Interactive Friday Follow-Up: Globalization and Wage Growth

We spent about one-half of the meeting on globalization, and the other half on whether and why the American middle class has declined in recent years.  We had a sharp split on the “whether,” as well as the why. 

Since it was an unusually contentious meeting, I’d like to use a great idea that Jim W. had to give people an opportunity to continue the debate on-line if they want.  So:  Does anyone have anything to add that they did not say last night?  I’ll start.  I have two.

The first has to do with Ron’s idea that the international community should require poor countries to set a living wage and/or an appropriate wage for their people, to be determined by experts.  This is a principled and moral idea, to be sure.  But, here is my issue with it.  The biggest cause of the huge gap between wages in poor nations and wages in rich ones is that workers in the former simply are far less productive.   This is absolutely true.  Obviously, I don’t mean, say, factory workers in Vietnam don’t work hard.  They work almost unimaginably hard under sometimes poor conditions.  But, each of those workers produces a lot less per hour than a factory worker in the U.S. does.  This is mainly because Vietnamese factories are much less efficient in the use of technology and automation than their highly automated American factories do.  By some estimates, 80% or more of the wage differential between poor and rich countries is because of this. 

But, wait as minute.  Why, then, do we buy so much stuff from these countries if they’re so inefficient?  Because they’re also paid so much less!  In Vietnam, Worker Productivity X Wage is a better deal (business-wise, for JC Penney and Nike) than America’s mugh higher Productivity X Much Higher Wage.  That’s the way it works: When it’s true, we import the product; when it’s not, we make it here.

The point for the purposes of Ron’s idea is this:  If we step in and raise Vietnamese wages so that they’re not in line with their productivity, then their goods will be priced out of world markets and their factories would close.  Vietnam never develops and it’s back to the rice fields where living standards are even worse because it’s so labor-intensive.  Our good intentions get trumped by globalization and capitalism.

So, what to do?  Well, nothing is one idea, and its basically what we’ve done under Capital-G Globalization.  But, it’s unacceptable to both Ron and me.   So, IMO, we should do two things:

  1. Help Vietnam to increase its productivity, which is just a jargony way to say, “help them to develop economically,” because that’s what economic development means.  It’s how we raised our productivity and our wages above 19th century levels — not hjust because we broke thge power of the robber barons.  And;
  2. Since Vietnamese companies, its corrupt government, or multinational corporations (Hi, again, Nike!) will try their best to keep all that extra productivity for themselves and not ever pay wages in line with workers’ true value, we should pressure such countries and the multinationals to do the things that give the workers a fighting chance to demand their fair share of an expanding pie.  One way to help do all of this is by creating a rules-based trading system that embeds these practices in internationl law.

Those things would be, for example, allowing workers to unionize and requiring governments to respect those rights, requiring governments to adhere to basic health and safety standards (which are more humane and raise productivity in the long run), and —  the point I actually was trying to make last night – become real democracies.  Only in democracies can the fruits of economic growth and development be fairly shared, although it doesn’t happen automatically with us in the last 30 years being a case in point.

Gee, that rambled on.  I’ll make point #2 in another post or in comments if someone starts a conversation thread.


8 responses

  1. Made you look. I’ll start, by linking to the article Peter mentioned in the new Vanity Fair. It’s directly on point to the shrinking US middle class part of our discussion. It’s by a Nobel prize winnign economist (not Krugman) one of whose books I was waving around last night. He’s a centrist, not a lefty. He’s just ghad enough. He explains why rising inequality and wealth concentration in the top 1% — why the rest stagnate — is bad for all of us. Short version: The flip side to rising inequality is shirnking opportunity!

  2. One of Obama’s admirable qualities is to point out false choices. The aforementioned Vietnamese choice between settling for slave wage or going back to the fields is a typical Republican false choice. The same one they keep using for suppressing minimum wage. First they claimed that just having minimum wage will cause the lowest paid employees to lose their jobs, then they used the same argument to oppose even just linking it to inflation. Of course reality proved them wrong (same as with Trickle Down Economics). The race to the bottom has to be stopped somewhere. I think that corporate democratization would do it. This means: 1. profit sharing (including executive pay limit). 2. ownership sharing. 3. decision-making sharing.
    By the way, in the last discussion I’m the one who brought up Stieglitz’s 1% article. Here is a link to an excellent interview he had on Democracy Now the same day:

    1. I agree with you on the minimum wage.

  3. Don’t you think that a living wage in other countries is the same thing in a global context? Do you agree with stopping the race to the bottom through corporate democratization with the steps I mentioned?

    1. If you measnt that each nation should be pressured into a minimum wage that applies ony as a floor, I like it. I’m just against setting wage klevels across industries and throughout the economy because I don’t think it would work. But, I still think that, with their low productivity it would be hard to make that minimum wage be a livable wage, even in the poorest places where the cost of living is very low.

      Another problem with natl minimum wages and with labor standards in general that I just thought of is that many big, poor countries have huge informal job sectors, where no labor law applies at all no matter what the laws are. In many places, esp. in the wortld’s vast mega-slums (where most human beings are going to live in a few decades) most people work in the informal economy, the grey economy. They peddle stuff on the street, push wheelbarrows on construction sites (that they often have to rent from the local gang or corrupt govt officials/police), are sex workers, sweep up in unlicensed shops, etc. This is why I think development experts focus on the rule of law and getting better quality governance. Without those things, industrialization leads to Calcutta, not Taipei.

      1. Since we were talking about a living wage in the context of globalization, what I suggested applies only to the multinational corporations. The pressure should be applied to them, not to the nations in which they operate. I still think that if those corporations were truly democratized, they would be able to pay a living wage without losing their competitiveness. As far as the local informal job sectors that are indirectly global, I agree with you that the rule of law and better quality governance are required preconditions.
        You still didn’t answer my second question.

  4. I used to be against 1. profit sharing (including executive pay limit). 2. ownership sharing. 3. decision-making sharing. Not because of some ideological feeling but because they seemed unneccesary. The system was supposed to distribute power reasonably well. But, after the last 10 years in the USA, it’s clear that something’s fundamentally wrong with the way we do it. Since, Germany has been sharing corporate governance for many years and they do great, and given how oligarchic this country has become, I’m closer to Ron’s position than ever before.

    To me, it all comes down to unionization. With them, 1 and 3 above kind of happen without formal socialistic systems, such as 2. Without them, as we have now, it’s bad and getting worse. And, for the next 2-10 years, we’re just trying to prevent the total repeal of the Great Society an New Deal. QED for Ron, really.

  5. This isn’t directly on-point, but it’s the kind of thing that sheds light on how the choices faded by rich nations like us are different from the choices faded by poor nations:

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