I couldn't tell whether to laugh or cry or cheer at today's front-page story in The Wall Street Journal, entitled "Globalization's Gains Comes With A Price" followed by the subtitle, "While Poor Benefit, Inequality Feeds A Backlash Overseas." You want to cheer because the WSJ's editorial page regularly leads the clarion call for so-called "free trade" within the MSM. Yet, at the same time, there is so much misleading nonsense in the article that actually perpetuates a lot of myths about globalization.

The first thing that we have to try to banish is the idea that "globalization" is a newly discovered phenomena. It is not. People have been trading across the globe for all of the course of human history. Yes, capital moves quicker than it did 100 years ago or even ten years ago. But, what is up for grabs  are the rules under which trading occurs. This distinction is really important. Absent that recognition, the dialogue treats globalization as some revered new invention. The rules are what counts.

   Let's start with this assertion by the WSJ:


A decade ago, the globalization of commerce promised to be a boon to low-wage workers in developing nations. As wealthy nations shed millions of jobs making apparel, electronics, and other goods, economists predicted that low-skilled workers in Latin America and Asia would benefit because there would be greater demand for their labor -- and better wages.

   Actually, the "promise" was only made by a small group of economists, pundits and politicians who were serving the interest of large corporations and business interests. In fact, when it suited those very interests to grab away that promise, they did so in a heartbeat. A couple of years ago, the World Trade Organization eliminated global quotas on textiles--the very globalization of commerce that had sent apparel jobs to poorer countries. Why did they do so? Because cheaper wages could be had in China--and, almost overnight, those jobs, by the millions, migrated to China.

   The purpose of globalization has never been to create a boon for low-wage workers--or workers generally. The purpose of globalization is, first and foremost, about profit. And for that reason the driving force behind trade is the search for the lowest possible wage.
The article, then, says:

Globalization deserves credit for helping lift many millions out of poverty and for improving standards of living of low-wage families. In developing countries around the world, globalization -- defined as trading and participating in the global economy -- has created a vibrant middle class that has elevated the standards of living for hundreds of millions of people. That's particularly true in China, where the incomes of low-skilled workers have consistently risen.

   Actually, this is a falsehood. Economic growth has collapsed for many countries and regions. It is not simply the rise of inequality--which we all should acknowledge is disturbing. It is that the neo-liberal model--the rule for "globalization" are its tools--that has failed across the board, including in its professed success at creating a stable middle-class around the world. As my colleague Mark Weisbrot, one of the real experts on Latin America, notes:

If we ignore income distribution and just look at income per person – the most basic measure of economic progress that economists use – the last quarter-century has been a disaster. From 1960 to 1980, per capita income in Latin America grew by 82 percent, after adjusting for inflation. From 1980 to 2000, it grew by only 9 percent; and for the first five years of this decade (2000-2005), growth has totaled about 4 percent. To find a growth performance in Latin America that is even close to failure of the last 25 years, one has to go back more than a century, and choose a 25-year period that includes both World War I and start of the Great Depression.

Of course, Latin America also has the worst income inequality in the world. The contrast between the luxury condos in the Barra da Tijuca neighborhood of Rio de Janeiro and the favelas in the hillsides where the police fear to tread, or between the poor barrios of Caracas and the wealthy estates of Alta Mira jumps out at you. But inequality in the region has not increased dramatically over the last 25 years. It is the growth failure that has deprived a generation and a half of any chance to improve its living standards. [I added the emphasis]

   This is a really important point. I agree with part of the premise of the Journal article that the new rules of globalization have created inequality. But, the dagger in the heart of these new rules is truly deeper: the failure to provide rising incomes for anyone other than the elites.

   And Weisbrot's point--which I believe is consistent with data in places other than Latin America--undercuts the other idiotic claim: salvation is in education. I admit to tearing out my steadily vanishing hair on this point because I've pointed out this this fallacy as far back as 1995. But the Journal regurgitates:

Many economists now say that the biggest winners by far are those with the education and skills to take advantage of new opportunities, leaving many lagging far behind. Incomes of low-skilled workers may rise, but incomes of skilled workers rise a lot faster.


Access to education also plays an important role. Developing nations rarely crank out enough college-trained workers to match growing demand, boosting the wages for fresh graduates. Unskilled workers who get laid off can't find retraining and add to the pool of workers looking for low-wage work.

    This is mostly nonsense. Incomes of skilled workers is not rising "a lot faster." Most recently, the Economic Policy Institute has shown that wages for college graduates are declining. In other countries, wages for skilled workers is already beginning to feel downward pressure because, for example, China's move up the skilled production ladder is creating large pools of workers who can make high-end products (e.g., aircraft engines) at a fraction of the price. The issue is not education: it's wages.
   One of my favorite lines in the article:

Growing inequality also feeds the populist argument that globalization is a sucker's game that benefits only the elites

   And your evidence to the contrary is...?

Originally posted to Tasini on Thu May 24, 2007 at 08:21 AM PDT.

Your Email has been sent.