Is America Losing At Globalization?

Reply Fri 5 Sep, 2008 09:55 am
Free trade used to seem like a good thing for U.S. businesses and consumers. Now we're not so sure.
In this decade, rampant growth in emerging markets has mercilessly boosted prices for energy and commodities; competition from foreign workers has tamped down wage growth, and the weak dollar has made U.S. companies vulnerable to foreign buyers. "In the 1990s, we got all the upside of globalization," said David Smick, a consultant and author of the new book "The World Is Curved: Hidden Dangers in the Global Economy." "Now we're getting some of the downside."
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Reply Fri 5 Sep, 2008 10:36 am
@Robert Gentel,
No, Ameria is not losing at globalization, and no, the deal about it hasn't changed from the 90s to the 00s. Look into any macroeconomics 101 textbook written over the last 50 years, and you will find the following consequences of globalization described clearly and convincingly:

1) In terms of productivity, and of the material wealth that comes from it, free trade benefits the US, as well as any other nation participating in it.

2) In terms of income distribution within nations, free trade will benefit those factors of production that are more abundant nationally than internationally. (In the US, that would be capital, education, and natural resources.) This will come at the expense of the factors that are scarcer nationally than it is internationally. (In the US, that means labor.)

3) For the scarcer factor (labor in the US), the balance of the two effects can could go either way. Hence, if free trade's effect on productivity dominates, American workers win on net; if its effect on distribution that dominates, they lose on net.

With this in mind, it's perfectly predictable that free trade would boost the incomes of Texas oil barons, Silicon Valley programmers, and capitalists in general. It's also predictable that the auto workers in your article are stagnating, perhaps even falling behind.

But just as the effects of globalization are described in two generations of economics, so is the solution. It isn't to opt out of globalization and forgo the benefits of international division of labor. It's to compensate workers for their distributional losses. Today, an obvious candidate is to introduce universal healthcare. Other compensations might include the tax system. Personally, I would expand the Earned Income Tax Credit.

So to conclude -- no, it's not the competition with other countries America is losing at. It's loosing at mediating the inequities at home. And instead of showing some civil courage and stand up for some liberalism at home, the press blames the rest of the world for America's self-inflicted wounds.
cicerone imposter
Reply Fri 5 Sep, 2008 12:53 pm
I agree with Thomas; globalization is a benefit to the US. Competitive advantage still holds true, and the US is still the leader in R&D and the necessary foundation for the continued development of future use products and services.

The current handicap stems not from competition, but from the simple fact that our financial institutions have failed to rein in sloppy money management, and the increasing debt of our government and consumers.
The fact that many are losing their jobs and homes are a reflection of how we lived on credit for the past decade.

Our economy of today has so many mix of products and services, it doesn't compare to the early 1900's and the depression.

The fact that it's now a world economy with China and India increasing demand on raw materials and energy will require the development of alternative energy and methods to clean up the environment. One third of China's water is now polluted, and the increase in autos are also polluting their air. They will not be able to ignore these problems for much longer, and the US can take advantage of their problems in many ways.

That's all part and parcel of competitive advantage.
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