Is Globalization Good or Bad?

My earlier post about the worldwide decline in inequality occasioned some spirited comment. I do think people on the left have a hard time striking a balanced view of globalization, which makes it hard for them to process facts like a worldwide decline in inequality, a sharp rise in global median incomes and a sharp decline in global poverty. Wouldn't it be better though to face these facts, while holding onto a critical view of where globalization has fallen short?

Instead, the attitude of many on the left is unremittingly hostile: trade costs jobs, especially manufacturing jobs; global competition destroys the economic base of local communities; rising nations like China are undercutting us with cheap labor and unfair trading practices; international capital seeks lower wages and looser regulation everywhere, promoting a race to the bottom; and so on. This casts globalization as an enemy of healthy growth and the ordinary worker and therefore something that should be opposed by the left.

This attitude is misguided on several levels. First, globalization has been central to the economic advances that have dramatically raised living standards all over the world. Indeed, most parts of the developing world have made huge progress in the last half century as globalization has bound countries closer and closer together. Because of this, the proportion of the world’s population that lives on less than 2,200 calories a day has fallen from 56 percent in the mid-1960’s to less than 10 percent today. The proportion of the world’s population living in “extreme poverty” (currently defined by the World Bank as under $1.90 a day) has fallen from 44 percent in 1981 to less than 10 percent today. Put in terms of absolute numbers, there were almost 2 billion people living in extreme poverty in 1990; that is down to around 700 million today. That means around a quarter of the world’s population has been lifted out of extreme poverty in just the last 25 years—25 years that have coincided with an acceleration of globalization.

This trend has been strongest in East Asia, especially China, but it has greatly affected all parts of the developing world, including Sub-Saharan Africa, frequently the poster child for the alleged failures of globalization. In Sub-Saharan Africa, the percent of the population living in extreme poverty has dropped from 56 percent in 1990 to 35 percent today. More broadly, as Branko Milanovic, one of the world’s leading scholars on income distribution, notes :

"Global income distribution [since the fall of the Berlin Wall] has changed in a remarkable way. It was probably the most profound global reshuffle of people’s economic positions since the Industrial Revolution. Broadly speaking the bottom third….became significantly better off and many of the people there escaped absolute poverty. The middle third or more became much richer, seeing their real incomes rise by approximately 3 per cent per capita annually."

Accompanying these dramatic rises in income have been dramatic increases in health. Between 1990 and 2013, the percentage of the world’s children who died before their fifth birthday fell by almost half. And overall life expectancy continues to climb, reaching 70 for those born in 2011. Back in 1950 world life expectancy was only 47. The average Mexican today lives longer than the average Briton did in 1955. And stunningly, of all the people in human history who have reached the age of 65, half are alive today.

These are amazing advances and they are taking place while the world is becoming ever more globalized. That’s because globalization, far from driving a race to the bottom, makes possible (even if it does not guarantee uniform progress in every country at every time) the spread of material progress to every corner of the earth. Marx, despite his underestimation of capitalism’s long-run potential, understood this. The broad left throughout most of the twentieth century understood this. But many on today’s left have lost track of this fundamental truth and prefer instead to focus on the obvious facts that globalization has some negative effects, both in developing and advanced countries, and that material progress has been very uneven. But it is only this maddening, uneven, unfair process that makes serious economic progress for most of human race possible. Therefore, on ethical and moral grounds alone, the left should enthusiastically embrace globalization, even as they seek to mitigate its negative effects where they occur and spread its benefits more evenly.

Some on the left are willing to grant that globalization has raised living standards in the developing world but insist that it is the enemy of the developed world worker, due above all to the destruction of manufacturing jobs. But is this really true? The decline of industrial employment is a very long-run trend that predates the sharp rise in globalization toward the end of the last century. And, if you plot the share of manufacturing jobs specifically in overall employment since 1948, there has been a steady decline from a high of about 35 percent to less than 10 percent today, with recent declines no sharper than those that have occurred in the past.

There is a very simple reason for this. Much of the decline in manufacturing employment can be traced to rapidly rising productivity in the manufacturing sector —so the same output could be produced with fewer workers--combined with shifts in demand toward services, reflecting a rise in consumer affluence. In this sense, declining manufacturing employment was an inevitable product of capitalism’s evolution.

Now that does not mean that globalization has played no role in declining manufacturing employment or that foreign trade has no negative effects. Academic studies generally acknowledge some “trade effect” on manufacturing jobs and trade with China in particular has probably had a significant recent impact. It is also likely that job loss from trade is larger in cyclical downturns, when economic vulnerability among workers is particularly high. But it does mean that attributing the massive, long-term decline in manufacturing jobs across the advanced world to globalization is a stretch.

More broadly, attempts to blame globalization for the wage and income problems of workers in advanced countries ignore hugely important factors like capitalism’s intrinsic dynamic toward higher inequality (as demonstrated by Thomas Piketty), the advance of the right and serial policy error, including many committed by the left itself. Clearly, the globalization explanation does not go very far in explaining the totality of workers’ problems today.

The point about policy error is key. The left will do a lot more good by correcting policy error on growth, employment and fiscal policy than by standing in the way of globalization. This even applies to the specifics of the manufacturing jobs issue. Germany, for example, has recently done far better than the US in moderating manufacturing job loss by retraining manufacturing workers from import-competing industries and moving them into export-oriented manufacturing jobs .

In short, globalization is not the villain many on the left make it out to be. It is simply part of the way capitalism today works and will increasingly work in the future. The sensible response is not to denounce it but to make it work for as large a share of the population as possible. This can be done by embracing globalization as a potential agent of growth and prosperity, rather than stagnation and job loss.

The key to doing this is recognizing that globalization is not a zero-sum game, where the developing world’s gain is the developed world’s loss. Instead, it is a positive sum game where increased prosperity in the developing world and denser trade ties should mean increased prosperity in the developed world through larger markets for developed countries’ goods and services and potential infusions of foreign human and investment capital. Besides equitable growth and full employment policies, the left should therefore concentrate on ensuring that workers dislocated by globalization can move smoothly into other economic sectors and that openness in developed countries’ economies is matched by openness in developing countries’ economies. But ultimately, more wealth and a better life in the developing world should mean the same in the developed world.

The job of the left is to make this happen as rapidly as possibly, rather than denouncing globalization wholesale, which is both ill-conceived and ineffective.