The Cause of Antiglobalists is Wrong in the Aggregate
by Edward M. Graham, Peterson Institute for International Economics
Debate with Lori Wallach at the Council on Foreign Relations
February 13, 2001
© Peterson Institute for International Economics
1. I am slightly uncomfortable in a debate where I am the defender of globalism. I don't find all antiglobalist claims wrong. Indeed, some of my own biases run somewhat parallel to the "green" perspective. Also, I have spent time in developing countries and I know that the "sweatshop" issue is real.
2. However, having said this, I believe that the cause espoused by the antiglobalists, while right in some of the particulars, is wrong in the aggregate. Indeed, precisely those people whom the antiglobalists purport to represent—the world's poorest people, especially those in developing countries and also the lower income cadres here in the United States—would be most adversely affected by the reversal of globalization.
B. Also, the bulk of the evidence indicates that the lowest income cadre of workers in the United States is greatly hurt by protectionist measures. For example, the textile and apparel quota system to be sure, does protect some jobs in the United States. But it does so by raising the cost of clothing to all Americans. This cost is disproportionately borne by lower income persons. Our estimates show that the lowest quintile of American wage earners suffers the equivalent of a 5 percent loss of real disposable income as a result of these. By contrast, the only cadre of Americans who win are the uppermost quintile, largely because of bloated salaries of executives and returns to large shareholders in these industries.
C. Also, there is no evidence that globalization has cut the total number of jobs in the United States. The overall US unemployment has in recent years—especially in the years following the completion of the Uruguay Round—fallen to levels that many analysts believed impossible as few as 10 years ago. This is in some good measure due to globalization, in particular to the fact that rising demand achieved by full employment can now be met by imports rather than price increases, reducing the rate of unemployment that creates inflation. To be sure, there is some evidence that trade exacerbates a preexisting trend in the United States that favors skilled workers over less skilled ones, but this is largely to say that trade replaces lower paying jobs with higher paying ones.
D. Alas, there are costs associated with this displacement. IIE Visiting Fellow Lori Kletzer, for example, calculates that about one-half million Americans are displaced by imports each year. About a third of these will become re-employed with no lifetime earnings loss; many of them actually will experience income increases. But about a third will experience moderate lifetime earnings reductions and another third severe reductions. We at IIE believe that the US policy response to this has to date been inadequate and we advocate a program of wage insurance to help out these Americans who indeed are losers from globalization.
Also, in work done for us, Dartmouth economics professor Matthew Slaughter notes that about one-half of Americans do feel threatened by globalization. Almost invariably, this half is less educated; by and large, university graduates do not feel threatened. While wage insurance should address the very understandable anxiety of the less skilled, the long-run solution lies in improving the performance of the US education system.
E. On this, our own econometric work at IIE refutes, in particular, the contention that US direct investment has the effect of "exporting jobs". We find that actually new US outward investment stimulates US exports, rather than suppress them. Thus, outward US FDI results in job creation in the export sector, which generally commands a wage premium in the United States. Somewhat offsetting this, outward direct investment does stimulate imports. Interestingly, we find this to have a weaker effect than the export stimulation just mentioned. Thus, this investment does likely destroy some jobs in import-competing industries; but, again, this is offset by job creation in export industries.
F. Also on investment, and returning to developing nations, empirical work in these nations indicates that foreign-owned economic activity in these nations is associated with significant wage premiums. Also, empirical work indicates that developing nations with large amounts of such activity experience faster wage growth than nations that do not have large amounts of foreign direct investment.
3. In summary, then, antiglobalism suffers from a fallacy of composition. Specific ills are noted by the antiglobalists, and some of these ills are indeed the result of globalization. These ills of course should be corrected where they exist. But antiglobalists then extrapolate from these to condemn all of international trade and investment as pariahs. This is as wrong as to conclude that, because a few people on the George Washington Parkway drive so as to endanger other drivers, anyone on the George Washington Parkway is in grave danger and therefore it would be in everyone's interests to block access to this road.
Let me close by noting a real world example of this fallacy. Some years ago, I visited Bangladesh, where I had the opportunity to visit a number of apparel operations. Some of these were abominable: dirty, ill-lit shops wherein some workers clearly were underage and all were poorly treated. But other shops did not meet this description. I remember particularly well one plant that was clean, well-lit, and even provided day-care for children of women who worked in the plant, who were almost all female. Also, those workers who could not read or write were required to attend literacy classes run by the employer. Was this latter an altruistic gesture? No, not really. The firm was implementing a computerized inventory control system that would require each worker to be able to read computer monitors. In a country where 90 percent of the female population was then illiterate, company-provided education was necessary to make the system operational.
What if antiglobalists had their way? The sweatshops in Bangladesh might then be forced to close. Alas, even this would be questionable in terms of social effects. This, after all, is a country where children by the hordes stand on street corners and beg for small change. In fact, begging in Bangladesh is organized. The adults who control these children are far worse masters than those in even the worst of the sweatshops. But also closed would be plants like the one I visited that were, at the margin, making a difference. These factories got the children off the streets and into safe environments. Furthermore, these plants gave the mothers of these children (who often were very young women, not much more than children themselves) the gift of literacy, a gift they otherwise would never have received.
Furthermore, Bangladesh would have been deprived of the only activity that had any chance whatsoever of lifting a very large population out of a very deep poverty. Working in a garment factory might not be a very good occupation. But, as the International Ladies Garment Workers Association has reminded us, a job sewing garments is better than no occupation at all. There is a big difference between Bangladesh and the United States in this regard. In the United States, the choice is not between working in a garment factory and not working at all. Rather, it is between working in a garment factory and getting the skills needed to hold a much better job. But in Bangladesh, the choice really is between the garment factory and the street. Globalization has at least brought the garment factory to Bangladesh, and it holds the promise of bringing better opportunities in the future. The antiglobalists, plainly and simply, would not only take these opportunities away. They would shut down the garment factory, and condemn those lucky enough to have a job to return to the street.
4. Are the antiglobalists winning? In an interview in Foreign Policy last year, Lori Wallach claims yes, citing the MAI defeat and Seattle. My own view is that the antiglobalists have claimed too much credit at least for the first of these—see my own book on this. She identified the next targets to be the African trade bill and PNTR for China. Fortunately for the poor people of Africa and China, she lost these last two. And, although I am a fair-minded, sporting sort of guy, I can only say "may these losses not be the last".