The lighter side of globalization

Anti-globalization has largely been replaced by global warming as the left's cause du jour in its endless struggle against capitalism - one could argue that the Kyoto Accord is really an attempt to restrict the capitalist economies of the developed world. People tend to think that globalization has a net negative effect on economies in the developed world - after all, who wants all those jobs being out-sourced to India or having our manufacturers compete with cheap imports from Mexico? A recent article in the National Journal nicely makes the point that if you look at the economic data from 1980 on, globalization has had a net positive effect on both rich and poor countries.

Here's the essence of the argument:

For workers in poor countries, [globalization] has been unambiguously good news. The IMF's numbers show that manufacturing wages in poor nations are rising -- and quickly enough, overall, to shrink the gap with manufacturing wages in the United States. For the developing world's earliest industrializers, the gap has all but disappeared. In 1970, the average manufacturing wage in South Korea was less than 10 percent of the average manufacturing wage in America; by the turn of the century it was 70 percent. Wages in China, India, and other developing countries have so far converged with rich-world wages much more slowly than that -- but the gap is closing nonetheless, and in most cases at an accelerating rate. Be clear about one thing: If you are interested in helping the world's poorest, globalization is the best possible news.

But what about workers in America and other rich countries? Given this huge expansion in the global labor force, you might expect a collapse in wages in America and Europe. Well, that has not happened. True, labor's share of national income has fallen in the United States and in other rich countries. In industries using mostly unskilled workers, labor's share of income has fallen significantly; in industries using mostly skilled labor, its share has tended to rise. But, thanks to trade, which has made prices lower than they otherwise would be, pay in real terms has kept on rising regardless -- albeit more slowly in some places than in others. In America, real compensation per worker has risen by about 20 percent since 1980. In Europe, it has risen by more than 30 percent. (Note, though, that America has added new jobs at roughly twice Europe's rate -- hence its consistently lower unemployment rate.)

The author argues that the focus of government policy should be to cushion the blow on unskilled workers in developed countries who are undoubtedly adversely affected by the global labour market by giving them the training and skills to move into the industries that are expanding because of the trade opportunities opening up overseas. Protectionism is ultimately futile and counter-productive.