The annual Davos World Economic Forum—the prime venue for the spread of the gospel of globalization among world business and political elites—met last week. (Kerry issued his last-minutte call for a filibuster of Alito's nomination from there.) But this year, the mood there was anything but cheerful. The proponents of globalization are finally beginning to realize that globalization hurts workers in rich countries, and thus, the vast majority of Americans.
That was not the plan. The Internet is the reason.
We all know the story of why globalization benefits workers in poor countries: by making the markets of rich countries available to producers in poor countries, globalization substantially increases the number of relatively high-paying jobs available to third-world workers. The advantage of globalization for workers in rich countries is more obscure. How do American workers benefit when their jobs go to China?
The answer by proponents of globalization has always been two-fold. Consumers benefit by having access to cheaper goods. At the same time, workers are hurt by job loss only in the short term, since newer, high-tech and high-value-added jobs appear to replace the old manufacturing jobs. Because the workforce of rich countries is more educated, rich countries essentially have a monopoly on such higher-paying jobs. So everybody wins.
As the conservative columnist Paul Craig Roberts has been arguing for some time, things don't work that way any more. The hollowing-out of manufacturing had been dismissed by neoliberals as of no consequence, since outsourced manufacturing jobs would be replaced by high-paying information-related jobs. But information-related jobs are now outsourced, too, because of the Internet. (Unemployment is now higher among computer programmers in the US than it is among workers in general.) The only winners from globalization are third-world workers and first-world top corporate executives (along with the shareholders of those firms).
These are the reflections of the prominent proponent of globalization Stephen S. Roach on the just concluded Davos summit:
Job creation and real wages in the mature, industrialized economies have seriously lagged historical norms. It is now commonplace for recoveries in the developed world to be either jobless, or wageless -- or both.
That this shortfall has occurred in the midst of accelerating globalization and surging global trade is all the more disconcerting.
It was one thing for this to happen to the structurally-impaired economies of Europe and Japan. But now it is occurring in the world's most flexible economy -- the United States.
Gains in U.S. worker compensation -- by far, the biggest component of overall personal income -- have lagged while productivity growth has soared.
This slow wage growth is at odds with one of the basic premises of economics, which maintains that labor is always paid in accordance with its productivity contribution.
Things have turned not as economists and neoliberals assured us they would, but as workers feared they would:
[Globalization] was win-win because rich countries would be able to buy cheaper things from poor countries, thereby expanding the purchasing power of an increasingly knowledge-based workforce.
And as producers in the developing world turn into consumers, a proliferation of new markets would provide nothing but opportunity for the industrial world. This positive-sum outcome was the true hope of globalization.
Those hopes have now been dashed. The old fears of the zero-sum outcome have crept back into the discussions at Davos.
Gains in the developing world are increasingly feared to come at the expense of the developed world.
Thus, at least one free-market economist has admitted that globalization severely hurts American workers. Being a free-market economist however, Roach does not draw the obvious conclusion—that globalization must be restrained, through some form of managed trade, allowing states to place limits on outsourcing by corporations. So we are to continue with globalization, even though economists can no longer deny that it hurts the vast majority of Americans.
What possible reason can economists have for sticking to their free-trade theory, if that is the case? Part of it may be the strong emotional attachment that scientists have to their theories, which the historian of science T. S. Kuhn wrote about. But I think there is another reason: globalization benefits investors and top executives—the top one percent. At some level, economists know who their masters are. The same people that BushCo serves.