by Kenneth Thomas Is Globalization Good for America's Middle Class? Part 1 In this blog, I have frequently documented economic trends thathave been bad for the middle class: Declining real wages , steadily falling bang for the healthcare buck , stagnant educational attainment , the gigantic cost of tax havens , etc. With this post, I want to begin exploring one possiblereason for the economic insecurity of the middle class, namelyglobalization. Today, we will look at who wins and who loses frominternational trade, one of the key elements of globalization. In some circles , one is likely to see a variant of the claim that "everybody" isbetter off because of freer trade.
Even according to the mostmainstream economic theory, this is simply false. The workhorsetheory for determining the distributional effects of trade (i.e.,who wins and who loses) is called the Stolper-Samuelson Theorem,first enunciated in an article by Wolfgang Stolper and PaulSamuelson in 1941. To understand this theory, you need to know that economists thinkabout national economies in terms of the amount of land, labor, andcapital they have compared to all other countries in the world . These "factors of production" can be in relatively high supplycompared to the rest of the world, in which case they are referredto as "abundant," or in relatively low supply compared to the restof the world, in which case we call them "scarce." The theorem can be stated in quite simple terms, but itsconsequences are not at all simple: As trade expands, owners ofabundant factors of production benefit, and owners of scarcefactors of production are harmed. Here, "benefit" means their realincome increases, while "harmed" means their real income decreases.
Remember, trade can expand for two main reasons. Firsttechnological innovations can reduce the cost of transportation,making it first possible, then cheaper, to send goods longdistances. For example, political scientist Ronald Rogowski , in his great book Commerce and Coalitions shows how the introduction of the steamboat made it possible toexport North American wheat to Western Europe, displacing wheatfrom Eastern Europe. Second, policy changes like the North AmericanFree Trade Agreement (NAFTA) or the trade agreements embodying theWorld Trade Organization (WTO) reduce or eliminate costly barriersto trade and lead to its expansion. The grain example helps show why trade creates winners and losers.The Midwest U.S.
and Canadian Prairie provinces are a giganticbreadbasket made possible by low population density, which impliesabundant land and scarce labor. Expanding trade gave these farmersnew markets and higher incomes. In much more densely populatedEurope, the reverse is true: labor is abundant and land is scarce.As a result, expanding trade in grains meant more importcompetition and lower income for European farmers.. Fast forward to today and we can ask what U.S.
factor endowmentsare currently. As a rich country internationally, the United Statesis necessarily a capital abundant country. As a comparatively lowpopulation density country, it is land abundant but labor scarce.The answer is to our initial question is then quite clear:expanding trade is harmful to U.S. workers because imports oflabor-intensive products and services from abroad createcompetition for American workers, reducing their real wages.
As Ihave discussed before, U.S. real wages have remained below theirpeak for 39 straight years, just as the Stolper-Samuelson Theoremwould predict. What about all the cheap goods we now buy at Wal-Mart ? It doesn't change this story at all, because the lower price ofimported goods is already reflected in the inflation rate we use tocalculate real wages. Rogowski's book also argues that we can expect certain pattens ofpolitical coalitions to form, with the winners from trade on oneside and the losers on the other. NAFTA illustrated this well, withcapital and agriculture generally in favor of the agreement (minusa few small specialty agricultural products like oranges), whilelabor was strongly opposed.
And of course, this only helps usunderstand economic reasons for support or opposition to tradeagreements; for non-economic reasons such as the environment, wehave to look elsewhere. Although beyond the scope of this post,Rogowski's analysis of the entire world through phases of risingand falling trade (i.e., the Great Depression) lends strongcredence to his claims. You should definitely read his booksometime. Economists are divided over how big this effect is.
In the 1990s,when I first started teaching, the most common view of economistswas that technological change was the driver increasing the premiumfor high skilled labor while reducing wages for low-skilled labor.Adrian Wood's 1994 book, North-South Trade, Employment, and Inequality , argued that trade was in fact the main culprit, (a good, ungatedanalysis is Richard Freeman's " Are Your Wages Set in Beijing ?"). Although this met with a lot of resistance at the time, Wood'sview has gained a lot of traction among economists based ondevelopments over the last 15 or so years. Paul Krugman , a particularly noteworthy example due to his Nobel prize, hasgone from being a fanatic adherent of free trade to someone who sees trade as a big problem, though even today he is not quite willing to pull the plug on free trade . One important point Rogowski makes (and Stolper and Samuelson didbefore him) is that the theory of comparative advantage tells usthat the winners from trade gain more than the losers lose, whichmakes it possible in principle to compensate the losers and haveeveryone be better off. But he also argued that those who benefiteconomically from trade will see their political power increase,something that has certainly been borne out in the United States inthe more than 20 years since his book was published.
This makes itless likely that such compensation will occur, and we certainlyhaven't seen any policy in the U.S. that comes close to makingeveryone better off as a result of trade. One small bit of comfort comes from Paul Krugman's book The Conscience of a Liberal (pp. 262-3).
He provides us some reason to think that theStolper-Samuelson Theorem isn't necessarily destiny, as he showsthat the United State and Canada, two countries with the samefactor endowments as each other, have distinctive differences inpolitical outcomes, particularly with regard to unionization rates. Overall, unfortunately, it looks like the answer to today'squestion is clear: freer trade has harmed, and is harming, theAmerican middle class. But globalization is more than trade, and Iwill continue to analyze other elements of globalization in my nextfew posts. crosposted with Read more posts on Angry Bear Blog » I am an expert from Fashion Accessories Agents, usually analyzes all kind of industries situation, such as battery curling iron , bosch electric dryer.
Related Articles -
battery curling iron, bosch electric dryer,
|
