Will globalization make us meet in the middle?

2012-01-31 (Tuesday) § 2 Comments

When goods and information can move quickly, cheaply and easily from any part of the world to any other, is it possible for the labor classes of different countries to indefinitely enjoy very different standards of living?

Right now we do.  Nominal currency amounts aside, working people of average means in the US, Canada or western Europe can afford goods and services of both higher quantity and quality than working people of average means in sub-Saharan Africa, Central Asia, or South America.

Famously, this contributes to a lower cost of labor in the latter places, and when that labor is sufficiently qualified compared to its more expensive alternatives in the developed world, employers fire the Americans or Canadians and move shop to China or the Philippines.  This is an old phenomenon by now.

Is there a way this kind of movement can go on indefinitely without standard of living rising for the cheap workers and falling for the expensive workers?  It seems anecdotally like this is already happening.  I read that Chinese factory labor is getting more expensive (or to talk about people as if they were people, Chinese people who work in factories are getting better wages and ancillary benefits).  I also hear constant talk in the United States about how job security and limited work hours are luxuries that will slowly bankrupt us nationally if we try to maintain them.

If the gradual convergence of standards of living between the working classes of different countries is an inevitable consequence of easy global trade flows, is there a way we can see that as a good thing for the richer working classes?  If it’s not, should we get mad and vote for protectionist trade policies?  Or should we just sigh and take it?

If economists are already arguing over these specific questions, I’d love to be directed to where I can follow the arguments.



§ 2 Responses to Will globalization make us meet in the middle?

  • I know that the global trade system we have now is premised on the idea that free trade benefits everyone, not just the poor. It was touched on in the first week of my International Trade Law elective, but not in any detail. The idea is that protectionism gives you a bigger piece of a small pie, but free trade makes the whole pie bigger. The framework was agreed at the Bretton Woods conference following the world wars and depression, and based on a shift that had occurred in economic theory at the time.

    That’s probably not greatly helpful, but it’s as much as I really know on the topic. There are certainly big debates going on generally about globalisation – whether the economic benefits outweigh other effects (social, environmental etc) – but as to whether there is a debate going on within economic circles, I couldn’t say. If there is, it certainly seems like the dominant view (or, at least, the one that has had the greatest influence) is that for the most part both rich and poor countries gain economically from free trade.

    • paginavorus says:

      It’s easy for me to understand how free trade benefits both the global richest and the global poorest in the long term (given some significant government interventions to mitigate externalities). What seems more doubtful is that it always benefits the income slices in between, and that’s what I’m talking about in this entry. The working classes in the rich countries are not at the bottom of the global income scale, they’re in the middle somewhere. What seems likely to me on reflection is that easy global trade flows will tend to raise the standard of living of the globally poorest working classes, but cause the standard of living of the globally richer working classes to somewhat approach the newly improved condition of their poorer counterparts – which means a worse standard of living for them.

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