We Are the World

By Harvey Golub

Wall Street Journal January 7, 2004

 

One of the big issues shaping up for the 2004 election is “globalization,” or more specifically, why globalization is bad for American workers. Almost every day there is an article or a speech somewhere about the U.S. “jobless recovery.” In many cases, they are accompanied by expressions of concern about “exporting” jobs to India, the negative trade balance with China, unfair trade practices on the part of other countries, and the like. They normally include suggestions that we need to do something — usually couched in terms of making these other countries adhere to U.S. rules and regulations, but really aimed at making them less competitive.

 

Politics aside, let’s examine the facts: The U.S. is the largest consumer market in the world; it is both the largest importer and exporter in the world; it has the highest GDP in the world; and among the lowest unemployment rates in the world. So the questions are: Is job movement out of the U.S. really bad for the economy? If so, should it be reduced by government action? To be sure, there are negative aspects of globalization. Individuals do lose their jobs, companies do fail or fall behind, but would we really be better off if we created barriers to prevent these outcomes? I think not. Instead of trying to reduce the competitiveness of others, we should strive to increase U.S. competitiveness in world labor markets.

 

As a nation, we have always imported people, capital, raw materials and finished goods. The so-called globalization phase started with our export of manufacturing jobs to markets around the world, first for local production serving foreign markets, then for foreign production serving U.S. markets. The initial emphasis was on jobs with a large percentage of labor content, like clothing manufacturing or parts assembly, and the trend is now being extended to service jobs and jobs with large amounts of intellectual content – so called “good jobs.” (I would argue that, in an upwardly mobile society, there are no “bad jobs,” but I’ll leave that argument for another day.)

U.S. businesses rightly seek ways of increasing their economic flexibility, converting fixed costs to variable, and focusing more on core strengths and capabilities. All of these efforts are geared toward making U.S. companies economically competitive on a world scale – because they compete on a world scale and because customers demand continuously lower costs. This has led to outsourcing manufacturing, outsourcing services, outsourcing servicing and outsourcing business processes. It has also led to a high level of capital expenditures, a cleaner environment and huge increases in productivity. Moreover, it has resulted in lower costs for consumers, which in turn has helped the consumer engine drive the U.S. economy for decades. These shifts have been enabled by low-cost communications, computer technology and rising educational levels around the world.

Almost all sensible economists and business people believe that this is a generally wealth-enhancing transfer, and good for our nation and the world. Many also believe that this is a good thing generally, but that their industry or their company is different and ought to be protected. Others, however, are concerned: Will the lost jobs be replaced by others of equal or increased value? Will the displaced workers find new jobs? Will these shifts result in a hollowed out U.S. economy? Their policy prescriptions are to make it harder for U.S. companies to move work where it can be done more cheaply and/or with better quality, or to impose on foreign nations our labor or environmental standards, which they believe would have the same effect.

Yet most economists and business leaders agree that blocking policies will be ineffective and, more importantly, put a brake on our long-term growth and that of our trading partners. If we regard the U.S. and other nations as businesses, supplying services (i.e., labor) to other businesses, then the U.S. is losing market share. Clearly, the U.S. cannot win every labor competition with foreign countries, nor should it. If a policy prescription for this “problem” is needed, and I’m not sure one is, then wouldn’t it be better to improve our “product,” so that businesses will choose to create jobs here because the product is better, rather than them being forced to do so?

Hence, a better question would be: What policy actions, if any, would make the U.S. a more attractive labor market?

By all means strive for a fair trading system globally. But do nothing at the governmental level aimed at creating barriers to the mobility of capital or labor. To ensure that we maintain a competitive advantage, we should adhere to the policies that have worked for more than two centuries: Reduce the unnecessary intrusiveness of government in the choices people make, improve the effectiveness and reduce the costs of needed government services, fundamentally eliminate governmental price controls, and restore equity in our legal system.

Even with these actions, some jobs will move overseas. I certainly hope so. Our policy goals ought to be to improve the environment for growth. By remaining flexible, we will create more jobs here in numbers large enough to require us to export even more jobs or to import more people. Either way, both we and the rest of the world benefit.

 

 

 

Mr. Golub, retired chairman and CEO of American Express, is currently chairman of TH Lee Putnam Ventures and ClientLogic. He is also a senior adviser to Lazard and serves on the boards of Campbell Soup and Dow Jones, publisher of this newspaper