I tagged this in Del.icio.us yesterday, and now it’s on Instapundit, so let me take a moment to kick Tyler Cowan in the shins over his NYT column on globalization, “This Global Show Must Go On“.Here’s the meat of his argument:
Despite these enormous advances, however, there is a backlash against globalization and a widespread belief that it requires moderation. Ordinary people often question the benefits of international trade, and now many intellectuals are turning more skeptical, too. Yet the facts on the ground show that the current climate of economic doom and gloom simply isn’t warranted. The classic economic recipes of trade, investment and good incentives have never been more successful in generating huge gains in human welfare.
Look, I support wider global trade, in no small part because – as Cowan points out:
More than 400 million Chinese climbed out of poverty between 1990 and 2004, according to the World Bank. India has become a rapidly growing economy, the middle class in Brazil and Mexico is flourishing, and recent successes of Ghana and Tanzania show that parts of Africa may be turning the corner as well.
But to blithely suggest that domestic opponents (in whatever country) should ’embrace the suck’ that global trade may impose on them personally, because 100 million Chinese are better off, is just dumbfounding. Because the problem is that the benefits of increased trade are unequally distributed, with some getting lots, some getting little, and lots not getting but losing.
Cowan suggests that the impacts of globalization on the US economy are trivial, and are offset by the lower cost of jeans at Wal-Mart:
Those benefits will take time to arrive, but trade with China has already eased hardships for poorer Americans. A new research paper by Christian Broda and John Romalis, both professors at the Graduate School of Business at the University of Chicago, has shown that cheap imports from China have benefited the American poor disproportionately. In fact, for the poor, discounting in stores such as Wal-Mart has offset much of the rise in measured income inequality from 1994 to 2005.
And in the paragraph that causes me to question his judgment or sanity, he suggests that globalization isn’t the issue for the US economy:
Yes, the benefits of a good safety net are well established, but globalization is not the primary source of trouble for most American workers. Health care problems, bad schools for our children or, in recent times, bad banking practices have all produced greater disruptions – and these have been fundamentally domestic failings.
You’re kidding me, right? The impact of the subprime credit bubble is greater than the impact of, say, the collapse of the labor component of the manufacturing economy in the last twenty or thirty years?
What planet is he on?
Look I think his fundamental argument – that the worldwide benefits of prosperity & innovation will ultimately be better for the world and for us – have some validity. But to make a claim like his leaves me gobsmacked, and leaves trade advocates positioned as fools or liars – not the best way to make the case to the people who aren’t tenured professors and NY Times writers.
The challenge is how we manage the transition, and how we both don’t play King Canute by standing in the way of the tides, but also channel them to do the least damage and the most good (did I mention that I was a liberal?). I’m not sure what those policies are – I’m not even sure we can have successful policies around this.
But I am sure that the political damage from creating a new class of winners and losers within the US will be more than we can bear – and that the fallout of us choosing not to bear it will be terrible here and globally.
So close with this truth.
“bq” I’m not sure what those policies are – I’m not even sure we can have successful policies around this.
then back to
“bq” But I am sure that the political damage from creating a new class of winners and losers within the US will be more than we can bear – and that the fallout of us choosing not to bear it will be terrible here and globally.
Something must be done! soon some one will give you a program that is “something” and you’ll be in favor of it.
Hard problems are hard. Claiming insolubility is pretty straightforward. I don’t think AL is quite the gull Joe seems to think he is.
There’s a long discussion to have over the possibility that there’s a flaw in the belief that social problems are soluble the way engineering problems are. Is this the place for that? I don’t know…
_The impact of the subprime credit bubble is greater than the impact of, say, the collapse of the labor component of the manufacturing economy in the last twenty or thirty years?_
I think Cowan is pointing out the current problems arise from domestic problems. Longterm, I’m sure Cowan would point out that technology has had a greater impact on the manufacturing economy than trade.
bq. _There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation. As with agriculture a century ago, productivity gains have outstripped demand, so fewer and fewer workers are needed for manufacturing. If outsourcing were in fact the chief cause of manufacturing losses, one would expect corresponding increases in manufacturing employment in developing countries. An Alliance Capital Management study of global manufacturing trends from 1995 to 2002, however, shows that this was not the case: the United States saw an 11 percent decrease in manufacturing employment over the course of those seven years; meanwhile, China saw a 15 percent decrease and Brazil a 20 percent decrease. Globally, the figure for manufacturing jobs lost was identical to the U.S. figure — 11 percent. The fact that global manufacturing output increased by 30 percent in that same period confirms that technology, not trade, is the primary cause for the decrease in factory jobs. A recent analysis of employment data from U.S. multinational corporations by the U.S. Department of Commerce reached the same conclusion._
“Drezner”:http://www.foreignaffairs.org/20040501faessay83301/daniel-w-drezner/the-outsourcing-bogeyman.html?mode=print
I still recall the late 70s and early 80s when the plant workers would sabatouge the machines being built to replace them. I never blamed them, but it was kind of sad.
The irony is that China’s manufacturing labor market collapsed over the last 15 years too. The idea that good manufacturing jobs, in unionized mills paying high wages, are ever coming back is a pure pipe dream, and if Dems are promising this stuff, they should be sentenced to take Greg Mankiw’s class over and over for the next ten years. I actually think a lot of manufacturing will move “back” to the US over time due to transportation costs, but the plants will be nearly completely automated, as is most manufacturing done in the US.
Even Chinese factories have significant automation, which is why China has lost 15 million manufacturing jobs since the mid 1980s while output boomed.
That “unequal” distribution is sort of basic to free market forces. When your company can’t compete, it lays off workers and goes out of business. An “equal” distribution, normally at the muzzle end of State Diktat, tends to make every one miserable-Equally. Called communism, been tried, found to have serious flaws emanating from the fact production drops through the floor without incentive to work. (cue the Muzzle of the State Gun again..)
The ceaseless over regulation of the workplace continues to burden us also- sometimes I think we have one deadbeat per productive employee-cheaper to keep ’em than fire ’em. And, of course, it is impossible to reduce the agency’s mission- we run into the old logarithmic scale of improvements, back when these workplace rules were created, some simple basic steps could stop a hell of a lot of problems. Now that is solved, they gotta find a reason for existence so they come up with a host of complicated steps and documentation for piddly little things -the law of diminishing returns strikes again. And adds a new level of overhead to running a biz.
A lot of the industries that have gone under or shifted location overseas were heavily unionized and paid the price for great wages and benefits, when they had to compete with overseas production.
The corollary is our cost for goods have been dropping steadily- do we want to go back to paying twice as much for products?
A few constructive ideas:
1. Per Foobarista, stop telling people good manufacturing jobs, in unionized mills paying high wages, are ever coming back.
2. Implement a national public works program. A number of the jobs in the manufacturing industry are now in the construction industry which has been hurt by the housing and bank crisis, and not coincidentally we have a number of public construction needs.
3. Improve vocational education opportunities.
4. Disjoin the link between retirement and health benefits and employment. Particularly on pensions, the working class is getting hammered.
5. Streamline environmental permitting. Around here it takes 2-3 years to get a Clean Air Act permit approved.
You seem to be conflating “the collapse of the labor component of the manufacturing economy†with “outsourcing.†As PD pointed out in his #3 post, technological innovation has far more to do with the loss of manufacturing jobs than the relocation of plants to other countries. In which case Tyler Cowen is probably correct that largely domestic failings like “bad banking practices†(which is far more expansive than just the “subprime credit bubbleâ€) have had more of an impact than “outsourcing.â€
I agree with four out of five of PD Shaw’s suggestions. Disconnecting health insurance from employment (one reason I’m a McCain backer) as well as pensions would be a terrific step forward to empowering individuals. I’m not as keen on the notion of a new “public works†program because it seems to be an excuse for pork-barreling and tax-raising. Here in MN after the 35W bridge collapse, our DFL legislature used it as political cover to push for hiking the gas tax and even higher levels of spending for other programs. There is no doubt in my mind that a “public works program†at the national level would be more of the same.
Also, should point out what Brad DeLong says today on the topic:
_The fall in the real value of the dollar against European currencies and its coming real value fall against Asian currencies mean that export and import-competing sectors are likely to be expanding their employment rapidly over the next several years. It would be a pity if a look back deranged our policy going forward . . ._
“Link”:http://delong.typepad.com/sdj/2008/06/making-the-case.html
I think I agree a bit more with Tyler.
Globalization is the natural extension of technology. The two cannot be separated. Just as planes and telephones caused one degree of globalization, the Internet causes another level of globalization.
Technology always causes jobs to be destroyed at the lower rungs of the skill ladder, while more jobs are created at the higher rungs. X people are hurt, and 10X people benefit. But it still sucks for the X that are hurt.
But it is inevitable.
This is nothing new. The only new thing is that the people being hurt are in the US, while those gaining are in Asia. A few years ago, a US blue-collar worker could earn $60K, while an Indian engineer earned $5K. This distortion is now correcting, due to technology. The Indian engineer’s wages will migrate closer to that of the US engineer, while the US factory worker will migrate closer to that of the Chinese worker.
Sad, but natural and inevitable. The factory worker accustomed to a $60K wage will, sadly, have to upgrade his skills, or revise down his expectations.
Not so sad : The price of homes in CA may converge to the price of homes in AZ or TX.
You cannot stop globalization any more than you can stop technological progress, which is itself not under the power of any one government or corporation.
I’d argue Tyler is in fact, irrelevant. It doesn’t matter if he tells Americans to embrace economic hardship because it’s good for China (classic Liberal elitism) because the global economy is likely to fall apart.
Global trade, in particular trans-Pacific trade between the US and China, sending investment dollars to China in exchange for cheap Nikes, is built on cheap oil. Which is coming to end, absent India or China simply grabbing the ME and pumping it dry (which cannot be discounted).
Services will still be outsourced overseas chasing the cheapest cost, which is the real story of globalization (chasing cheap labor). But manufacturing will likely go to Mexico or low-cost American states.
It will simply be too costly to ship stuff over from China with oil at $300 a barrel. The global economy is built on cheap oil, and that’s gone.
“It will simply be too costly to ship stuff over from China with oil at $300 a barrel. ”
$300/barrel? Isn’t that a bit premature, given that we are still at $135? Do you remember the dot-com days?
Also, not all products are expensive to ship from China. Expensive products that are small in size (laptops, iPods, etc.) will continue as they are, as shipping costs are still too small a percentage of the total price.
Furniture, food, etc. will suffer, but not products of high $price/cubic inch.
Also, more and more exports are services. India’s software service exports are now $60B a year and rapidly growing. Oil has zero impact on this.
bq. $300/barrel? Isn’t that a bit premature, given that we are still at $135?
Perhaps, but I’ll make a sweeping generalization here and suggest that one’s general economic policy preferences can be predicted by whether or not they think oil will hit $300.
This is what gobsmacked me from A.L.’s post —
bq. But I am sure that the political damage from creating a new class of winners and losers within the US will be more than we can bear
*Any* government action, including whatever policies about globalization A.L. supports, will *also* create classes of winners and losers within the USA. If that’s his criterion, he’s painted himself in to an inescapable corner.
“Perhaps, but I’ll make a sweeping generalization here and suggest that one’s general economic policy preferences can be predicted by whether or not they think oil will hit $300.”
That is certainly true. Of course, anyone who is convinced of that can make a ton of money simply by buying oil stocks or the Energy SPDR (XLE).
Anyone who bought XLE 5 years ago earned 30% a year over that time. If one is convinced by $300/barrel, then one should buy a ton of XLE.
Any takers?
There are always many opportunities for profit. The thing is, those convinced of $300 oil somehow don’t believe it enough to buy positions to profit from it.