Walter Russell Mead has an excellent article on globalization and how to succeed at it without “a race to the bottom.” First he describes the problem:
“For many Americans, the changes in our society — stagnant or falling real wages for non-supervisory employees, cutbacks in public services, rising costs of medical care, an affordability crisis in higher education and on and on — look like the consequences of what is often called “the race to the bottom.” Global competition is forcing us to cut costs in an effort to compete with low wage countries like China, Vietnam and Bangladesh. Restless and amoral capital shifts endlessly around the world looking for the cheapest labor, lowest taxes and the fewest regulations when it comes to questions like environmental protection and worker safety.
More, regular readers of this site will know that I’ve been predicting yet another turn of the screw. Blue collar workers have been getting the shaft since 1973; white collar workers are starting to get the same treatment now. Two of the same forces that drove down blue collar wages are starting to hit professionals: competition from overseas and the use of technology to raise productivity so that fewer workers are needed to do the same amount of work. The US manufacturing sector has actually grown since 1973, producing more even as it has shed workers. There is no reason why the same thing can’t happen to lawyers, middle managers, government bureaucrats and many more white collar workers as computers get smarter and firms start outsourcing professional work overseas.”
A familiar argument? But his antidote to the problem is not the usual one you would expect:
“I see those arguments and have felt their force for thirty years. I’m not, however, convinced that they ultimately make sense. I’ve been thinking about globalization and the future of American prosperity and power since writing Mortal Splendor and in those thirty years I haven’t so much changed my mind about the problems we face as come to a better understanding of the roots of American prosperity...
I wrote in my first post on Madison that I don’t think that restructuring state government is about the race to the bottom: it’s the way to avoid a race to the bottom. That answer needs a bit more elaboration. The world is in a race: a race to be the most efficient and innovative. Cheapness is one way to win this race: cheap labor can be an advantage.
But America shouldn’t compete on the basis of cheap labor: we are not nor should we try to be the Walmart of Work. So the first question becomes how do we compete in ways that don’t involve endlessly ratcheting down wages and benefits? And the second, related question is how can we generate enough demand for American workers so that market forces drive incomes up from year to year and decade to decade?
The key to success is obvious: we need to continue to raise productivity throughout the economy. If productivity goes up quickly enough, wages can rise here even if they are falling elsewhere. This is getting harder; productivity is both easier to measure and to raise in manufacturing than in services. But substituting capital and technology for human sweat has to be a large part of what we do.
To raise productivity significantly, and especially to do it in ways that give us some long term advantages, we are going to have to do more about productivity in services.”
Mead elaborates on the usual solution to this problem and why it doesn’t work:
“Change like this always looks like a race to the bottom for the people directly involved: spinners and weavers in 1810 and Wisconsin state government workers today. When disruptive change happens so fast that people are being thrown out of work faster than new sectors can absorb them, wages can decline throughout the economy. Since 1973 in the US, millions of women were entering the workforce even as increasing productivity and overseas outsourcing were reducing the number of manufacturing jobs. Wages stagnated and fell — often driving more women into the workforce to make up for their husbands’ falling income.
The cure for this process is not to stop technology in its tracks. That is what the Luddites tried to do in 19th century Britain: destroying the machines that were killing jobs and reducing wages. The cure is to exploit the opportunities that new technology and (temporarily) low wages create for innovation.”
To me this argument is a breath of fresh air because the argument put forward by the left – and also from paleo-conservatives like Pat Buchanan – that globalization is bad because it puts Americans out of work always bothered me. It bothers me for two reasons: first, because I am instinctively pro-freedom; and second, because I am honest enough to see a kernel of truth in what they say - blue-collar jobs are being lost. Its fine to tell people, go get a PhD in biophysics from MIT and invent something in biomechanics. But what if you can’t? What if you are not smart enough to do that? One strength of the old, manufacturing North America was that it guaranteed a decent job to almost every hard working, person. There was something in it for all honest citizens. A nation of credentialed Harvard haves and blue collar have-nots ‘clinging bitterly to their guns and religion’ does not make for a stable society, regardless how economically efficient it is.
In this article, Mead points out the silver lining that pessimistic commentators often miss when they focus only on the negative effects of Schumpterian creative destruction. But read the whole article. It is long but worth it.
Comments