Op-Ed Columns

Yes: It’s a vital factor in growth of our economy

By John L. Manzella
McClatchy-Tribune News Service

BUFFALO, N.Y. — America is undergoing one of the greatest periods of transformation in history. Not unlike the powerful changes caused by the industrial revolution that shaped the 19th and 20th centuries, today globalization is shaping the 21st century and the United States is leading the way.

Since economic globalization — the integration of national markets through international trade and investment — emerged in the 1980s, resources have shifted to sectors with competitive advantages, productivity has reached new highs, and innovation has flourished. In turn, globalization has become a vital factor in the economic growth of the United States and benefited working Americans in many ways.

For example, trade now supports nearly one in every five jobs. Workers in globally engaged companies earn more than the average. And globalization has generated an increase in annual income of approximately $10,000 for each household.

American workers are quickly adapting to globalization by upgrading skills, achieving greater levels of specialization and effectively managing new productivity-boosting technologies. In the process they are becoming more competitive and improving the American standard of living, which is evident in a variety of ways.

• For example, since 1980 more Americans — now nearly 70 percent — own their own home, which is typically larger and outfitted with more amenities than before.

• Average U.S. life expectancy has increased from 73.7 to 77.9 years.

• Greater percentages are graduating from high school — 85.5 percent, up from 68.6 percent; and college 28 percent, up from 17 percent..

Nevertheless, misinformation persists. For too long, critics have focused on stagnant average hourly wages. This is misleading since wages only reveal part of the picture.

Today, benefit packages have become increasingly lucrative, representing a growing share of total compensation. When benefits are included, private sector worker compensation after being adjusted for inflation has risen by more than a third since 1980.

The Wall Street Journal recently noted that between 1980 and 2005 the share of American workers who owned stocks more than doubled to 52 percent from 25 percent. Thanks to 401(k) plans and IRAs, stock gains have been spread more widely across America.

Yet, claims that the middle class is shrinking may be true — but misleading since the number of middle-class working families moving into higher-income brackets has exceeded the number of lower-income families moving upward.

Thus, after adjusting for inflation, the share of households making more than $50,000 rose to 47 percent in 2005 from 38 percent in 1980. This helps explain why more families can afford vacations, cable TV, cell phones, iPods and second cars.

Federal Reserve Chairman Ben Bernanke rightly points out that “economic isolation and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living for U.S. consumers.”

We’ve all heard the corporate advertisement that encourages consumers to compare loan rates online. The company’s jingle sums it up nicely: “When banks compete, you win.”

Globalization likewise increases competition benefiting consumers. It also benefits American producers and workers by motivating them to create better goods and services that, through globalization, can reach world markets. In turn, this creates more opportunity and jobs back home. All Americans are the beneficiaries!

John Manzella, president of Manzella Trade Communications, is the author of Grasping Globalization. Web site: ManzellaTrade.com.

No: Many in America are losing ground

By Mark Weisbrot
McClatchy-Tribune News Service

WASHINGTON — The 2006 congressional elections were a turning point for U.S. trade policy. One issue that helped Democrats retake the Congress was a renewed sense of distrust among the electorate of our government’s trade policy, which is commonly mislabeled as “free trade.”

President Bush has lost his “fast track” authority to negotiate new trade agreements without Congress being able to amend them. A number of trade agreements that have been negotiated are now less likely to pass Congress — including agreements with South Korea and Colombia. And the current round of negotiations in the World Trade Organization, after nearly six years, has stalled.

The conventional wisdom, which dominates the major media, is that this turn away from “free trade” and toward “protectionism” is tragic and dangerous for Americans. But is it?

The WTO, for example, has lowered some barriers to trade but increased others — such as protectionism for the patent monopolies held by pharmaceutical companies. It is not even clear, in a strictly economic calculation, that American consumers have gained more from the WTO’s lowering of other trade barriers than they have lost from the higher price of goods due to its protectionism.

This is the proper way to look at changes in trade policy: who gains and who loses. This is also the prediction of standard economic theory: nations can gain from opening to trade, but within countries some gain and others lose.

Free-trade advocates, however, always make distorted statements such as “the average household has gained $10,000 from free trade.”

Now, if a hedge-fund manager makes an extra billion dollars, it can raise the average income in his town or suburb quite a bit. But it doesn’t do much for others in the area; and in fact it is likely to be at the rest of the public’s expense.

Real wages — those adjusted for inflation — for the more than 100 million people that make up most of our labor force were just 10 percent higher in 2006 than they were in 1973.

This is an upward redistribution of income, vastly different from the prior 25 years, when real wages increased by 74 percent. How much of this redistribution is due to trade, or more broadly, the “globalization” that includes the movement of production to countries with low wages, repressed labor, and weak environmental regulation?

It turns out that even if only a small part of this wage stagnation is due to globalization, it is more than enough to cancel the gains that the vast majority of Americans have gotten from cheaper imports. In other words, the last three decades of foreign commercial policy have been a net loss for the vast majority of Americans.

Of course, if you have a job that is protected from international competition — like CEOs, lawyers, doctors, journalists, economists — then lowering other people’s wages gives you a bigger piece of the economic pie.

Looking forward, the World Bank estimates that the gains to the U.S. economy from a successful round of WTO negotiations at between $2.7 billion and $6.8 billion a year — about one to three weeks’ spending on the Iraq war. And we are supposed to be worried if this trade round collapses?

The conventional wisdom is that there are huge gains from trade, but since benefits are not so visible and are dispersed among many consumers, “protectionists” who might lose jobs prevail against the public interest.

The reality is the opposite: the losses are dispersed among the majority of the workers through lower wages. The gains are concentrated among the big corporations who own our Congress and lobby for “free trade.”

Mark Weisbrot is co-director of the Center for Economic and Policy Research (cepr.net).