See the comments of the previous post for the questions that I'm answering in this post.
I'm sure you could have guessed this, but I feel obligated to say that not one thought that I'm about to express is original to me (well, okay, maybe one or two right at the end). I've taken a couple classes on international trade, and I've done a great deal of reading about it, and that's where I'm getting all this stuff. I was planning to check some sources and get some accurate numbers, but it turns out I'm really lazy, and apparently I know enough off the top of my head to give you the gist of an answer. If anyone wants specific statistics or sources, I'd be happy to dig them up.
1. All that offshoring necessitates is a shift away from the particular jobs that get offshored (I wish the plural of that word were "offshorn") and toward some other kind of job that's still done here. It certainly can have a tendency to shift employment from manufacturing to services because manufacturing jobs are the sort that tend to be subject to offshoring, while traditionally the service sector can't be outsourced (I can't send my hair to China to have it cut--but wouldn't it be awesome if I could?). There are several caveats here. One is that offshoring isn't the only factor, or indeed even the biggest factor, that has lead to the large and oft-lamented decline in manufacturing jobs in the US. Automation has in fact played a much larger role than offshoring in reducing the number of manufacturing workers. Another thing to keep in mind is that, as you know, technology has greatly increased the number of goods and services that are "tradeable"--the obvious examples of services that now get offshorn include call centers, computer programming, and "back-office" stuff.
So if jobs of any sort get moved from the US to another country, the jobs that replace them will either be in a different tradeable sector (presumably one in which the US has a comparative advantage) or in a nontradeable sector. I would argue that someone who loses their manufacturing job, for any reason, is more likely to end up in a service-sector job as a result of their now-obsolete skill set.
2. American workers do compete with workers from other nations for jobs, and the relative wages of Americans versus workers in these other nations obviously factors into that competition. There is evidence that part of the increase in wage inequality in the US since the early 70s is a result of globalization (a larger part of this inequality, however, is due to advances in technology and the higher returns to skilled labor that accompany those advances). So yeah, part of the reason that some wages are stagnant in the US is offshoring.
Given that, however, there are a few things to keep in mind. One is that labor costs depend on worker productivity. So if I'm a Bangladeshi worker making Gap jeans, and I get paid 11 cents an hour, while my American counterpart gets paid $11 dollars an hour, that doesn't mean that my labor is 100 times cheaper. That's only the case if I can make as many pairs of jeans an hour as the American can, and I almost certainly can't (probably because I'm not working with as much capital--i.e. automation--as the American, and I may also have less experience with that type of work). I'm not saying that the American is 100 times more productive than the Bangladeshi--obviously if The Gap is making jeans in Bangladesh (I have no idea if they are--I own one pair of jeans from The Gap, and they were made in Guatemala), they're doing so because it's cost effective. My point is only that wage differentials aren't as insanely huge as they seem when you factor in productivity. And as foreign workers become more productive, their wages rise. (Since you mention countries without minimum wages, I will also point out that if the US had the level of unemployment and the labor market structure that many developing nations had, I probably wouldn't support a minimum wage, because it could very well end up doing more harm than good.)
3. Despite my caveats, I did basically answer your two previous questions in the affirmative. Whether the benefits of trade outweight the costs is a complicated question, but I would tentatively argue that they do. Economists do try to calculate these sorts of things, for example by looking at the cost-per-American-job-saved of a particular tariff. Take a steel tariff as an example--it makes steel more expensive, which makes cars more expensive, buildings more expensive, improvements to the Bay Bridge more expensive, etc. So if you calculate that extra cost to the business, consumer, taxpayer, etc, and then estimate how many jobs were protected, you can come up with some approximation of the "cost" of saving those jobs. Just as an example, I've seen estimates in the neighborhood of $100,000 per job over the course of a year (I can't remember the exact figure and I'm not bothering to look it up, but it was definitely more than the saved jobs paid). So of course economists, who are all a bunch of obnoxious smart alecks (suddenly it makes sense that I became one), immediately point out that you could have just let those steel workers lose their jobs and paid them all, say, $99,000 a year, and everyone would have been better off.
Obviously that's not realistic, and therein lies the crux of the problem with free trade: generally the benefits outweigh the costs, but the benefits are diffused over a large group of people who are each made a little better off, and the costs are often concentrated on a small group of people who get totally screwed over. The Democrats that do support free trade (and probably some of the Republicans too) generally suggest that the "losers" from trade be compensated through retraining programs and other types of government support. This is a very, very imperfect solution, as I'm sure you are aware. It's also a problematic one, because as I've mentioned, people lose their jobs because of technology changes and increased automation more often than they lose them because of trade (and these technology changes generally have benefits similar to those of trade), but people generally don't get as worked up about it politically. This is why I think that things like unemployment insurance and universal healthcare (that isn't tied to employment) are good, because they ease the pain of all types of structural unemployment, not just that caused by trade. (And since you mentioned xenophobia, singling out globalization as a cause of economic hardship--when it isn't the most egregious cause--does have certain troublingly nationalistic overtones, in my opinion.)
As for the more complex question regarding the wage costs versus the consumption benefits, well, real wages (i.e. adjusted for inflation) have been stagnant for a while now. Since inflation is just the change in the average price level, this means that cheaper goods are not making up for lower wages. But again, trade is only one part of the stagnating-wages story, so it doesn't directly follow that the cost-of-living benefits of trade don't outweigh the wage-lowering effects, which at any rate are probably fairly concentrated in a couple of sectors of employment. I might actually look into that one a bit more to see if I can find anything more specific on it, but the bottom line is that it's difficult to tease out what's caused by trade and what's caused by other stuff.
I'm assuming your last question was more or less rhetorical, so all I'll say is this: if we could find a way to redistribute the spoils of capitalism without destroying the incentives that keep capitalism going (or just making a huge, corrupt, bureaucratic mess), then I think it could work out pretty well. On the other hand, I probably shouldn't presume to know what the Chinese middle class want.
Speaking of presuming to know what people want, I will say one more thing about globalization in general. Obviously it's hugely problematic, and although I'm generally in favor of it, I also feel a great deal of ambivalence. Textbook economics says that trade benefits everyone, but in practice things are clearly far more complicated.
But trade isn't the only thing that's far more complicated in practice. There's an anecdote that I read about three years ago, not long after I first got seriously interested in economics, and it's worth actually hauling out the book and quoting directly (especially since I can reach the book from where I'm sitting). The quote is from a Paul Krugman column in the NYT (April 22, 2001), as quoted in Naked Economics by Charles Wheelan (which is a pretty good layperson-type introduction to economics, despite being a bit too conservative for my taste). I would go so far as to say that my interest in economics was solidified by this anecdote:
In 1993, child workers in Bangladesh were found to be producing clothing for Wal-Mart, and Senator Tom Harkin proposed legislation banning imports from countries employing underage workers. The direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets -- and that a significant number were forced into prostitution.
My argument isn't that we can all feel okay about sweatshops because the alternatives are worse, nor is it that it's the fault of well-meaning Americans that these children's lives were obviously so desperately bad in the first place. My point is just that economic problems are really complex, outcomes aren't easily predicted, and very little is an unqualified economic evil (or, for that matter, an unqualified economic good). In that spirit, I appreciate it when people ask questions and seek to develop more informed opinions about economic issues, regardless of what those opinions end up being.
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4 comments:
Jenn:
Thanks again! I'm really enjoying learning more about these issues, and from someone who is actually studying econ, rather than from, say fair-trade or anti-globalization activists (who might, depending on the individual in question, have varying levels of economic understanding).
I especially appreciate the complexity of your explanation; these aren’t simple issues, of course, and short-term effects need to be weighed against the long-term. There are also effects that aren’t simply accounted for or predicted by simple indications, and that might fall outside of traditional economic considerations…
You say that “the costs are often concentrated on a small group of people who get totally screwed over.” For me, this is a crucial issue, both in terms of global economics/politics and in terms of American politics. The local (i.e., “at home,” rather than overseas) issue came to my immediate attention when I moved to Buffalo, where the wave of deindustrialization created significant social and economic transformations. By the early 1980s, after the manufacturing centers on which the area’s economy were built had collapsed, much of Western NY State was left with an unemployment rate somewhere near 20% (too lazy to cite, sorry). This lead, in the short term, to a collapse in the housing market, which in turn destroyed many families’ finances (people who had invested their savings in a home suddenly found their investments were nearly worthless). Furthermore, the area’s “recovery” has only been partial: the unemployment rate is still higher than the national averages, and most of the new employment has been within the service sector, which means that individuals who once worked union jobs for the equivalent of $20/hr. (in early 21st-century dollars) are now working for, in not-unusual cases, the federal minimum wage ($5.15/hr.).
In some cases, these “global” changes (i.e., the across-the-board changes within the area economy) have had positive long-term effects. For example, housing is surprisingly affordable for younger people: I lived, on my grad-student stipend of approx. $9000/year, in a two-bedroom carriage house that had a $650/mo. rent (I split it with my girlfriend, who was paid $0.25 over the min. and worked full time). And a number of my local friends, most of whom weren’t grad students, are able to buy homes in their mid-20s, despite the fact that they work in record and video stores.
This has, in turn, facilitated a surprisingly vigorous art/hipster community. Young artists, musicians, etc., are able to be creative in an economy that doesn’t require high salaries or demanding jobs in order to make ends meet, and therefore allows the free time and energy that facilitates creativity. (It also helps that the large number of colleges and universities in the area create a culture that is particularly conducive to aesthetic experimentation.) Furthermore, the relative affordability of space allows young people--usually operating cooperatively, in my experience--to open venues (usually not run at a profit, whether they qualify for not-for-profit status or not) for creative expression, which in turn means that burgeoning bands and artists from out of town frequently come to Buffalo to play.
Nevertheless, the changes to Buffalo’s economy in the wake of deindustrialization have had more complex long-term results that I suggest above. I’ve already explained that the housing market has shifted, and that the long-term effects have been somewhat positive, at least for later generations. But many elements of the market have not changed: where, say, housing prices dropped, consumer goods produced elsewhere in the country, and priced for less-depressed “average” marketplaces, remain expensive in Buffalo. For example, the store markup for cds and books is not substantial; a local business can only slightly reduce the price without taking a loss. Which means that the cost of living in some sectors of the market remains high; in turn, this means that while the quality of life may have changed for the better in terms of housing, it has had either stagnated or gotten worse in terms of buying power for consumer goods whose prices are fixed elsewhere.
Furthermore (and this is of the utmost importance) I still worry about the urban blight that Buffalo suffers in the wake of a partial economic recovery. The local infrastructure has a difficult time supporting education, for example; and this has, and will continue to have, long term effects that will be felt most by those members of the poorest classes. And because the class system in America tends to break down along ethnic lines, this facilitates disparity, as well as segregation, between not only classes, but races as well. Furthermore, because these disparities lead, as I have already suggested, to often extreme disparities in education, my intuition (which may, of course, be wrong, though someone like Herbert J. Gans might agree with me) leads me to worry that the long(er)-term effects will continue to either stay the same, and, say, poor black children will stay poor; their children will as well. Or they could get worse, and economic disparity will increase as the children of poor blacks also have fewer avenues of class mobility.
What I’m trying to do here is to reiterate and second your attention to disparity, and to provide my understanding of the kinds of complexity you’re looking at, which, again, comes in my case from living in a place and paying attention to it, rather than from a systematic study of fundamental economic principles. (It’s worth pointing out that the “man on the street” in Buffalo tends, virtually regardless of education level, to be strident in his/her opposition to globalization. The rhetoric there focuses almost exclusively on local concerns to the detriment of any attention to the effect on, say, workers in Bangladesh or Indonesia. I’ve focused my attention on Buffalonian workers as opposed to Indonesian ones not because I’m not concerned about the quality of life there, but because the Dems’ rhetoric, and the discourse surrounding the debate, is directed at American workers; this may, in turn, be opportunism that stems from the notion that citizens vote from the perspective of their bank accounts.)
And—-finally, at long last--where I’m going is this: regardless of how significant globalization is to this kind of situation (and it certainly has some effect, though automation is also crucial, as you say), the economic circumstances have a significantly, if not severely, detrimental effect on the social sphere. And I’m curious what kind of policy might rectify--or work towards a rectification of--the disparities I’ve shown. You’ve already suggested retraining and other programs, including raising the minimum wage and national health care; I wonder: what else? In other words, if Dems shouldn’t focus so much on free trade, or on nationalism and protectionism as solutions, what should be the focus of the debate? Or, to put the question differently: if globalization isn’t the culprit, what should the debate center itself on, were it to shift from rhetoric to actual policy designed to make a real difference at home?
As for my last question, it was only partially a rhetorical one, and really focused on much of the pro-free-trade rhetoric taken up by the Clintonian/DLC "New Democrat" segment of the contemporary political spectrum, and to which you alluded on Friday in your mention of a Chinese middle class demanding democratic freedoms.
As I understand it, the Clinton-era embrace of, say NAFTA (along with other trade initiatives both of and since the early 1990s), presumes a link between the spread of capitalism and the spread of "freedom" (broadly and too ofen vaguely defined). One way of looking at this is to say that the link between freedom and capitalism in this discourse is “mere rhetoric” –- that is, to accuse “New Dems” of being liars, and using the rhetoric of freedom to make palatable a policy that will primarily benefit the wealthiest classes. Another way of looking at it, though, is to take the discourse at face value, and to presume that it isn’t simply an instance of the ruling class working in the service of the ownership/corporate classes, but rather that the “New Dems” believe in this idea.
And there is a historical relationship between freedom and capitalism: the rise of democratic and republican forms of government in the late 18th century arguably has less to do with the influence of humanistic enlightenment political philosophy (Locke, Rousseau, etc.), and is in fact facilitated, at least from a materialist perspective, by the emergence of a powerful, and increasingly wealthy, business class in places like North America and France. This rise leads to a shift of power and social structure that leads to revolution. (Incidentally, lexicography, as a discipline, emerges at the same time, first to facilitate trade across national borders and languages, and later to shore up new social orders and the linguistic changes that result from, say, a shift of power from monarchy to republic; for this reason, lexicography is both radical and reactionary, often at once.)
But the emergence of a discourse of personal freedom is arguably integral to the development of those revolutionary democratic/republican movements. A strictly deterministic materialist position would, operating from the assumption that superstructure results from a base of material production, argue that transformations in the economic and social sector preceded and precipitated the rise of liberal humanist discourse centered on rights; this same thinker might argue that it should, therefore, happen again in a developing nation, and that history should repeat itself with positive effects: that the Indonesian middle class (for example) will eventually create its own version of, say, “Two Treatises on Government,” and that this will gradually lead a storming of the Indonesian equivalent of the Bastille, or an Indonesian Tea Party.
But there are several things that this model –- which, again, I presume to underlie the notion that capitalism leads to increased freedom –- doesn’t take into account. The first is that a strictly materialist model (which presumes that economic transformations result in radical social transformation) doesn’t take into account the limits of materialist determinism. Europe, during the Industrial Revolution, already had a nascent discourse on rights prior to the rise of the middle classes that was built upon during the era of democratization. And America had a similar set of circumstances. Furthermore, in America, events such as the Salem Witch Trials (weirdly enough) allowed for rather bizarre eruptions of proto-democratic social action that in turn arguably facilitated democratic discourse once it did emerge in N. America nearly a century later (see Nancy Ruttenberg, for example).
In other words, it is conceivable that history might not repeat itself in developing nations, if we assume that material determinism doesn’t always hold as a model of historical and social change. Furthermore, it is conceivable that the history that does “repeat itself” might be markedly different, and could potentially resolve itself into something entirely different: say, a greater consolidation of power between the middle classes and the ruling classes (a new form of corporatism, maybe?), rather than the overthrow of the latter by the former.
Finally, it is worth pointing out that the industrialization and capitalization (if that’s a word) of developing nations takes a very different shape than it did in Europe in the era of the Enlightenment and Industrial Revolution. For one thing, and I take it to be a huge difference, the forces that produce the rise of capitalism and increasing consumer power is located outside the developing nations. I don’t know how much of a difference this makes, exactly, but there is the possibility that a powerful corporation like International Widgets, Inc., will attempt to shape the governments to maximize their profit by preventing workers’ and middle class movements for change, or to align themselves with despotic regimes (and there is evidence that this has already happened).
The last is especially important: where you say that you don’t want to try to speak for the Chinese people (and, presumably, to let them set their own course for action and change, if they want that), it is also important to remember that agency is also incredibly complex, and that certain alignments of political power and wealth may in fact foreclose upon, rather than facilitate, choice and voice.
Oops -- I should have double-checked my stats on Buffalo's unemployment rate in the early 1980s. It was really more like 16.9%, not 20%, as I stated. There were, though, certain neighborhoods (like the largely impoverished East Side) that had unemployment rates that high, and that continue to have incredibly high unemployment (in some cases, as much as double the national average).
What is this elitist 'comment moderation has been enabled, all comments must be approved by the author' bizniz? I'm offended... deeply... wounded even.
Actually, I was just writing to say that while I'm probably *not* going to read the novel you just wrote on Econ... it's good to know that you can write that much... I think your future in econ looks bright!
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