Friday, April 11, 2008

Embracing economic change, even if it kills you

Via Mark Thoma, a post by Lane Kenworthy on why Democrats should try to get Americans to "embrace economic change." He lays out 12 points of the argument. Let's look at them:

1. Economic globalization tends to benefit Americans as consumers. We get to choose from a wider array of products and services, and the increased competition among firms tends to reduce the prices we pay.

2. Economic globalization also benefits some Americans as workers. The prices their employers pay for inputs are lower, and the number of customers is larger. Both may increase employment and/or wages.

3. Economic globalization hurts some Americans as workers. Some lose their job; others experience stagnant or falling wages.

These strike at the heart of the consumer/investor vs. employee/citizen dichotomy we've talked about before. He fails to mention the effects on investors (mainly positive, but small), and the risks to citizens (mainly negative, potentially large). As for point 2, this seems arguable. Since labor is an input to employers, there would be downward pressure on wages, and I don't really see how the number of customers will necessarily affect wages (though it may well increase employment, unless there is an alternative to employing Americans).
4. Access to the U.S. market tends to benefit citizens in poor countries, in the form of more jobs at higher wages. This is good for Americans on both altruistic and self-interested grounds.
Undoubtedly, the first sentence is true. The second may also be, though I fail to see how much weight I should give it. It's an unsupported statement, which troubles me.
5. It is economically and politically wise to have government policies in place that help those hurt by globalization to adjust. These include unemployment insurance, portable pensions and health insurance, retraining, job placement assistance, wage insurance, infrastructure improvement for hard-hit communities, and a higher and inflation-adjusted minimum wage and Earned Income Tax Credit. In addition, government can support job creation via a large-scale investment in renewable energy and/or an employer subsidy. By compensating the losers, these policies make globalization win-win. And in doing so, they lessen opposition.
This is the standard list of redistribution policies that will make the loss of our industries and careers palatable to the masses. I've written about this before, heck, everyone's written about this before, and this grab bag of programs is almost certainly not sufficient. What it constitutes is a long list of politically-dubious "should"s, none of which get at the heart of the problem. Training experienced engineers to become home health care workers may end up being necessary; that doesn't make it desirable.

Investments in renewable energy, or biotechnology, or journeys to Mars - all sound great, but, since we would undoubtedly turn funds over to private industry to get them done, the same pressures would exist to minimize costs and maximize revenues, so we can't know that the situation for the average American would improve.

However, it is syllogistic to argue that making globalization win-win would make it acceptable; the problem is in doing that, and I'm not convinced this laundry list of programs would make it happen.
6. Technological advance has properties similar to globalization; it tends to benefit us as consumers and some of us as workers, but it also hurts some of us as workers. So too does the ability to move, buy, and sell across state borders within the United States.
I'm not sure why these are together, and I'm not sure that the second point is a big problem (are there really major problems with inter-state tariffs?). The issue of technology is a big one, and I think Kenworthy is wrong to conflate it with job movement. (For example, are the benefits of #4 fully realized if we substitute workers with machines?)

7. The policies described in #5 are just as appropriate for those hurt by technological change or internal economic movement as for those hurt by globalization. We would want these policies even if there were no cross-country trade or offshoring at all.

8. These policies are likely to be easier to sell politically if framed as a response to all forms of economic change, including globalization.

9. We already have most of these policies, but they are inadequate in coverage, funding, and coordination.

These three are true as far as they go, but, again, I doubt that making all those programs perfect would overcome the inherent problems. We have seen massive changes in the way work is done in the world, with barriers of all kinds falling under the effect of the Internet and UPS and so on. This will lead to social changes of a type we haven't seen since the great migration northward of the early 1900s, and a few government programs are unlikely to mitigate those.

10. Part of the reason these programs are inadequate is that debate about economic globalization tends to get stuck on the question of free trade vs. managed trade. Three groups have an interest in framing the debate in these terms. One is Republicans who find it helpful to argue that Democrats are protectionist and therefore against the interests of American as consumers. The second is lobbyists for firms that stand to benefit from protection. The third group is people who work in manufacturing and offshorable services. They hope that blocking trade and offshoring will help protect their jobs. Democrats want their votes and hence often say they’ll address globalization in part by restricting it.

Regardless of whether the proposed restrictions are relatively minor (minimal labor and/or environmental standards) or extensive, once this door is opened it almost inevitably takes center stage in the debate. Far less attention, if any, gets devoted to the adjustment and cushioning side. As a result, the political constituency and momentum for these policies tend to be far smaller than they could be.

11. For Democrats, it might not be harmful politically to shift toward a position that embraces economic change — in other words, that forgoes managed trade. Democrats could then ask voters whether they prefer globalization and technological advance with less government help (the Republican position) or with more. But even if it hurts them politically in the short run, an approach that focuses on responding to globalization via adjustment and cushioning rather than managed trade is, in my view, the right thing for Democrats to do.

12. This does not mean Democrats ought to rule out trade restrictions altogether. What it means is that they should leave them off the list, or put them at the very bottom, of strategies for addressing job loss and wage stagnation. And labor and environmental standards should be discussed mainly in the context of foreign and/or environmental policy, rather than trade policy.

Basically, these add up to the standard free trade arguments, and tell us that Democrats should embrace free trade as thoroughly as any Republican, but talk up the adjustment policies. Later on, he confronts the idea that we should put the "cushions" in place first, arguing that we'll never get them if we insist on them.

So we end up with essentially the same discussion as always, in which we make the pie grow before we figure out how to cut it. But we know that we'll never get around to really solving it, not when we can put some relatively low-cost, feel-good programs in place that won't cost big contributors anything.

More importantly, the kind of programs that Kenworthy is talking about detract from truly free trade. There will be huge resistance if we use general tax revenues to pay for the cushions - why should consumers pay for that? But, if we charge "overseas profit taxes" or the like, then we don't get the full benefits from free trade.

Sadly, there are probably no simple solutions. This is a problem that stems from the nature of the change in our economy; Chinese are willing and able to work for 50 cents an hour, and our workers can't. That's the essential nature of what's coming, and these programs that nibble at the edges of that reality won't fix that.


Red Oak said...

Your last sentence sums it up pretty well. I was deeply unimpressed with Kenworthy's post and immediately filed it under "deck chairs, Titanic". A lot of these "free trade" arguments are, as you point out, a list of unsupported "may"s. I have noticed that most (all?) of these briefs for the status quo never really have anything but "cheaper consumer goods" in the "definite benefit for most citizens" column, with most of the rest of the brief dissolving into "shoulds" and sundry other theoreticals.

I'm starting to find this very insulting. Now, I like cheap cool gadgets, inexpensive high-quality electronics, and appliances as much as the next guy. But no one ever points out that the only things that are falling in price and becoming more accessible are inessentials. The status quo has made the middle class poorer, and made the essentials - housing, a decent education, access to health care - less affordable. (Ever get the impression that they think we're all so stupid that a cheap T-shirt from Walmart or a big honkin' plasma tee-vee will distract us from declining wages and rising health, housing, and education costs?)

Couple of minor points -

His #6: Aside from the muddling of technology and job movement you noted, I've been noticing the (lame) analogizing of internal to global borders shoe-horned into these briefs lately. I mark it as a kind of "buttering up" for the push to move globalization to its logical end - removal of national borders for the movement of labor. Of course, any normal thinking person understands why a U.S. state border is not like an international border. But I think this all ties in with the fundamental question you raised earlier - are we a nation or aren't we? (Yeah, I know there are too many leaps and lacunae in this paragraph, but I think the essential point in this whole "debate" really is that the globalists have already resoundingly answered "no" to that question.)

and #10: Once again, the indifference to the question of whether we are talking about "consumers" as consumers of essential or non-essential goods. They're the same people. The only reason anybody is having an argument pitting "American consumers" against "Americans who need access to housing, health care, and education" is because they're (we're) all morons. And Democrats (or anybody) who wants to effect changes in the status quo should be thinking long and hard about long-term prosperity and the restoration of the middle-class, not its eternal dependence for essentials on the largesse of a small class of "winners". Kenworthy is rah-rahing for the wonders of globalization while implicitly accepting that it means the end of the U.S. as a middle-class nation. No, I don't think Kenworthy is really thinking that - I don't think he's the world's deepest thinker - but that's sure what it sounds like. Astonishing, really. But then, all these "redistributing the gains of globalization" come across like that.

Then there's the way he categorizes "lobbyists" in general as being on the side of protectionism, lol.

Citizen Carrie said...

It must be very frustrating to people like Lane Kenworthy that as more and more workers join the ranks of the Great Unwashed, it makes it that much more difficult to preach the Gospel of Globalization. As soon as they get a few of us heathens converted, 1,000 more people slide into apostasy and need to be re-educated.

Red Oak, your comment about keeping us entertained with cheap products and plasma TV's remineds me of something that Elaine Meinel Supkis wrote in her 12/31/07 Money Matters blog. Referring to how the Japanese people suffer under their government-induced system of low wages, high inflation rates and expensive loans (despite the official 1% interest rates for the likes of Toyota), Supkis wrote: "Electronics are cheap unlike cars. One can save some yen and go shopping. Unable to get car loans, the depressed Japanese buy video games. They can be entertained in their tiny residences while figuring out how to commit suicide later."

Red Oak said...

CC - I'll check out her archives for the article you mention. Have you read Shutting Out the Sun? If not, it's an interesting read on the topic you raise, whatever you think of the author's conclusions.

Have either of you guys read Ha-Joon Chang's Bad Samaritans? Just opened it up; looks like a lively read. Did you know that Toyota tried to introduce a car (the "Toyopet") into the American market in 1958? It failed miserably, but its makers just went back to their (protected) industry at home and kept working. I did not know this. (I love trivia like this, though of course the point is not trivial.)

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