It doesn’t take a degree in economics to see dangers in globalization. An emerging China and India — with low wages, cheap exports and rising technological abilities — are causing layoffs and depressing wages in the United States.
But when a renowned economist points to the same risks, more people begin to listen.
Is it time to slow down the march toward free trade?
“It is going to become so big a problem that some slowing down is going to be politically popular — and has some merits,” said Paul A. Samuelson, Nobel laureate and author of an economics textbook that has educated millions of students over the decades.
He has stirred up a fuss by writing an article for the latest Journal of Economic Perspectives that questions a basic assumption of most economists — that the gains in the United States from various types of international commercial battles are big enough to compensate for the losses.
This view, he writes, “is dead wrong about necessary surplus of winnings over losings.”
In other words, nations can sometimes lose from free trade.
That has not been America’s experience so far. From World War II to the early 1980s, increased trade with a revived Europe and the Pacific Basin accounted for 30 percent of the rise in the average American’s standard of living, Samuelson estimates.
Economists see that as a result of the “law of comparative advantage.” Nations specialize in the output of certain goods and services, and all trading partners benefit in the long run from the process.
But Samuelson doesn’t expect this country to gain as much from trade, outsourcing, investment and other aspects of globalization in the coming 30 years. Maybe it will improve living standards 10 or 15 percent, he said, or maybe the United States could even lose out on a net basis. In the latter case, a minority of Americans would gain, but more would suffer lower living standards.
“The general dogma that anything that expands globalization is good for everyone isn’t right,” Samuelson said.
He would get agreement on this point from those protesting globalization at meetings of the World Trade Organization, the World Bank and the International Monetary Fund.
Most economists, too, would agree with Samuelson that expanding imports can cause layoffs and that offshoring can send service jobs abroad. But they further argue that the lower prices for imported goods and trimmed costs of services more than offset those job losses.
“Characteristic Samuelson,” charges Richard Cooper, a Harvard University economist specializing in international economic issues. “With impeccable logic, he develops some interesting and counterintuitive logical possibilities, but with no commitment to whether or not they match reality.”
Free trade is “not moving too fast for me,” Cooper adds. The textile industry in the South won some protection with a long-term cotton agreement in 1961 under President Kennedy, saving jobs, mostly of women. Three generations later, there still are protectionist measures for textile workers. Because the United States has a relatively flexible labor market, “sudden changes are sometimes better than slow-burn changes,” Cooper argues.
One difference between then and now is that greater inequality has become institutionalized, Samuelson argues. Neither the political establishment nor the electorate is any longer willing to spread around the benefits of freer trade, as they were in the immediate aftermath of the Great Depression and World War II, through a progressive tax structure, government spending and other measures that help those hurt by globalization.
Those harmed are usually at the lower end of the income ladder. Trade has worsened the distribution of income for the working class and emasculated trade unions, while the literate and professional classes have gotten most of the gain, the Massachusetts Institute of Technology professor emeritus said.
Political philosophers in the past worried that in a democracy, lower-income classes would elect politicians who would confiscate much of the riches of the wealthy, he notes. Modern times have turned that argument on its head. The cost of getting elected has escalated so much that the well-to-do have been able to protect their interests through campaign contributions to sympathetic politicians.
Trade has not become an important issue in this presidential campaign. The Bush administration has taken protective measures in areas where key political constituencies face competitive pressures, such as steel, agriculture and lumber. Sen. John Kerry, D-Mass., is careful not to offend a key political backer: organized labor. The AFL-CIO has been pushing for trade with poor nations to be “fair,” involving their adoption of certain labor and environmental standards.
But both candidates proclaim support for trade liberalization, and they seem to make protectionist concessions for purely tactical political reasons rather than as a strategic change in national trade policy.
Of course, just because free trade sometimes hurts doesn’t mean that trade barriers can help. Most efforts at protectionism are self-defeating, Samuelson said. Nonetheless, a slowdown in globalization might be “more comfortable.”
“The common man understands the situation better than the professional economist,” said William Baumol, a New York University economist who has been making the same theoretical points as Samuelson for at least two years.
He wants the U.S. government and private business to increase support for research and development to maintain a comparative advantage for American goods and services.