Down Memory Lane
Rachel McCulloch Rachel McCulloch
Has economic globalization killed egalitarianism? Andrew Glyn argues that the recent increases in globalization have been exaggerated, and that in any case globalization is not the fundamental problem. Rather, what limits policies to promote greater equality is the same old domestic political resistance: those with the means to pay are unwilling to shoulder the cost.
While largely agreeing with Glyn's conclusion that the main constraint on income redistribution is domestic politics, I am struck by the narrowness of his analysis. Glyn's main focus is clearly the struggle over slices of today's economic pie. He seems frustrated that private investors are likely to respond "only sluggishly" to an expansion generated by government demand stimulation. Reading his wistful account of a "model Keynesian expansion" and the failure of the real world to conform to the model is like a trip back in time.
What is particularly striking to an American is that Glyn's egalitarianism is mostly about equality of outcomes (earnings plus transfers) and hardly at all about equality of opportunity. Americans of every class and income level are prone to consider themselves egalitarian, but they are much more concerned about equality of opportunity for themselves and their children. The "American dream" bears little relationship to Glyn's distributional struggles. On the classic path to success, individual initiative is key. That is one reason why access to quality education is a perennially contentious issue.
However, Americans are apparently much less egalitarian than their European counterparts when it comes to sharing their own earnings with those who are able to work but don't. The widespread discontent with the American system of welfare is hardly confined to high earners and capitalists. The recent direction of American welfare reform is aimed at restoring a central role for market-based incentives and individual initiative. New work requirements, described by critics as mean-spirited, are strongly supported by lower-middle-class Americans who resent working to support others unwilling to do so. In some states, voters have expressed their willingness even to pay more in taxes if necessary to get able-bodied welfare recipients into paying jobs. The assumption, of course, is that moving welfare recipients into the workforce will yield longer-term benefits: expanding income (and the tax base), reducing public expenditures, and breaking the cycle of welfare dependence.
The program of getting welfare recipients into jobs has received a hefty boost from the recent shortage of unskilled workers in many parts of the United States. Yet the same tight labor market has shed light on the problems of integrating longer-term welfare recipients into the workforce. The new and not always willing workers may not meet even the first condition of employment: showing up for work. This suggests that while higher aggregate demand will help some low-income families by providing more employment opportunities and higher wages, the problems of the core group--those long out of the workforce or never employed--may require a more targeted approach.
Public debate often links the issue of long-term unemployed and low-earning workers to the phenomenon of globalization. Glyn is right in emphasizing that globalization is not the central issue here. While import competition does mean job loss or lower wages for some workers, it also means new jobs or higher wages for others. Most studies show that the net effect on jobs is very small, with new jobs about equal in numbers to ones that are eliminated through increased foreign competition. More important, the losses from increased global competition do not generally affect the lowest-paid workers, who are concentrated in service industries not directly competing with foreign counterparts. Thus, while the redistributive consequences of increased globalization may be important economically and politically, they are a different problem from the one of long-term unemployment and minimum-wage earnings.
Although Glyn offers several measures of globalization, he omits immigration. At least implicitly, both the European and the American concepts of equality stop at the national borders. The awkward question is how immigrants fit into the picture. America is a nation of recent immigrants and their descendants. Indeed, the immigrant who goes from rags to riches is a staple of the American dream. Yet the flow of new immigrants has always been controversial and is no less so today. New citizens and those soon to be citizens affect wages in many occupations, from window cleaners and taxi drivers to physicians and mathematicians. Younger on average than their native-born counterparts, they also impose strains on public services and the social safety net in the communities where they are most concentrated.
Finally, what is particularly striking to an international economist is that while Glyn absolves globalization of the villain's role, he never thinks to cast it as a hero. Yet a look around the world shows that the countries which have made the best record of rapid improvement in the living standards of their population are ones that have embraced globalization. And this is not merely a phenomenon in East Asia, as one might have argued ten years ago. As South Asia, Latin America, and even some countries in Africa have opened up to global markets, their growth rates have accelerated. Moreover, their improvements in living standard are almost entirely a reflection of growth, not of redistribution, although at least some rapidly growing countries have managed to achieve greater equality of income along with increases at all levels of the income distribution.
Glyn observes that globalization constrains domestic policy. He is correct, but constraints are not necessarily bad. Exposure to international markets appears to play a positive role in promoting growth, in part by limiting the ability of national governments to carry out short-sighted policies. Moreover, there is growing evidence that participation in international markets is associated with higher labor productivity and improved product quality due to such factors as increased market competition, enhanced economies of scale and scope, and better allocation of new investment.
Of course, we need not look to the developing countries for evidence that growth, not redistribution, accounts for most improvement in economic well-being in the longer run. The history of the industrial countries shows much the same pattern. Individually and collectively we in the industrial nations are better off today than our counterparts a century ago because of growth in per capita income, growth in turn attributable to the related forces of education, capital accumulation, and innovation. The international and historical record is in fact much more optimistic than Glyn would have us believe. If we focus on the longer-run goal of ensuring equality of opportunity rather than the short-run goal of reducing the inequality of today's income, the future is likely to provide us all with a larger slice of pie.