Globalization, Wages, Jobs and Myths: by Gerard Jackson

In the present we find that opposition to globalization invariably turns out to really be opposition to free markets. Overall, the kind of changes leveled against the alleged evils of globalization turn out on closer examination to be no different from those leveled against the free market. In other words, attacks on globalization are really masking attacks on capitalism. In the words of Bob SantaMaria, one of Australia’s most prominent interventionists and monetary cranks, "Capitalism is the real enemy". Geoffrey Barker is another statist fundamentalist with an obvious loathing of economic reasoning. A journalist with the Fairfax stable, Barker's usual ideological tactic is to dismiss market economic analysis as "free market fundamentalism". This approach, apparently, is all that is needed to demolish any free-market agreement. Unfortunately, much of the economic rot that Barker is well noted for regurgitating seems to be largely accepted by the public. So when a bigoted economic illiterate like Barker uses the Australian Financial Review (9/12/97) to parrot anti-globalization propaganda, you can bet your bottom dollar he is preaching the equivalent of the party line.

Drawing on an article by a Rodrik ("Sense and Nonsense in the Globalization Debate", 1997 summer edition of their Journal of Foreign Policy), Barker tells us that Rodrik sets out the globalization issues "with splendid clarity". (Coming from Barker, this kind of praise amounts to the kiss of death). Fortunately Rodrik's argument contains the bones of all anti-globalists' points. Rodrik claims to have found a relationship between unemployment, globalization and increasing demands for more welfare. This is just not true, particularly in the case of welfare. Increasing demand for welfare in Europe and America since the end of World War II has had nothing to do with foreign trade. No policy party ever proposed increased social spending to compensate for the alleged costs of free trade. Does anyone really believe that it was the rising volume of foreign trade and capital flows that caused Johnson to implement his big spending "Great Society" programs? Observers should also take note of the fact that an increasing amount of social spending is going to pensions, health and education. None of which have anything to do with foreign trade. Quite frankly, this argument has no merit at all, except for anti-market journalists looking for a club with which to beat the market. That anti-market likes of Barker make a particular point of ignoring, if not actually denying, the enormous role of that union-created unemployment plays in expanding the demand for more welfare.

Behind the welfare argument is the belief that globalization (free trade) raises the level of unemployment in high-wage countries and lowers living standards. This is an old anti-free trade agreement argument that has no substance at all. They can never be sufficiently stressed that free trade does not raise the volume of unemployment. (our unions do that). What it does do is reallocate labor and capital to more efficient lines of production. It is this increased efficiency that raises welfare by providing cheaper goods and services thus increasing purchasing power. Protectionists, in all their guises, argue that by opening up our markets real wages, especially of the unskilled, will be driven down by cheap foreign labor and capital out flows to cheap labor countries. The first argument is based on the assumption that by importing cheap goods we are, in a sense, actually importing cheap labor which is therefore in directly competes against unskilled domestic labor hence driving down its price.

This is a very plausible line of reasoning and is obviously based on the fact that the price of similar goods, including factors of production, tend to be equalized by the market process. The error here is the failure to realize that the prices to be equalized goods and factors of production must be free to move. This error has resulted in many people, including a number of economists, confusing the product of labor with labor services. It is quite possible, however, that in some circumstances certain types of foreign unskilled labor can compete directly with similarly domestic labor without migrating. For example, the nature of computer technology has made it possible for Western companies to directly bid for the services of Indian programs. So theoretically technology has made it possible to combine national markets for the services of this type of labor into a single international marketplace in which incomes will tend to be equalized because labor services will be hired directly instead of their products just being bought.