Evading the Hard Truth of Globalization

Lexington tells the grim truth:

In rich country after rich country, under governments both of the left and of the right, the biggest worry for voters is that middle-class incomes are stagnating and the job-for-life is dead. Politicians instinctively blame their domestic opponents’ wicked or foolish policies. They cannot all be right.

Global capitalism has been a boon to hundreds of millions of people in China and India, but it has hollowed out the industrial base of developed economies. The post-war, competition-light economic boom that enriched the Western developed world — especially the U.S. — is over for good. In its place is extraordinarily intense, globalized competition to provide goods and services. National policies may make the new reality somewhat easier or harder for people who used to work in steel mills, factories and coal mines, but nothing will bring back the era when the U.S. had the world at its feet.

Politicians do not want to acknowledge this. Rather, they persist in blaming someone else (usually immigrants) for how the world has inexorably changed. As Lexington notes, left-wing and right-wing politicians are equally keen to assign responsibility to their ideological enemies:

Your columnist has covered elections on four continents, and the same themes keep cropping up. [Senator Mitch McConnell’s anti-Obama] speech in Kentucky reminded him of one given in 2011 by Ed Miliband, the leader of Britain’s Labour Party, a leftwinger with whom Mr McConnell ought to have little in common. Mr Miliband accused Britain’s Conservative-led government of betraying the “British Promise” of upward mobility, tempered with egalitarianism.the fall from grace.

In Brussels, your columnist used to watch politicians defend what some called the European Dream, involving lots of “solidarity”—ie, farm subsidies, industrial policies to prop up favoured firms, welfare, transfers from rich countries to poor ones and a dose of protectionism. Voters needed a more protective Europe, thundered Nicolas Sarkozy, France’s president from 2007-12, or they would reject it as a “Trojan horse” for globalisation.

It’s hard to win elections by saying that the past in gone forever (lots of people just don’t want to hear that), but that why we call it political courage. Much of the political class of the developed world seems content to tell the public nostalgic fairy tales when what we need are fundamentally new ways to provide for ourselves in the brave new world in which we all live.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

29 thoughts on “Evading the Hard Truth of Globalization”

  1. The Economist: "In rich country after rich country, under governments both of the left and of the right, the biggest worry for voters is that middle-class incomes are stagnating and the job-for-life is dead. Politicians instinctively blame their domestic opponents’ wicked or foolish policies. They cannot all be right."

    First, the economist will always go for the neoliberal truism. They are a null information source.

    Second, this has been handled differently in different counties, with varying results.

    1. We could make the transition easier, though. If, as I suspect, manufacturing is headed in the direction of agriculture's low-employment/high-productivity state in rich countries (and outsourcing only temporarily delayed that), then we need to do something to make service sector work better paying and liveable – or we need to become less dependent on work income for people at the bottom and low-middle segment of the income spectrum.

      . . . I'll admit that public opinion isn't there yet. It might not be for a few more years, especially if the economy improves more and wages continue rising in the US.

  2. Who has an actual government of the left (with the power to maintain corresponding policies) these years? (Albeit "left" by the Economist's definition may not be what's normally thought to be denoted by the term.)

    1. "Who has an actual government of the left (with the power to maintain corresponding policies) these years "

      Funnily enough, the no true Scotsman argument falls apart in the face of a Frenchman.

      1. Unless I'm missed something truly remarkable that happened while I was having dinner and it involved Jean-Luc Mélenchon, I would say Paul Wallich is entirely right and you are entirely mistaken.

        1. If you want to argue that France has a right-wing government, then you are at the No True Scotsman point.

          1. I think the list of the left's grievances against François Hollande is sufficiently large and sufficiently well founded so that I've steered well clear of 'no true Scotsman" territory. Francois Hollande may be the head of something called the Socialist Party but he has always been a man of the center and, indeed, has increasingly come to be seen as a man of the right.

            Indeed, if I understand recent comments by Mélenchon, Duflot, and Montebourg correctly it is very likely that large parts of the left may finally break with Hollande. During the recent meeting of the Socialist Party in New Rochelle, François Hollande was widely condemned within his own party for his support of austerity and supply side economics, for giving generous tax cuts to businesses without seeking any concessions from them in return, among many other things. Increasingly large parts of the PS are in open rebellion against Hollande’s government.
            According to Valérie Trierweiler, Hollande detests the poor. He has no sympathy for their plight and calls them “les sans dents" (“toothless”). He has proposed a neoliberal "responsibility pact" to slowly dismantle the social welfare state.

            He has appointed as prime minister, Manuel Vallis, widely considered to be a man of the right who has given many speeches suggesting that wants to make France more “business friendly” by emulating Margaret Thatcher. He is the most highly regarded French politician by the organizations representing large businesses and the rich bosses.

            Hollande’s newly appointed minister of the economy, Emmanuel Macron, has proposed several openly neoliberal “reforms” which are spurring widespread opposition throughout the left. Art Goldhammer has suggested that Macron’s latest proposal–for a neoliberal "growth and activity" law–may even fail to win a majority, which would force the government to invoke Article 49-3, making passage an issue of confidence. The interesting point here is that it would be the failure to retain the support of the left that might well bring that government down if given the opportunity.

            I still think that Paul Wallich's point is a good one and that your invoking of the "no true Scotsman" fallacy is basically no response at all.

          2. I thought you were trolling before, but now I see that you really believe what you are saying. Your argument is logically consistent with your assumptions about the world, and anyone who accepts those assumptions would I suspect agree with your analysis.

          3. I gather that you see no merit in my argument because you do not share my assumptions. My assumptions about the world are probably too broad a topic to address but it seems to me that my assumptions about French politics are clear, as is my reasoning and the evidence I use to support my conclusion. That is to say that France does not now have a government of the left even though the governing party is named the Socialist Party.

            But, more to the point, the objection that some people have made to the Economist's claim is that, in fact we don't know whether a government of the left would be more successful in fighting globalization and protecting the middle class than those of the right have been because there aren't any. What I do agree with is the assertion that globalization will have the destructive effects predicted as long as the neoliberal consensus prevails. On the other hand, I think there are a great many ways to reach good solutions if we can break free of neoliberalism and the sometimes inappropriate reliance on market based solutions.

    2. I am sorry to say, I don't have the time or energy to follow these things as closely as I would like, but … I hear some great things about Bolivia and Evo. And isn't there some history of certain Asian economies whose leaders told the IMF to stuff it and have achieved some good things for their people? Though, they are probably not "leftist," come to think of it. Then there's the issue of political rights. Any way, does either of these two suggestions get us anywhere?

  3. The greatest problem facing us all in the immediate and medium-range future is getting over the notion that there will be 40 hours of work per week for everyone who wants a job. Thirty years ago I was wondering why the 40 hour week was taken as the eleventh commandment given by God to Moses. Four eight-hour days of work should offer full employment to the employed and the unemployed reserve (provided that the resultant 32 hour week pays a living wage to each employee).
    Of course this means re-thinking the present paradigm which guarantees obscene profits to the bloated rentier and money-shuffling classes. We either re-cut the national pie to provide a liveable share to each of the people who helped bake it, or blood will run in the streets as the people forcibly redistribute the wealth downward.
    We talk of "rich countries" and that's a bit of misdirection. The U.S. is a wealthy nation, but a vast majority of its citizens are living at a subsistence level, more or less. The wealth is held by a minuscule percentage of those citizens. Now I'd prefer a redistribution of wealth through healthy taxation which could then be spent to create a national infrastructure that would provide a premium quality of life for all of us. Who needs a million dollars if you have full health and dental care, day care, public transit, and all the other niceties which could be obtained with a refurbished and modernized infrastructure?
    I'm probably just old-fashioned, but freedom from want trumps the freedom to take my neighbor's last dollar…

  4. Much of the hypertraded world economy depends on the hidden subsidy that transport fuel does not pay for its enormous externalities. So strawberries are flown from South Africa and the like. This is not market rationality but market failure.

    Fast-forward 50 years. Will we still be be hypertrading? Certainly not in energy: renewables are local or at most regional. Oil will be traded, at a tenth of its present volume. Fast relative wage growth in China will reduce its comparative advantage in manufactures. 3D printing and robots may well revive local production, especially when the remaining fossil fuel in transport pays a hefty carbon tax. The steady dematerialisation of the economy will also reduce the importance of trade in manufactures. The dubious results of globalised finance do not suggest that it will spread; China, India, and Brazil don't want it and can point to their insulation from the North Atlantic financial crisis of 2008.

    None of this is particularly good news for the shrinking ranks of skilled factory workers in rich countries, of course.

    1. None of this is particularly good news for the shrinking ranks of skilled factory workers in rich countries, of course.

      Agreed.

    2. I wouldn't go with "local" so much as "regional" or "metropolitan" in some cases. But even in that situation, where manufacturing goods flow is much lower than it is now in international trade, you'd still have a brisk flow of not-cheap-to-recycle raw materials. And shipping-by-water is so cost- and fuel-efficient that it will be the last form of transportation to be hit hard by rising fuel prices.

      Agreed on factory workers, and I think that's inevitable. All outsourcing did was delay the impact of automation on the manufacturing of goods, but it's now present even in China. The whole sector is turning into Agriculture 2.0: highly productive but with very low employment outside of creative designers using 3D printers and other additive/subtractive manufacting to design small batches and/or prototypes.

      1. Your "trade mainly in raw materials" scenario looks rather like the world we had in 1960.

        A publicity video of Jinko's solar panel factory in China. They still have a few shopfloor workers.

  5. [Part 1 — because this comment is too long for the commenting system.]

    I disagree with the premise.

    First of all, in Sweden, real wages have been keeping pace with GDP (one source). Note that Sweden did experience stagnation of real wages during its most socialist period up to a couple of decades ago, so "evil neoliberalism" isn't the easy answer, either. And I submit that Sweden qualifies as a rich country.

    Second, if you look at countries with stagnating real wages, there are plenty of issues other than globalization involved. Example: Germany.

    Germany's real wages have stagnated (and its inequality has risen in general, even though inequality is still below the US level of inequality) for a number of reasons, most of which have little to do with globalization (except indirectly).

    For starters, there was the whole botched reunification process (botched in the economic sense). West Germany essentially had to absorb a small third-world economy and bring it up to modern Western standards; this, to put it mildly, was done more in a way that helped the Kohl government win votes rather than in a way that was economically sound. While the reunification process also created opportunities (and at least the skill levels of workers were mostly fine), this required constant and significant money transfers from the West to the East for a long time. And to this day, wages in the former East German states are still lagging behind wages in the West.

    Real wages did begin to rise in the late 1990s again, but shortly after, a number of problems started to create new problems.

  6. [Part 2]

    Germany (like many other of the continental European democracies) had never had a statutory minimum wage (outside of a legal prohibition of abusive wages that were way below the market average). Like Scandinavia, it had relied on collective bargaining to establish minimum wages, but this was being increasingly undermined. Of particular relevance was the increased use of labor leasing to circumvent collective bargaining agreements; essentially, labor leasing companies imported workers primarily from Eastern Europe (under the EU's freedom of movement rules) that were not bound by collective bargaining agreements (Germany does not have union shops).

    Another problem was that about a decade ago, the Social Democratic/Green government instituted welfare cuts. A particular problem was a strict welfare-to-work requirement, which required job seekers to take just about any job if they don't wanted to lose their benefits (the UK has a similar problem, and the UK's sanctions are considerably harsher than the German ones). Without a statutory minimum wage, this allowed abusive employers to get very cheap labor with the state topping off the income of their employees (Germany has essentially a guaranteed minimum income; if you earn too little, the government will pay you enough on top of that). Of course, this was an unintentional side effect, but it also depressed the average wage quite a bit and cost the government a fair amount of money on top.

    In 2015, Germany will have a statutory minimum wage of €8,50/hour, which should fix much of the labor leasing problem, the problem with the government having to top off employees earning substandard wages, and also start mitigating the wage differential between the East and the West.

    And then, of course, the 2008 financial crisis happened, and Germany was at its epicenter (google Hypo Real Estate for the messy details). Rather than cutting jobs, Germany extensively used "Kurzarbeit". While this did keep a lid on unemployment, it did nothing to increase wages (it was still a pretty good deal, it was just the price that had to be paid for the recession).

  7. [Part 3]

    In short, there are plenty of actual, identifiable policy mistakes responsible for the stagnation of real wages in Germany. But globalization (unless you count freedom of movement within the EU as globalization) hasn't been much of a problem. Germany does not compete with China for jobs. Jobs in Germany are either skilled labor (which is usually unionized, Volkswagen workers do earn a nice pay) or are geographically tied to Germany and thus difficult or impossible to outsource. The only exception is Saxony (which is largely why only Saxon MPs voted against the statutory minimum wage). Cheaper wages in China only mean cheaper cell phones in Germany, but have little impact on the labor market. In terms of unit labor cost, Germany is competitive, and its highly specialized Mittelstand (which depends on skilled labor [1]) is a major reason why its constantly running a trade surplus, exporting goods even though the goods that are being exported are primarily produced by well-paid workers.

    In contrast, the US does have a globalization problem because it does try to compete with China on its own terms. Especially the deep South (the Saxony of the US, so to speak), which tries (stupidly, in my opinion) to out-China China with a manufacturing base based on unskilled labor. Even if that works, it just requires employers to get close enough to Chinese wages (or as close as the federal minimum wage permits) in order to compete. (Tennesse is a notable exception here with its recent introduction of tuition-free community college.)

    The underlying problem is, of course, that unlike most of the affluent European social democracies, the US has by and large neglected tertiary education. College education is starting to become unaffordable; vocational training, where it exists, does not offer much in terms of a career.

    [1] See, e.g., this article in the Atlantic: http://www.theatlantic.com/business/archive/2014/

    1. Welcome back, Katya!

      Globalisation is not fate but a series of policy choices. Some of these, like the reduction of tariffs, were pretty sound. Others, like the liberalisation of capital flows and the attempt to impose rich-country IP laws on poor ones, much less so. The well-intentioned rich-country élites responsible for these policies underestimated the impact they would have on wages and job security in their own countries. Where they are clearly blameworthy was in failing to prepare for the impacts they did foresee. Of course, some of the élites – members of a global plutocracy with more loyalty to their class than their country – no doubt did foresee the consequences, and welcomed them.

      Germany has been unusually successful in maintaining its manufacturing base, not just in specialised higher-tech sectors like machine tools but in run-of-the-mill ones like carmaking, though its beggar-my-neighbour export obsession has been very damaging in Europe.

      In the US, even progressives have largely sat on their hands. Where is the massive post-NAFTA retraining programme? Obama's (entirely justified) war on coal has not come with any proposals for reconversion of the Appalachian communities it will devastate. An "Appalachian Spring" proposal would be shot down by the GOP Congress, but it should be made, and become a plank of HRC's 2016 campaign. One component should be free technical education.

    2. Hi Katja

      Lexington's argument also including automation as well as globalization, so his/her view was more complex than what I put here. Sweden, where as you know the government just collapsed, is struggling, I don't know if it's a good case example of success under globalization http://www.realclearworld.com/blog/2014/12/harsh_

      I agree Germany does very well. But I don't think every country could emulate their model — if they all competed against Germany, some of them would have to lose. There is space to do what Germany does in the rich world, but less than there used to be,

      Last, neither Lexington nor I said policy doesn't matter at all. Policy can make things somewhat better or somewhat worse, but it is not going to overturn the effects of globalization.

      1. Keith,

        I think you may be misunderstanding me. My point wasn't that Germany was doing well with respect to real wages – in fact, I specifically argued that it was doing poorly, but not because of globalization. Instead, Germany's stagnating wages have been the consequence of a series of domestic policy cock-ups. But Germany and its labor market is a net beneficiary of globalization (and the EU): it exports goods and services and even imports labor (skilled labor at that). Which, incidentally, is what makes Angela Merkel's EU policies so infuriating, but that's a different story.

        The reason why Germany has been successful in fending of globalization is simple (investing in its citizens), and other affluent European countries do the same thing better [1]. For example, Denmark is pushing much harder to raise the skill level of its citizenry (for example, not only are universities in Denmark tuition-free, students can get a grant – not a loan – of up to about $1000 per month so that they don't have to worry about cost of living). This is an intentional policy choice: these countries have long recognized that they can't compete with China on its own terms, but need something that sets them apart. A more labor force that is both more productive and has unique skills is a big part of that story.

        Sweden's economy, incidentally, seems to be doing nicely overall; while there is room for improvement, the recent government collapse is not related to that, but to the problems of a minority government that couldn't get support for its budget from any of the opposition parties.

        [1] Germany makes for a nice example because it defangs the counter-argument that "this works only for small, ethnically homogeneous countries" that you always get when you talk about Sweden or Denmark or Austria or Switzerland or the Netherlands (leaving aside the fact that several of them aren't all that ethnically homogeneous anymore). Germany is the third most populous developed country with a pretty diverse population these days, so that argument doesn't fly.

  8. It's not like manufacturing employment is huge even in Germany anymore, KatjaRBC. And you didn't mention the wage suppression after 2000.

    You call it abusive, but there's no reason why "no minimum wage plus guaranteed income level" is inferior to "statutory set minimum wage". The money is coming out of the companies either way – as taxes in the first case, or as wages in the second (assuming they don't reduce future hiring and reduce hours in response to the second).

    1. Unsurprisingly, those Mexican farms hit the Four Classic Predatory Labor Practices from Gilded Age company towns:

      1. Deceptive recruiting
      2. Isolation of workers with limited access to transportation out (and even force to keep them in)
      3. Withholding and even outright theft of wages
      4. Debt peonage to further constrain workers

  9. Much of globalization is itself just policy. Those so-called elites may have a surprise coming. There is no enthusiasm on the left here in the US — that I can see — in favor of the TPP. Not that anyone knows what's in it. Or any other "free" trade agreements. HRC boosters, take note. And yes, I *am* against the TPP *just because* it has been kept secret. So take that. And I don't expect to be pleasantly surprised.

    Meanwhile, as a matter of justice, it's time we adjusted our trade policies and our consumption habits to try to spread things like civil and political rights, including the right to organize. None of this is written in stone. I don't think there are any convincing reasons — other than power imbalances, oppression, and original sin — that humanity should be doomed to misery by global trade. (Most) problems have solutions. It is just a matter of being willing to say no to "moderates." Or at least, we can stop giving them a free ride. Freeriding is bad, right?

    1. Agreed. All trade treaties are negotiated – there's no reason why they can't incorporate labor and environmental common standards as well. Erik Loomis at LGM even pointed out a very good case example of this in Cambodia from the 1990s, and the Bangladesh Safety Accord would help as well (provided US companies ever sign on to it).

  10. Politicians are often limited to saying how one's opponents screwed things up than promoting a particular vision, probably because everyone offers different solutions–but "Not having enough jobs is bad! The economic recovery is weak! We need to strengthen (fill in the blank of the country)!"

    But let's talk substance here. It is not wrong from a public policy standpoint to stand against the neo-liberal (European talk) or corporate-oriented trade (American talk) policies and instead say we should pursue a tariff oriented policy of promoting and restoring industrial and manufacturing capacity inside the US. South Korea and China followed such mercantile types of policies these past three decades, making them more heirs to Hamilton and Clay than Karl Marx–and it seems to have worked for those two nations. We're a big enough nation to learn again how to build what we buy and buy what we build. That and a program dedicated to revitalizing and redeveloping our infrastructure makes practical public policy sense, but we know why we don't pursue these things. Corporate executives, who after all include the people who control broadcast media corporations, don't like these policies. So pundits on both the "liberal" and "conservative" sides (other than Ed Schultz, who really in broadcast media would say such things as I just said) in corpoate-owned broadcast media support the assumptions that there is no alternative and we are engaged in wishful thinking if we attempt to stand against the particular form of globalization that is occurring. Here, kids, let's argue about whether gays get married, guns, abortion and stuff like that there! And let's define our liberalism and conservatism only in the cultural realm so that FoxNews can have pundits who rail against liberal elites and have that include Jack Welch of GE!

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