THE GOOD SIDE OF GOING GLOBAL.

It opens the gates to growth

The industrial sites that are developing throughout the third world are often ugly and the wages they offer are low. Nevertheless, they symbolize a sea change in the global economy, one which has the potential to raise the living standards of millions of people in today's poor countries.

This promise exists because we live in an era when advances in technology mean that, in Lester Thurow's words, "for the first time in human history, anything can be made anywhere and sold everywhere." Because this is the case, economic development has become a real possibility for all nations throughout the world. Globalization, in short, raises the possibility that, for the first time, the mass deprivation associated with underdevelopment might dramatically be reduced, if not eliminated. This liberating outcome will not happen automatically; globalization will have to be guided to make it as inclusive as possible. Nevertheless, it is realistic to believe that dramatic inroads can now be made against the scourges that afflict humankind in the third world: malnutrition, illness, and ignorance.

The surprise is that many liberals who identify with the poor have not seen globalization in this light. Indeed, on the political left globalization is seen as a process to be opposed and reversed if possible. Antipathy to globalization, for example, is prominent in the work of analysts at the Economic Policy Institute (EPI) such as Jeff Faux, Thea Lee, and Robert E. Scott. These authors argue against the growth in international trade which has been experienced in recent years as the result of globalization, and advocate neomercantilist, if not protectionist, trade policies for the United States. In the EPI's recent book, Reclaiming Prosperity, Scott is remarkably cavalier in asserting that most-favored-nation trading status may have to be withdrawn from Japan and from export-oriented developing countries, and that restrictions should be imposed on investment in specified developing nations. He betrays no anxiety at all that such policies could harm both the United States and the developing world by seriously disrupting international trade.

The EPI economists adopt this stance because they believe that U.S. imports of goods from poor countries and the flow of American capital to them have depressed wage rates in this country. In adopting this position they appeal to the work of Adrian Wood who argues that unskilled workers in developed countries have been hurt by globalization. But they cite Wood only selectively. Ignored is what Wood says on the first page of his North-South Trade, Employment, and Inequality (Oxford, 1994): Trade "has had large benefits, raising average living standards in the North and accelerating development in the South." Ignored also is what Wood says concerning policies addressed to those hurt by the process: "The least attractive ... policy response would be to raise barriers to imports from the South."

Globalization already has meant that numerous countries that formerly were considered to be "third-world nations" have become centers of modern production. South Korea, seen as an economic basket case in the 1960s, is only one of a number of Asian countries where economic growth, achieved by successfully penetrating export markets, has substantially raised the population's standard of living. To be sure, the spread of modern production has not really been global. Low-wage rates alone do not attract investment. A productive labor force, usually meaning a relatively well-educated population, is needed in most cases. So is reliable infrastructure: transportation, energy, and, of course, communications. But when these are present, rapid economic growth and therefore an escape from poverty become a very real possibility. The historic fact has been that such growth is the sole mechanism by which the living standards and well-being of large numbers of people have been advanced.

The spread of economic modernization has long been associated with increased international trade. On one hand, development has permitted nations to export where previously they lacked the productive capacity to do so. On the other hand, growing incomes have permitted consumers to increase their purchases from overseas. With modernization, in the past as today, nations become increasingly important consumers and suppliers for each other. It is no surprise, therefore, that today U.S. trade with the rest of the world is growing. In just the last decade, our trade with the third-world countries of Asia, Africa, and Latin America has increased from 3.7 percent of the gross domestic product to 6.8 percent.

Trade-hostile liberals like the EPI analysts have not sufficiently considered the implications of their position for the growth of these underdeveloped countries. They are silent on the question of how, in the absence of trade, wages in poor countries could be increased over the long-run. Few on the left are willing to acknowledge what the historical experience of the developed world clearly demonstrates. The only realistic way labor incomes in poor countries can increase is by creating jobs which in the first instance are poorly paid. Higher incomes for working people need to be achieved, but this is possible only to the extent that productivity growth permits it. The antitrade liberals fail to acknowledge that curtailing access to the United States market would stifle that growth.

However, the globalization of trade promises not only to raise living standards in the poor nations. It also provides benefits to the people of developed nations such as the United States. This is because trade allows U.S. consumers to buy a wider array of goods and pay lower prices than would be the case if imports were barred or minimized. In effect, trade raises incomes by reducing prices, a consideration which was all but absent in the liberal opposition to NAFTA and appears not at all in the EPI studies of the impact of trade.

Those same low prices, it is true, do pose a threat to some U.S. industries. Generally these are industries that employ poorly skilled labor. Given the relatively high cost of labor in this country, goods produced with low-productivity workers, if traded internationally, tend to cost too much to be successful in world markets. The labor force in these industries therefore finds itself in competition with lower-cost workers in poor nations, a competition which puts downward pressure on wages and incomes.

However, curtailing trade as antitrade liberalism calls for is not a satisfactory answer to the problem of defining the role of a high-wage country like the United States in the globalized economy. Nor does it represent an adequate response to the situation of low-skilled/low-wage workers in this nation. Both of these problems require recognition of the fact that, to advance our society's well-being through international trade, we must specialize in industries in which we, despite our relatively high wages, nevertheless can be successful in the market place.

When labor-intensive production methods result in products becoming over-priced, we should engage in neither protectionism nor in a race to the bottom in wages. A better alternative would be to exit from those industries and specialize in the ones where we can be successful. In general, the latter will be those in which output per worker is high. This is because high levels of labor productivity can offset the cost effects of high wages. Exporting goods produced with high quality, highly paid labor would be a means to augment sales, thereby increasing the number of high-paying jobs in this country.

Adjusting the economy in this way requires that we do a much better job in ensuring that our working people possess the skills to be successful participants in the world economy. The widely acknowledged deficiencies in our educational system threaten our ability to create and sustain high-paying employment. Especially important in this regard is job retraining for workers who are displaced by technological advances and productivity growth. Such individuals retain the potential to be highly productive and should be helped to regain their place in a structure of production that can offer them high-wage employment.

The real danger lurking in the liberal antitrade position is that it concedes precisely what we have to fight for: a supportive government committed to advancing the productive skills of the labor force and offering an adequate safety net for those who confront difficulty in the highly competitive world economy. Instead, it turns to protectionism to provide jobs and raise incomes. Aside from the impossibly high price tag associated with such a strategy (one estimate has it that the cost of trade protection per job in the United States today is $170,000), this strategy turns its back on the legitimate interests of the poor in other, less-developed nations. Rather than pitting the poor of the developed world against the poor of the third world, as protectionism does, we should be prepared to continue to fight for economic justice everywhere. If the unskilled in this country need a public-sector jobs program because private-sector employment requirements exceed their capacity, that is what we should urge. If income transfers are required to assist the needy, that is what we should argue for. What we should not do is turn a blind eye to the needs of the poor elsewhere, something that is implicit in denying the developing world access to our markets.

Obviously there should be limits to what is acceptable when the United States purchases goods from poor countries. We should not import goods produced by children or by workers who labor in demonstrably unsafe conditions. We should also ban the imports of products whose production processes contravene internationally negotiated environmental protections. But great care must be exercised in imposing such restrictions. The advocacy by Americans of trade sanctions to reshape labor and environmental policies in other countries risks a politically distasteful coercion. Our technological and environmental expertise should be made available where they are desired. The same is true with regard to our labor unions' assisting organizing efforts elsewhere. But such efforts must never represent impositions on unwilling societies.

Economic development in the third world is not the enemy of the well-being of the American people. Neither is the international trade associated with that development. But it is true that in today's international economy, in which low-income countries are emphasizing trade as the means to escape poverty, for U.S. workers to earn high and rising wages we will have to specialize in high productivity industries. Doing so requires an activist government, supportive of technological advance while at the same time compassionate about the human costs of that process. Better than we have in the past, we will have to reform our educational system to make certain that our workers can compete at the highest levels of productivity. At the same time we will have to recognize the interests and needs of those who are not successful participants in the process. In these ways, globalization can be harnessed to the task of extending the benefits of development internationally without dangerously pitting the people of the developed world against those of the third world.

Jay Mandle is professor of economics at Colgate University and co-author, with Louis A. Ferleger, of No Pain, No Gain (A Twentieth Century Fund Paper).