the fall in U.S. manufacturing jobs:
Am I the only one who is impressed that the wealthiest country on earth has so little of its population devoted to manufacturing? Manufacturing is following the trend of farming, becoming more capital intensive and less labor intensive. There was a time when half our workforce was involved in farming, but today it's only 2% (which you can check here with a little math).
The people who used to farm have not starved to death under the heels of their capitalist oppressors, rather they have gone into other lines of work and have prospered. There's every reason to believe that ex-manufacturing (or ex-technology) employees would do the same.
Roberts goes on to say, about our income:
A lower dollar also makes exports more competitive, raising employment and incomes in export industries. Roberts does not acknowledge this fact.
Via EconLog comes this data about manufacturing jobs. Manufacturing employment since 1995 has fallen worldwide while output has risen. The drop in Chinese manufacturing employment was substantially higher than average, though how much of that loss was just due to trimming waste is unknown. The overall meaning of this is that more labor is now available for other things, which enriches us all.
Roberts also worries about falling wages:
The notion that there can be such a thing as a labor surplus in the face of unlimited human desires is sheer nonsense. (Unemployment in depressions is a monetary phenomenon and I don't discuss it here.) The reason wages are low in China and India is because the productivity of their labor is low. The higher wages they earn in technology jobs reflect their higher productivity in those fields. They are not and cannot be paid "less than they're worth" for any length of time in a competitive labor market, because they would be bid away by other companies, in the same industry or in others.
A rising total population of workers in a specific area will depress wages in that area, but this is a normal consequence of economic competition and will helpfully cause some of those workers to move into other fields; it is not caused by "surplus labor" in any kind of general way. Surplus labor is a logical impossibility.
Roberts thinks high-productivity jobs will be permanently lost:
On the contrary, globalization creates specialist, high-productivity jobs and does not merely move them overseas. The only barrier to obtaining these jobs is acquiring the necessary skills, and the United States has the best postsecondary education system in the world. (That's why foreigners come here to study.)
Roberts does not think it likely that displaced domestic workers will move into other high-productivity jobs; I do. It only requires retraining. A well-trained workforce is a productive workforce, and will therefore automatically command high wages provided the employment is distributed in a way reflective of economic desires. It is a serious misunderstanding to believe that the number of high-productivity jobs is somehow fixed and that they're either held domestically or by foreigners. Productivity is not a zero-sum game.
In personal correspondence (e-mail 8/19/03), Roberts said:
A loosely-related point: A dollar devaluation would affect living standards, but it would not cause a debt crisis, because our debts are dollar-denominated.
A dollar devaluation relative to the yuan (or renminbi) is probably inevitable, but not because of globalization destroying our economy. It would happen due to the unraveling of the Chinese government's currency peg of 8.3 yuan/dollar. (The economic consensus is that this overvalues the dollar.) This means that China has been subsidizing American imports of Chinese goods, artificially raising our living standards. While I like the Chinese currency peg for exactly that reason, I would be very understanding if it ended.
(I wish knew more about the origin of the currency peg. Send me links!)
I've picked on Roberts enough. The last concern I'd like to address is the rate of economic change caused by globalization. Faster changes are more difficult to adjust to than slower ones, but they do cause the new and better economic structure to come into existence sooner.
I do not believe there is any particular reason to favor faster or slower changes in principle, and I would oppose efforts to set the pace of change through legislation. The changes we see today due to technology globalization have already taken several years. Globalization in manufacturing has been occurring for decades. This is clearly sufficient time for forwarding-looking people to make appropriate plans for their future.
My hunch ("hunch" because I cannot robustly support it with theory at this time) is that the same forces of economic competition that create the need for adjustments in the economy also, through their magnitude, determine the rate of change. Laissez-faire is my default position.