The global economy and the squeeze on jobs

July 08, 1996|By William Pfaff

PARIS -- The recent G-7 economic summit ended with a little-reported acknowledgment of the troubles and inequities provoked by globalization of the economy.

The final communique spoke of the ''risks of aggravated inequalities in the poor countries and of marginalization in certain world regions'' -- the latter an allusion to Africa. It said that while the goal of the advanced countries was ''as wide a distribution as possible of the benefits of economic growth,'' even there ''the risk of excluding individuals and social groups'' is serious.

Nonetheless, the conclusion was optimistic. ''Structural reforms,'' ''the pursuit of sound economic policies'' and ''increased international cooperation'' could be relied upon to make all well.

This optimism is not really validated by present evidence. Mexico opened itself to the world by way of the North American Free Trade Agreement, and the financial crisis that followed has left salaries there at a third of their level of a year ago. GNP per capita now is where it was 20 years ago.

However, it is pointless to argue case by case, where everyone has his anecdote or analysis to present, without ultimate proofs, which only time will supply. There are, however, certain logical problems to consider.

A French economist, Michel Husson, recently wrote of globalization (in Le Monde) that ''we are not in a world where the job that leaves here ends up there. . . . Jobs certainly are created in the export sector of developing countries. But opening up an economy to world commerce, the condition which makes new enterprises (and investment) competitive, actually liquidates an even larger number of jobs in the non-competitive traditional sectors of an economy. With few exceptions, the countries of the Third World create fewer jobs after opening to international competition than they created before.''

This is demonstrated, he says, in the commercial balance figures for these countries. When they open up to world commerce they attract investment, but also world-competitive imports and consumer goods that destroy local manufactures.

The theory says that the poor countries will eventually see new domestic jobs created that are more sophisticated and better paid. However, another logical problem arises, which I have not seen answered.

Better jobs in poor countries

According to the theory, job losses, lower wages and increased insecurity on the American and European labor markets is not only compensated for by desirable job creation in poorer countries, but will eventually be cured in the advanced countries highly paid new employment in higher-technology enterprises.

This would seem to me possible only if the advanced country/poor country relationship was a closed system, and if the labor pool in the poor countries was finite. If those conditions existed, the supply-demand equation would function and foreign investors would eventually need to bid competitively for Third World labor, thereby driving up wages and working conditions, with the effect of making advanced-country labor more competitive as well.

Neither condition is true. For practical purposes, the quantity of available labor is infinite. The poor we will have always with us: Nothing in secular experience suggests that the scriptural economist was mistaken. The investor will always find another labor pool to tap when the existing one becomes inconveniently exigent.

It obviously is no coincidence that Western trade unionism's bargaining power has suffered a dramatic and progressive decline since globalization began. Until the 1970s investment generally had to confine itself to a national labor pool in order to manufacture for a national market.

When it became not only technologically possible but economically advantageous to manufacture goods for rich-country consumers in poor and unregulated Asian, Latin American or African labor markets, labor in the advanced countries lost its bargaining power.

This has been true even though the actual transfer of jobs from the advanced countries to the poor countries is less than many think. The simple possibility of exporting production disarms the labor force.

Existing wages and working conditions previously were seen as a secure base from which improvements might be bargained. During the last two decades they have come to be understood as the best the work force can expect, and employees hope only to minimize cuts in wages and benefits. At worst, they want only for the jobs to survive.

This will be true no matter what new industries develop. New Silicon Valleys will emerge, but the production and intellectual work they will require is transferable, too. Why should the American entrepreneur pay California wages for work that well-educated Bangladeshis are anxious to do? Bargaining now is impossible for any task that can be exported. This now is universally true.

This transformation in the condition of labor in the advanced countries, as well as the developing world, is, moreover, permanent. Nothing currently envisaged can restore the European or American worker's lost job security. This is a fundamental transformation in economic society in our countries. It is certain to have political consequences, which may be very grave. Nowhere in the public debate have I seen this really addressed.

William Pfaff is a syndicated columnist.

Pub Date: 7/08/96

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