The Globalization Debate: Prosperity or Impoverishment?

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Is the shift toward a more integrated and interdependent global economy a good thing? Many influential economists, politicians, and business leaders seem to think so. They argue that falling barriers to international trade and investment are the twin engines that are driving the global economy toward ever greater prosperity. They argue that increased international trade and cross-border investment will result in lower prices for goods and services. They believe that globalization stimulates economic growth, raises the incomes of consumers, and helps to create jobs in all countries that choose to participate in the global trading system. There are good theoretical reasons for believing that declining barriers to international trade and investment do stimulate economic growth, create jobs, and raise income levels. Moreover, considerable empirical evidence lends support to the predictions of this theory. However, despite the existence of a compelling body of theory and evidence, the process of globalization has its critics. We would be remiss if we did not mention their concerns. Here we briefly review the main themes of the debate. In later chapters we shall elaborate on many of the points mentioned below

Globalization, Jobs, and Incomes

One frequently voiced concern is that far from creating jobs, removing barriers to international trade actually destroys manufacturing jobs in wealthy advanced economies such as the United States. The basic thrust of the critics' argument is that falling trade barriers allow firms to move their manufacturing activities offshore to countries where wage rates are much lower. Bartlett and Steele, two journalists for the Philadelphia Inquirer who have gained notoriety for their attacks on free trade, cite the case of Harwood Industries, a U.S. clothing manufacturer that closed its U.S. operations, where it paid workers $9 per hour, and shifted manufacturing to Honduras, where textile workers receive 48 cents per hour.32 Because of moves like this, argue Bartlett and Steele, the wage rates of poorer Americans have fallen significantly over the last quarter of a century.

Supporters of globalization reply that critics such as Bartlett and Steele miss the essential point about free trade-the benefits outweigh the costS.33 They argue that free trade results in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods that they cannot produce as efficiently from other countries. When a country embraces free trade there is always some dislocation-lost textile jobs at Harwood Industries, for example-but the whole economy is better off as a result. According to this view, it makes little sense for the United States to produce textiles at home when they can be produced at a lower cost in Honduras or China (which, unlike Honduras, is a major source of U.S. textile imports). Importing textiles from China leads to lower prices for clothes in the United States, which enables U.S. consumers to spend more of their money on other items. At the same time, the increased income generated in China from textile exports increases income levels in that country, which helps the Chinese to purchase more products produced in the United States, such as Boeing jets, Intel-based computers, Microsoft software, and Motorola cellular telephones. In this manner, supporters of globalization argue that free trade benefits all countries that adhere to a free trade regime.

Supporters of globalization do concede that the wage rate enjoyed by unskilled workers in many advanced economies has declined in recent years. For example, data from the Organization of Economic Cooperation and Development suggest that since 1980 the lowest 10 percent of American workers have seen a drop in their real wages (adjusted for inflation) of about 20 percent, while the top 10 percent have enjoyed a real pay increase of about 10 percent. Similar trends can be seen in many...
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