Make globalization fair

November 24, 2006|By Terrence Guay

STATE COLLEGE, Pa. -- Now that the Democrats control the House and the Senate, it's time for our national leaders to take a bipartisan approach to globalization. Although Iraq, terrorism and corruption were "extremely important" issues among voters in this election, according to the Pew Research Center, the economy was equally important. This may seem surprising given recent record highs in the stock market and an October unemployment rate of 4.4 percent - a five-year low.

But many Americans see little reason to rejoice. Median wages have stagnated over the past five years while energy, housing and health care costs skyrocketed. Between 2000 and 2005, Michigan and Ohio each lost more than 200,000 manufacturing jobs, and Illinois, Pennsylvania, and New York fared almost as poorly. It should be no surprise that people in these states voted overwhelmingly for Democrats.

Globalization is blamed, and deservedly so in many cases. The 21st century economic landscape is a far different playing field than the 20th century's, when most of today's workers joined the labor market. More countries, companies and workers are participating - and succeeding - in the global economy. Although American consumers generally benefit from this change, many American workers do not. And their anxieties and insecurities have given rise to increased skepticism about globalization.

Free-market advocates typically dismiss such hand-wringing, arguing that the world and even most Americans benefit from globalization. Global competition allows countries to specialize in what they do best. If that means some jobs go to cheaper and more productive workers abroad, the flip side is that industries in which the United States does comparatively better than other countries - finance, aerospace, technology - will gain. Market proponents accept job losses and restructuring in some industries as the necessary price for a reallocation of resources to more competitive ones.

It's a good idea in theory but bad as currently practiced. The corollary to this theory is that globalization's winners should compensate the losers. But this does not happen. Workers whose jobs go overseas are largely on their own, as are the communities that depend on them. So there should be no surprise when this segment tries to hold back the globalization tide.

The key, then, is to harness globalization's advantages while minimizing the downsides. This is where the new political alignment can play a key role. Controversial trade issues like steel aside, President Bush has been a fairly strong supporter of increased international trade, signing agreements with Central America, Africa and numerous individual countries. However, the really big agreement - the Doha round of the World Trade Organization - is at a standstill because rich countries like the United States refuse to cut farmers' subsidies and open their markets to agricultural products from developing countries.

A renewed effort on Doha is reasonable because the president faces no more elections and can afford to offend some farmers. But his trade promotion authority, which removes the ability of Congress to amend trade agreements, expires in May. The opportunity seems ripe for a deal, whereby the Democratic-controlled Congress renews that trade authority in exchange for policies that would benefit those groups that will lose out on Doha, as well as others adversely affected by globalization.

Raising the minimum wage is a no-brainer. Citizens in six states voted to increase the minimum wage above the $5.15-per-hour federal level, joining 23 other states. More creatively, Congress should propose a serious job-retraining program for workers displaced by international competition. Democratic leaders say they want to refocus attention on the middle class. Job-retraining programs, including education support, would go a long way toward relieving worker angst.

More imaginatively still, this might be the right time to develop something that resembles a national health-care program. The United States is the only industrialized country without one. We spend more on health care as a percentage of gross domestic product than any country in the world, but we have little to show for it on most health indicators and leave 1 in 7 citizens without coverage. Companies, particularly smaller ones, would be more competitive without having to subsidize their employees' health costs, and workers would have more freedom to change jobs knowing that their coverage doesn't end when they leave or are laid off.

So we have the opportunity for a deal: Democratic support for trade agreements in return for the president's support for a higher minimum wage, retraining for vulnerable workers, and a national health plan. Is this cost-free? Of course not. But neither is the option of a Congress - and American public - that takes the anti-globalization path.

Terrence Guay is clinical assistant professor of international business at Penn State's Smeal College of Business. His e-mail is trguay@psu.edu.

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