The Muddled Globalization Debate

Travel journalist Paul Theroux wrote a piece in the New York Times about some of the negative effects of globalization on US workers. Generally I advise never listening to travel journalists opine on political economic questions for the obvious reason that they are not well-equipped to do so (going somewhere to visit does not make you an expert on it). And Theroux is no different in this regard. But in his piece Theroux made points about the negatives of globalization that others have not adequately responded to.

Here is Theroux:

But if there was one experience of the Deep South that stayed with me it was the sight of shutdown factories and towns with their hearts torn out of them, and few jobs. There are outsourcing stories all over America, but the effects are stark in the Deep South.

This is a common observation: outsourcing, whatever its other merits, have hurt many working class people and communities in the US.

More to the point, in human terms, globalization has absolutely, completely proven positive-sum. Think back to that World Bank announcement about extreme poverty falling into the single digits: That is one of the products of globalization and global growth, in particular of China soaking up manufacturing jobs and growing at a breakneck pace over the past few decades. Millions and millions and millions of deeply impoverished people becoming less impoverished, Americans benefiting from cheaper, better goods at the same time.

And competition from imports from poor countries does not necessarily lead to poverty — indeed, overall it has been an “absolutely, completely proven positive-sum” as New York Magazine’s Annie Lowrey notes in her superb critique of this very same Theroux column. Other rich countries have managed the decline of manufacturing jobs (a global phenomenon) and preserved considerably more equal outcomes in terms of income and health than have ever existed in the United States. Globalization is a force to be managed, not an evil to be resisted.

Neither Kenny nor Lowrey have actually responded to the point that outsourcing has hurt specific groups of people. They say they are responding to that point, but once you finally get to the money shot, they retreat back into pointing to aggregate gains.

Cheap Imports Don’t Rebut Concentrated Harms

Both Kenny and Lowrey try to paper over the existence of harms concentrated among certain groups by saying that cheap imports have actually made Americans overall better off. This is a common refrain (I’ve read it from the same sources they have) but it doesn’t actually respond to the point at all. The fact that goods cost 10% less than they would in the alternative doesn’t help someone whose income is 30% less than the alternative. This is because 30 percents is more than 10 percents.

Kenny hints at the fact that Lowrey’s rebuttal doesn’t work, but still remains very obtuse about it, saying only that “other rich countries” manage to deal well with outsourcing’s propensity for delivering concentrated harms and that globalization is simply a “force to be managed.” But this too doesn’t answer Theroux’s point: globalization has wrecked certain swaths of Americans and the US has not managed the forces of globalization so as to avoid this.

What’s sad about the sort of handwaving Kenny and Lowrey give us in their efforts to insist globalization is an unalloyed good is that the basic terrain of this debate is actually very simple. Conservative economist Greg Mankiw explains it well:

Trade can make everyone better off. … [T]he gains of the winners exceed the losses of the losers, so the winners could compensate the losers and still be better off. … But will trade make everyone better off? Probably not. In practice, compensation for the losers from international trade is rare. …

We can now see why the debate over trade policy is often contentious. Whenever a policy creates winners and losers, the stage is set for a political battle.

In theory, the US could set up its institutions to ensure that the gains from trade (e.g. those cheap imports Lowrey likes) were distributed in such a way that even those who lost their jobs to outsourcing would be better off. Where globalization or trade makes the US better off in aggregate, the US has the ability to ensue that nobody in the US is worse off for it.

But the US does not do that. No extended unemployment benefits were provided to the people Theroux talks about. There was no concerted effort to provide them free training, free schooling, free relocation assistance. There was no increase in social incomes to broadly share the GDP gains. Instead, the US just let working class people and communities flounder. The US even allowed entire great American cities to rot back to nothing, wasting massive amounts of built up housing and infrastructure. That’s how unbelievably negligent and cruel it has been.

None of this is to say that you can’t make an argument for globalization even despite the concentrated harms it delivers in the US. But if that’s your argument, actually make it. Don’t vaguely gesture at the idea that eveyone wins when they clearly don’t and haven’t. That’s dishonest.

Going forward, it’s important to keep this point in mind in the coming discussions of the TPP trade deal, which is still in limbo as Bernie Sanders and now Hillary Clinton have come out against it. The proponents of TPP will push the Lowrey/Kenny line, chanting over and over again “gains from trade, gains from trade, gains from trade.” Meanwhile, representatives of working class groups (such as unions) will respond with “gains from trade won’t be broadly shared, and concentrated harms will hit working class people and communities.” The obvious approach of jacking up the share of GDP going to social benefits and providing more generous unemployment benefits and job assistance to ensure the gains from trade are broadly shared will remain totally out of the realm of possibility. So we’ll keep having this muddled debate.