Anti-Globalization and the U.S. Middle Class

It is slowly becoming clear — even to white-collar U.S. workers — what globalization critics meant when they argued that trade agreements like NAFTA were devastating America's manufacturing base and workforce.

How are we becoming aware of this seismic shift? Just look at recent U.S. news coverage of the info tech job exodus.

Here is one example from a July 2003 Associated Press article:

"The hemorrhaging of tens of thousands of technology jobs in recent years to cheaper workers abroad is already a fact of life — as inevitable, U.S. executives say, as the 1980s migration of Rust Belt manufacturing jobs to Southeast Asia and Latin America."

Or this statement from a Barron's series in June 2003 on this latest outsourcing wave:

"[R]estructuring and global competition could limit the wage growth of white-collar workers in the same way it did to their blue collar counterparts when manufacturing began to move outside the U.S. a generation ago."

Indeed, one of these June 2003 Barron's articles was titled "Will U.S. Manufacturing Go to Zero?"

And it explicitly blamed "the liberalization of world trade and the emergence of nations like China, India and Mexico as centers of manufacturing and technology for U.S. firms" for "speeding up the decline" of the U.S. industry.

In other words, the new conventional wisdom bears out the worst fears of labor unions and environmental groups and economic nationalists.

Throughout the 1990s, they repeatedly warned that opening the U.S. market indiscriminately to developing countries — the hallmark of the globalization decade of the 1990s — could only send more jobs abroad than it created in the United States.

That opening would also drive down the wages of America's remaining workers. Globalization’s critics explained that the enormous oversupply of skilled or highly trainable workers in third world countries would result in stagnant — and even declining — wages in Asia and Latin America.

In particular, these wages would stagnate even as workers in these globalizing regions produced ever more sophisticated, high-value goods.

Thus, it would be decades at best before third-world workers could become customers of America's remaining industries — and thus re-balance trade flows.

And by the time these customers eventually appeared, the U.S. economy would have lost too much productive and innovative capacity to generate a revival. Worse, unprecedented deficits and debts would have sparked a financial crisis.

Some globalization critiques — including my own book, The Race to the Bottom — also exposed the main fallacy of promises that said U.S. workers would always beat the competition by re-educating and re-training themselves for the highest tech jobs.

We critics observed that white collar "New Economy" jobs had already begun streaming to low-wage countries. We also saw that these countries very much recognized the importance of educating and training their own workers in order to attract high-value investment.

U.S. companies talk about sending even Wall Street research and analysis jobs abroad.

It can be difficult to recall how vigorous the debate was over globalization's impact on U.S. manufacturing — and how confidently globalization cheerleaders derided the critics' contentions — behind these talks.

There was Princeton economist and New York Times columnist Paul Krugman, who in 1996 dismissed opponents of current globalization policies as "entirely ignorant men" who are "startlingly crude and ill-informed."

One year later, Krugman even claimed that the world is witnessing "a convergence between wages [in low-income countries] and in the West through a process of leveling up, not leveling down."

There were Ivy League economists Robert Lawrence and Matthew Slaughter, who concluded in 1993 that trade had "nothing to do with the slow increase in average compensation" in developed countries like the United States.

There was Lawrence again in 1998, scolding critics that "America's growing links with the rest of the world are not responsible for slower average income growth, higher unemployment, or the productivity slowdown.

The charge that U.S. workers and companies must compete on an unlevel international playing field reflects a misunderstanding of what trade and exchange are all about."

And there was also Krugman's New York Times colleague Thomas Friedman, complaining that "the anti-globalization movement is still with us, arguing that free trade and global integration cause stagnating wages.

(Wrong. What primarily hurts lower-skilled workers is rapidly advancing technology that replaces them with machines, computers, and voice mail, not free trade.)"

Even then, of course, Friedman's focus on low-skill workers was decades out of date. But the unsustainable bubble expansion of the 1990s gave these expert opinions credibility.

Nowadays, of course, Mr. Friedman is wrapped up in his writings in post-9-11 security issues. Mr. Krugman has anointed himself as an expert on everything from weapons of mass destruction to energy regulation.

And Harvard's Robert Lawrence is viewing globalization as a faith-based issue now. "If foreign countries specialize in high-skilled areas where we have an advantage, we could be worse off," he told Business Week in February. "I still have faith that globalization will make us better off, but it's no more than faith."

It's critical to remember, however, that domestic manufacturing in the United States has millions of workers and enormous amounts of capacity left.

And as info tech and other white collar service jobs today, most manufacturing jobs have fled to emerging market countries not because of natural law or some inevitable process — but because trade agreements pushed hard by the U.S. government have actively encouraged outsourcing.

Liberalizing trade with the developing world was important to U.S. multinational companies not mainly for opening fast-growing, potentially huge foreign markets for their U.S.-made goods. These countries' poverty was too big an obstacle to that goal's success.

Instead, trade agreements ensured that the U.S. market would remain open to goods — and now services — that these companies were increasingly producing abroad (whether fairly and lawfully traded or not).

That is why I believe that if we reduce or shut off the outsourcers' access to U.S. customers, much of this production will feel powerful incentives to come home.

It's also critical to remember that the Bush Administration's trade policy objectives — finalizing the Chile and Singapore free trade agreements, extending NAFTA to the rest of the Western Hemisphere and reaching a new, third world-tilted global trade agreement — can only accelerate the flight of manufacturing jobs and production and vital technologies abroad.

Thanks to more than a decade of breakneck NAFTA-style globalization policies on top of decades of U.S. failures to open markets in Japan and Western Europe, U.S. policy makers today find themselves in a quandary.

They have few good options left for reviving domestic manufacturing while simultaneously ensuring adequate global growth and all the benefits it brings.

By far the best option would be for Washington somehow to convince Japan and the European Union to import more agricultural and industrial goods from developed and developing countries alike — including the United States. This would ease pressure on huge U.S. international payments imbalances and put more job-creation power — meaning long-term growth fuel — back into the U.S. economy.

Japanese trade barriers blocking exports generally from the United States are by now legendary, as are EU agricultural trade barriers. (EU industrial barriers are less well-known, but longstanding tariffs on goods such as automobiles and semiconductors are succeeding in blocking imports and luring production and jobs from the United States as well as other countries.)

But Japan and the EU could help place the U.S. and world economies on a much sounder footing by lowering barriers to third-world products as well. As the global superpower, the United States understandably is often the lightning rod for third world economic complaints.

But as a 2001 International Monetary Fund study makes clear, the United States is so open to third world imports as to produce an almost one-to-one correlations between its growth and third world growth. The EU and Japan are so closed to these imports that there is no significant correlation between their growth rates and third world growth.

Unfortunately, neither the EU nor Japan has shown any interest in such import burden-sharing. Therefore, more U.S. trade unilateralism will be unavoidable.

In my view, policy options would range from a freeze on U.S. trade negotiating efforts (until Washington figures out how to craft new trade agreements that reduce U.S. deficits and generate employment and growth on net) — to tougher enforcement of U.S. trade laws that combat predatory foreign trade practices like subsidization and dumping (which is hardly restricted to the steel industry) — to more sweeping "Buy America" and higher U.S. content requirements for U.S. government procurement at all levels.

Many of these measures will violate WTO rules or produce successful challenges. In that case, the United States will simply have to ignore or defy the organization.

These measures will have dramatic effects on the world economy. Most important, for a time, they will slow growth for the large number of countries (increasingly concentrated in the developing world) that have pinned their hopes for development so heavily on exporting to the United States, and in the United States itself.

But in the absence of other major industrialized countries opening up to their imports, this slower growth is essential for three overlapping reasons.

First, the United States cannot continue the massive net importing of manufactures from developing world countries and elsewhere without further endangering its long-term chances for a strong, sustainable recovery. Failure to achieve that goal would also jeopardize its own financial position — and further devastate its own working poor population.

Second, if the United States continues to lose the ability to pay for its own consumption responsibly, the rest of the world, including most developing countries, will suffer. After all, U.S. final demand remains by far the world's biggest engine of growth.

Third, the longer policymakers wait to readjust America's soaring international debts and deficits, and the greater the associated global financial imbalances keep growing, the more painful the inevitable readjustment will be for all countries.

So Americans should be grateful both for the new attention to info tech job loss — and for the acknowledgments that this version of globalization has been killing U.S. manufacturing.

But they should also remember that the fight to save American industry and return desperately needed stability to the world economy is anything but over.

This fight cannot be won without abandoning a fatally flawed version of globalization that is a proven success at finding new workers for international businesses, but a proven failure at the equally important task of finding new customers.

This is an adaptation of an earlier version of an essay that appeared at Tradealert.org. His recent book on globalization, The Race to the Bottom, was issued in paperback last fall by Westview Press.