You Got to Be Kidding Me!

Globalization

Posted in Economics, Politics by Stacy McMahon on January 24, 2007

This started off as a comment, but I’m making it a post instead. Commenting on this post, Clint tossed out a couple of the standard arguments against globalization. I’ve got an argument against unilateral dropping of trade barriers, but I’ll get to that. First, Clint’s comments:

Unemployment stats are pretty b.s. the way they are computed. I think they should include EVERYONE who doensn’t work.

Then they would include babies and retired people and be at least as misleading. My understanding is that they’re based on new unemployment filings, which seems relatively reasonable in that people who are long-term unemployed will seek unemployment compensation, while presumably the rest got new jobs. As Clint says though, that still doesn’t account for the ones whose new job is greeter at WalMart.

the goal of globalization seems to be to have every job X to eventually reside at place Y where job X gets paid the least on the planet.

Technically, that’s true, but it leaves something out. In the simple perfect-market model, an industry will tend to move where its overall cost of production is lowest (both labor and materials) because then it gains the maximum price competitiveness for its products.

Where it goes off the rails is in the implication that companies somehow have an interest in making people poor. Companies make money by selling stuff. If everyone is poor, who’s buying their stuff? That even works if you assume the customers are other companies or governments instead of individuals, because a poor population makes a poor government (no tax revenue) and poor companies (no disposable income). There is no “conservation of wealth”–it can be created or destroyed, so the only way for anyone to get richer in the long term is for everyone to be made better off. Which is the ultimate goal of globalization. In the longer term it means that the prices of both labor and goods and services will become fairly even around the world, but in the short term, leveling between, say, China and the US will be painful for the richer country just as it is good for the poorer one.

Which brings me to my argument against unilateral open markets. It does nobody any good for country A to open its markets while country B maintains protectionist trade barriers. There is some case to be made for rich countries to help poor ones by maintaining a minor trade imbalance (minor for the rich country but a big deal for the poor one) but an imbalance large enough to actually damage A’s economy is killing the goose that laid the golden egg. So on that basis I am (in principle) a supporter of “fair trade” or a series of bilateral trade agreements, versus one-size-fits-all open markets on our part while China, India etc. maintain protectionist policies at our expense.

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7 Responses

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  1. Stacy McMahon said, on January 25, 2007 at 8:55 am

    After some reflection, I rejected anonymous’ comment. It wasn’t a bad comment, it’s just that it was almost twice as long as my actual post, and the second half was an emotional and half-coherent rant against ‘people like me’ who supposedly think globalization is an unalloyed good. Of course I qualified my support for globalization right in the post.

    Anonymous, two things: first, you aren’t banned so feel free to comment again. You can see that I don’t reject comments just for disagreeing with me. Second: I prefer comments to be fairly concise, and commenters to not be anonymous. You can obfuscate your email address if you’re worried about spam.

  2. Christina said, on January 25, 2007 at 4:23 pm

    I have to say that for the world overall as a whole, I think globalization is a good thing. It might not be so good for the German or American auto worker, etc., but whoever is getting the jobs that are lost in the industrialized world is significantly improving their lot in the world. I find it a bit hard to compare an unemployed person in a trailer park or government housing or whereever with starving people in the third world. The first guy is still WAY better off (especially in Germany where they still have decent health care).

    And if people are so worried about losing these jobs to third world countries, they’d buy “Made in the USA”. But most people shop at Walmart and want the cheapest prices possible. It’s simple, if you want to keep the jobs here, you’ve got to shell out the extra dough to buy American!

  3. Clint said, on January 25, 2007 at 4:25 pm

    2) Companies don’t want to make people poor, they want to make their own employees poor.

    A corporation is a soulless entity who exists only to make money. Corporations have consistently demonstrated immoral behavior for profit. (Hell, just look at Sony in the past year, or look to the Bhopal, India disaster.)

    Outsourcing and globalization is about working where, like you said, the production costs are the lowest. This includes wages.

    With more consolidation, more industries will become corporate-only (mom & pop shops get stomped out by the Wal-Marts of the world — think me & Carolyn could run a grocery store successfully? I don’t.).

    If you take the limit of these events as time approaches infinity, you have a bunch of corporations that control everything, strategically located where they can pay the least wages, and everyone has to work at one.

    Companies make money by selling stuff, but I completely reject your point that “They need people to have money so they can do business”. You think the people (or are they robots now?) who work at a Lamborghini(sp?) factory can afford one? No. But since 90+% of the world’s wealth is concentrated in the hands of 1% of people, there will ALWAYS ALWAYS ALWAYS ALWAYS be a market for high-profit low-production specialty items. 99% of the world could be making $2/day, and you’d still sell Ferrarris. There’s never going to be a shortage of rich people.

    Now, if cheap stuff (dishes, socks, soap) gets even cheaper because of this, then maybe that will offset things in the sense that a $2/day person can afford a 1-cent bar of soap. Of cousre hey may have to sacrifice his current career (outsourced! downsized! replaced with automation!) to the globalization gods to help create a society where 1-cent soap exists. Meanwhile, soap still costs more than 1-cent.

    “Everyone being made better off” is not the goal of the rich or elite, which includes corporations (even though they are not people, they are rich and elite). If that were true, wealth would not be concentrating into the hands of 1% of people.

    But it is.

    And forced unnatural globalization (as opposed to a gradual globalization caused by natural market forces) is bad for the individual. That’s why you have WTO protests. The asian farmers protesting the WTO were amazing (I’d be scared to protest in any asian country). I had no idea they were affected til I watched them on camera myself.

    Anyway, get ready for the North American Union and the NAFTA Superhighway….

  4. Clint said, on January 25, 2007 at 4:25 pm

    1) Unemployement stats SHOULD include babies and retirees. I want to know what percentage of americans are working, and I think an *employment statistic* is the logical way to find that out. But like you said, they only count unemployment claims.

    So, if 1,000 people making $25K at some factory get laid off, go on unemployment, fail to find another job when their unemployment ends, and become homeless — they aren’t counted. They are forgotten, because they are no longer drawing unemployment. Then the globalists can say “look! unemployment is down!” when the fact of the matter is: people are selectively counted.

    Nor does it account for under-employment (not that it should). However, under-employment is an important aspect. If all I.T. jobs get outsourced (I know this is unlikely) and I work at McDonalds, unemployment numbers can be spun that “look, globalization didn’t affect employment!” Yea, all fun and games until I have to sell my house to pay for a surgery because McDonalds doesn’t give burger-pushers medical benefits.

    Like I said, the stats are not valid justification for any of this. They are gathered in a way that does not accurately affect reality.

  5. Vickyhttp://tgaw.wordpress.com said, on January 26, 2007 at 8:20 am

    Is the anonymous post completely gone from the system? Perhaps you can post excerpts for further discussion?

  6. Vickyhttp://tgaw.wordpress.com said, on January 26, 2007 at 8:20 am

    Expanding on Christina’s last thought, I don’t think all corporations are going rush after the cheapest labor they can find. There is a market for cheap products, and there is a market for the high quality/premium products as well. Am I going to buy the Food Lion brand of cream cheese or pay a little extra for Philadelphia Cream Cheese? Am I going to get a Lexus or a Kia? Similiarly, I believe there will certainly be a market for cheap labor, but there will be a market for higher quality labor as well.

    In my 10 year tenure at my position, I’ve seen a lot of larger organizations outsource their IT, database management and internal development departments overseas. Know what I’m seeing now, just a few years later? Those same organization bringing those functions back in-house.

    Obviously I don’t know all the details of those decisions. But a contributing factor was the poor quality of work. At some point, the cost of rework, the cost of communication problems and the cost of employee frustration just didn’t justify the “savings”. Nonconforming work can be overlooked, but it is a real cost to an organization.

    Now each industry and each organization is going to have to weigh the quality vs. cost question for themselves. Whatever fits best in their business plan and how they want to position their products or services.

    I do want to read more with the Asian farmers Clint mentioned. However, at the moment, I don’t have an issue with globalization. I do know the tides could change and suddenly I’m not employable in my industry anymore. But, I feel okay with that. I’ll adapt to something else. I’ll evolve.

    Perhaps I can go on the lecture circuit and try to spread the word on the “Cost of Nonconformance” 🙂

    P.S. Christina’s right– Our “poor” really aren’t all that poor. Larry was fairly surprised to discover that fact last summer when he went to Equador.

  7. Stacy McMahon said, on January 26, 2007 at 8:37 am

    Yes, the anonymous post is completely gone. There’s no archiving of deleted comments, and I also deleted the email (trash is emptied every night)

    I am also seeing companies bring some of those outsourced functions back in. My view is that they originally let the numbers make the outsourcing decision without really considering the issues Vicky mentions, especially communication and even just basic control of the company’s processes. It’s one thing to say “our core competency is X and we’ll outsource other major functions if it makes sense”, another to try to outsource everything and still somehow add value even though all you actually do at that point is manage and market.

    Actually I have a small personal story in that vein. Back in 2000, I was laid off when my employer outsourced my job (classically, to a consulting company we originally hired to help on one of my projects) …I kept in touch with some of my coworkers there and heard at one point that “Don’t look at me, I’m not the one who fired Stacy” had become a common phrase around the office. Within a year they had rehired my position.


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