Friday, December 22, 2006

Embrace Globalization

From today's Washington Post, an excellent article on globalization by William H. Overholt, Director of the Center for Asia Pacific Policy at the RAND Corporation, here are some excerpts:

"Globalization has brought countries with about 3 billion people from subhuman conditions of life into modern standards of living with adequate food, basic shelter, modern clothing rather than rags, and life spans that are over 60 rather than under 45. In the early 1950s China's life expectancy was 41 years, in 2005 it was 72.7 years. This is the greatest reduction of inequality that has happened in human history."

"A few years ago it took 40 hours of labor to produce a car. Now it takes 15. That translates into a need for fewer workers. Protectionists who blame China for such job losses are being dishonest. In fact, both China and the U.S. have lost manufacturing jobs due to rising productivity, but China has lost 10X more -- a decline of 25 million Chinese jobs, from over 54 million in 1994 to under 30 million ten years later."

"Lower prices due to imports from China alone -- ignoring all other similar results of globalization -- probably raise the real incomes of lower income Americans by 5 to 10 percent. That's something no welfare program has ever accomplished."

MP: An important part of globalization is learn how to expand your perspective and embrace "global thinking." Most of the Lou Dobbs protectionists think about globalization from the extremely narrow viewpoint of American workers in the manufacturing sector who have either lost their jobs or earn less income due to global competition, while ignoring the millions and billions of beneficiaries of globalization: American consumers saving billions of dollars from global imports, American companies being more profitable and expanding output, production and employment due to globalization, millions of workers around the planet who are now better off because of globalization, etc.

Think about this thought experiment: You wave a magic wand, and sickness and disease vanish tomorrow, and life expectancy is extended by 50 years on average. On a net basis, the world would be a MUCH better place, without sickness and disease, without question. However, certain groups would be displaced and worse off in the short-run: doctors, nurses, hospital administrators, etc. who would lose their jobs.

Free trade and globalization are much the same: the world is a MUCH better place with free trade and globalization, on net, than a world without globalization and no trade, even though some are worse off in the short run, an inevitable result of ALL PROGRESS. Those who oppose globalization are lot like those who would oppose, out of self-interest, improvements and advances in medicine that would eliminate disease.

In the 1700s, there were probably protectionists in Europe on a populist crusade about the cheap imports from the USA, and a loss of some European jobs due to globalization and outsourcing to the USA, just like the protectionists today on a populist crusade about cheap imports from China, and outsourcing to India?


At 12/23/2006 5:26 PM, Blogger Ethan said...

Interesting, in view of the nature of the comments on Overholt's article, that you find it "excellent". I'm not an economist, so I am trying very hard to understand the benefits of "globalization". Since it is obviously a very complex subject, maybe you can help me out with this particular assertion:

"A few years ago it took 40 hours of labor to produce a car. Now it takes 15. That translates into a need for fewer workers."

First, in this case what is a "few years"? And if the labor contribution to the cost of goods (in this example of cars) dropped by a whopping 62 %, I would think cars (appropriately adjusted for inflation) would have gotten a whole lot cheaper! Doesn't seem to be the case. Certainly the wages for the residual labor required - given productivity improvements - haven't increased proportionately - so I guess that is due to increased capitalization to obtain that level of productivity? Hummm... any thoughts there? BTW what does an Economics professor in India bring home on the average?

At 12/24/2006 3:15 PM, Anonymous Roland Baker said...

I feel Globalization goes far beyond just workers losing their job. The problem that I see regarding globalization is that America is now considered to be an external debtor. Due to the fact that our exports have been globally ineffective and now our finance payments are greater than our export revenues. In return, America no longer seems to have the advantage with the rest of the world with exports v. imports. This is a budget problem. In Michigan alone, Governor Granholm has had to cut 1 billion dollars out of the budget for the next two years. I feel that America needs to find away to balance its budget, create more external revenues and cut imports.


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