A fascinating and very important discourse has been playing out in the popular media in recent days. It has been prompted by the (supposedly anti-immigrant) Brexit vote and Donald Drumpf’s comments on global trade. The discourse tests our beliefs about free trade and the global market for goods and labor. Here is Reihan Salam, writing in Slate:
[I]t is wrong to say that the U.S. has “lost” from globalization. Some Americans really have been harmed by the rise of multifirm, multicountry production networks, particularly those who do labor-intensive work that can be done at lower cost in other, mostly poorer countries. But most Americans have benefited from it, whether as consumers, as workers who occupy the more privileged rungs of these complex production hierarchies, or as shareholders, who profit when multinational business enterprises grow more valuable.
The part about “most Americans have benefitted” strikes me as a bad argument. Yes, the global system of production and trade has put downward pressure on the price of many consumer goods. And, yes, every living person is a consumer. But a consumer can consume only if he or she has money. To benefit “as consumers” from globalization, people would have to have more buying power today than they had before globalization. But a huge swath of Americans do not.
An economist named Branko Milanovic has done great work on globalism. He accomplishes an even greater feat by condensing his findings into a single illustrative chart:
Explanation: Across the bottom, we see the world’s population distributed with the poorest on the left and the richest on the right. The vertical axis shows change in income over a 20-year span of time, with no-growth at the bottom and very fast growth at the top. The 20-year period is 1988 to 2008.
Milanovic shows us that world incomes grew in the past 20 years, but that the rate of growth wasn’t equal for everyone. The people who started out poorest (the dot in the lower-left corner) remained poorest. They improved by 15% in 30 years, and that isn’t much at all. Remember these aren’t the poorest Americans — they are the poorest people in the world. Think of Namibia and Haiti and Bangladesh. But beyond the very poorest people, there is much faster growth. Everybody from the 35th to the 70th percent had income growth of 50% or more. This includes much of Asia. As noted in the chart, the Chinese “middle class” is at the 60th percentile. The world’s richest 1% also gained by nearly 70%.
But the 80th to 90th percentiles of the world’s population gained nothing during the 2o-year period of globalism. And that includes the American “middle” and “working” class. We’ve seen it before, many times and in many forms, but it is still a shocking fact. American working people haven’t gained any real income in many years!
How, one wonders, can support for free trade and globalism persist against such evidence? I think there are three things at play. First is the strong influence of multi-national corporations. These corporations maximize their profits by producing where labor is cheap and selling where prices are high. They have no loyalty to a place, but they convince politicians that what is good for the corporation is good for America.
The second factor that keeps free trade as the default is that most of the people in positions of influence today went to college before globalism was understood. The advantages of trade were taught as an absolute, and protectionism was taught to be a sign of weakness and venality. And we continue to believe that regardless of new evidence. The great economist John Maynard Keynes wrote the following:
[T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
David Ricardo (1772-1823) wrote about the principle of comparative advantage, which supports trade. Ricardo was right and reasonable at the time he was writing. But he is still being evoked long after the world has changed and the effects of trade have altered.
The third factor is that America’s particular interests are somehow, magically, off the table in many intellectual circles. On the conservative side, the interests of the corporation and the aforementioned moral imperative of free trade prevail. Liberals, who ought to care about working Americans, get distracted by the spectacle of the world’s poor and forget America’s workers. (Or else their cultural snobbery makes them think that working people don’t matter.) The evidence shows that America loses more by sacrificing production jobs than it gains from cheaper consumer goods. But that is never, it seems, an important enough fact to keep the focus. Consider this from Jordan Weissman at Slate:
I’m not trying to mount a full-fledged defense of the status quo for free trade. You can certainly argue about whether the export-driven approach to development that helped so many Asian communities escape dire poverty was actually the best way to accomplish progress, or if it’s sustainable long-term—lefty economists like Dean Baker would suggest otherwise. And of course, no matter how good free trade was for the rest of the world and many in the West, there’s no reason the United States or Britain couldn’t have offered more help to the communities and people who have been left behind by it. But you at least have to start the conversation by acknowledging that there have been a whole lot of winners other than people who own factories or trade derivatives for a living. Trade isn’t just good guys vs. bad guys. It’s a morally and economically complicated issue. And we should treat it that way.
We have to “start the conversation” by acknowledging what is good for the Chinese? Now, I’d say the Chinese ought to start with what’s good for them. So the British, and so the Greeks, and so every other nation in the world. But, according to Weissman, Americans don’t have the same privilege. We have to start the conversation with what is good for the Chinese, too. Why is that, I wonder? Weissman actually goes farther, suggesting that America ought to have “offered more help” to the people whose incomes were rising while ours was stagnating.
Now, I think the US ought to be a generous partner to all but the outlaw nations of the world. By insisting that America ought to consider American interests, I am not closing the door on international cooperation or on unilateral development aid, nor even on fair bi-lateral trade deals. I’m just trying to insist that “what’s good for America” — as opposed to what’s good for multinational corporations or what’s good for the world’s emerging markets — is a proper topic and should not be deprecated.
There is plenty of rhetoric today about “job creators” and “wealth creators.” But most economic change in history has been something baser. Most growth in one place has occurred by simply taking from somewhere else. What appears to be miraculous growth has often been just sucking wealth from other places. Ryan Cooper makes the case for this perspective in an article for The Week. Cooper reminds us that two centuries ago, England emerged as the world’s first industrial giant by violently suppressing the local industry of China and India. England was the first country to develop textile mills, but it couldn’t profit from them with out markets. So it created those markets by suppressing the local clothmaking capabilities. Gandhi in the 1940s was considered radical and subversive because he wanted Indian villagers to spin their own thread rather than buy cloth from British factories.
Cooper concludes with a statement that promotes development of the world’s poorest places while respecting the progress of America’s industrial cities:
It is vital for poor nations to get a start on the development ladder. This may mean some harm to Western working classes, but it would stop well short of flushing entire built-up cities down the economic toilet. Above all, poor nations should avoid serving as mere colonial outposts for huge Western multinationals; that model of development is weak and tends to lead to corruption. Instead, they should seek to develop their own industry, and eventually their own internal market, as rich nations before them have done.