Globalization: the good, the bad, and the benefits

Few words in modern day politics are as divisive as globalization. Nearly all of us have heard of it and most of us have a position on it. We know it's caused strikes, layoffs, and protests; we've heard of people getting fired due to downsizing, offshoring, or outsourcing. Sometimes those people who do not lose their jobs are forced to accept lower wages and fewer benefits. These are the visible, tangible, and all too real effects that globalization has wrought. In spite of what I just said, however, I am not willing to renounce globalization or free trade as a means to generate wealth and a better standard of living for all Americans.

Globalization is the result of an ever-expanding marketplace that has only increased with the defeat of communism. The world today is growing smaller by the day. The result of this phenomenon is more competition across and within borders. This, understandably, makes people nervous. It means that job security - working a lifetime for one business - is a thing of the past. White collar jobs, too, are being subjected to more competition. The technological revolution makes outsourcing a viable option in sectors once considered untouchable. Increased trade means more winners and more losers.

If globalization seems to create so many losers, why does the United States continue to call for greater trade liberalization? Because free trade helps our economy grow. Any large gains from free trade are widely dispersed, whereas any losses are concentrated. The negative effects of free trade are more visible in job losses than are the positive effects in product quality, reduced prices, and fatter paychecks.

I don't have the knowledge or the space in this column to explain David Ricardo's theory regarding comparative advantage, which is the guiding principle of free trade, but Thomas Friedman in his book The World Is Flat, does a good job summarizing it: "if each nation specializes in the production of goods in which it has a comparative cost advantage and then trades with other nations for the goods in which they specialize, there will be an overall gain in trade, and overall income levels should rise in each trading country." In other words, free trade benefits both consumers and workers, because it results in better products more cheaply produced for consumers and higher wages for workers.

Free trade and globalization generate wealth and prosperity for the American economy and the American worker. The Institute for International Economics estimates that, "the combination of shrinking distances and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year or about 10 percent of GDP. This translates into a gain in annual income of about $10,000 per household."

There is a myth that globalization destroys jobs and does not create any. A Cato Institute paper titled, "Job Losses and Trade," refutes this misnomer: "Total US private sector jobs increased by 17.8 million between 1993 and 2002. To produce that healthy net increase, a breathtaking total of 327.7 million jobs were added, while 309.9 million jobs were lost." The study also noted that, "despite the new offshoring trend, the Department of Labor is forecasting a 35 percent increase in computer and math related jobs over the next decade."

If globalization dampens wages and leaves people unemployed, as its critics charge, how can they explain the economic growth we've sustained since the United States began implementing consistent and bipartisan trade liberalization starting with the General Agreements on Tariffs and Trade (GATT) in 1947? Currently, the unemployment rate is at 5.1 percent, the economy has been growing at well over 3 percent, and wages have increased steadily at 2 percent this year. An honest assessment of globalization and free trade must conclude that these two forces have helped the economy more than they have hindered it.

Thomas Friedman is fond of saying that we are not racing to the bottom, we are racing to the top. The increased connectivity, interaction, and integration between different nations and cultures results in more competition for jobs - the race to the top. This is a good thing in most cases. Americans are some of the hardest working, most innovative, and most flexible people on earth and we have benefited greatly from the global economy.

Globalization has created some losers, but it has created far more winners. I believe that as long as we continue to meet the challenges that globalization presents with the optimistic "can do" attitude that characterizes us as a nation, the United States will always come out ahead.