Trade and Globalization

I read a really short post on another blog about a recent West Wing episode dealing with trade and globalization.  The author of the blog said the show was trying to make a point that "globalization was good in the long run, but in the short run it is going to hurt people.  Those people will be Americans losing their jobs to cheaper labor in different countries."  One of my co-workers tried to explain to me once that it is actually good for people in America when lower paying, production jobs are moved to differenct countries because this creates opportunities for those people to get higher paying, white-collar jobs here.  And it allows more people in the U.S. to be creative, pursue education, and come up with technological advances.  I guess these would be the long-run benefits to our economy in addition to the long-run benefits to the global economy of globalization.


Dr. Tufte said...

I think the arguments here are generally correct.

I wouldn't say that the process of sending jobs oversease creates opportunities in and of itself. What is important is that one part of the economy is creating opportunities for people to make more money while another is freeing up workers to go into those areas.

This is closely related to the post above this, and my comments there about Schumpeterian growth.

C-Dizzle said...

I definitely don't disagree with this blog. Jules seems to be correct about the long-run vs. short-run idea. I think it is good in the long run for everyone but somewhat harmful to a lot of people in the short-run. Several people are going to be out of jobs here in the U.S. because of businesses going foreign. However, these people that are out of work will hopefully search elsewhere for jobs and meanwhile, maybe even specialize in a new field giving the individual better financial chances than before.

That's just one of probably a billion different scenarios that could come out of globalization.

Lizzie said...

I guess I am confused. I really don’t see how sending jobs to other countries will help our economy…even in the long-run. Are we not still losing those jobs??? I saw a news story on this a while ago and it seemed that most of the people who lost their jobs were in their late 30’s; these people are not at a point in their life where they can just change directions. Somebody needs to explain this one to me.

Senator Miller said...

The outsourcing of American jobs I see as more of a short run problem than a long run problem. In the short run, Americans are out of a job, earn less, spend less and welfare is decreased. In the long run, America no longer needs to provide jobs in tech. customer support, so they can specialize in different areas such as global communication technologies, and many other important technologies. The country we outsource to of course will be better off, because they now have more job selection and in more cases than not, a decent job at a higher than their normal real wage. In the long run I think both countries are better off.

Kid said...

I agree with Lizzie on this one. People who have worked for a company for 10 or 15 years who planned on staying with that company until they retired are out of quite a bit of time and money. By companies outsourcing, it will keep the people who lost their jobs because of it in the work force longer. They will have to start all over at the bottom of another company.

This is exactly what just happened to one of my older brothers. The chemical company he worked for just closed up shop and moved to South America. My brother is almost 40 and he now has to start over at the bottom and work his way up. Who knows when he’ll be able to retire now?

Outsourcing also hurts people in the long-run.

Dr. Tufte said...

Here is my take on the comments by Lizzie and Kid.

No one is claiming that outsourcing is good for the people who lose jobs here. That is a big problem. Recall how in the first week of class I talked about the distributional problems associated with business cycles - most people aren't hurt seriously in recessions, but there is a small minority that is hurt severely.

What is being claimed is that the evidence is very strong that countries that don't discourage outsourcing or insourcing do quite a bit better than those that do discourage it. The theory behind that isn't perfectly solid, but tends to indicate that this is because the process of preventing outsourcing leads to better opportunities being foregone.

But, there is an ethical dilemna here. Is it OK to harm individuals for the betterment of a larger group? There are a variety of not very good answers to that sort of problem. Most of them revolve around whether you directly harm people. Philosophers call this a lifeboat problem. If you have an overloaded lifeboat, it is one thing to choose people to jettison, but quite another to not rescue people who let go of the boat.

Another idea to chew on is that governments typically are much more interested in punishing firms that outsource, rather than encouraging new firms that might hire the workers that lose their jobs. Is that right? If it isn't, does it tell us something about our government that perhaps we ought to change?

BTW - I also have a brother (age 49) who has been hurt by involvement in a dying industry (and a dying locality).

Jordan said...

Dr. Tufte said:

"I wouldn't say that the process of sending jobs oversease creates opportunities in and of itself."

I agree. I think that when jobs are moved overseas, it serves as a motivation to gain more education and obtain higher paying jobs. But the mere moving of jobs doesn't mean they those obsolete workers will automatically get a better or different job.

Dr. Tufte said...

Once again, the problem is distributional consequences. On average this is a good thing, but for many individuals, it isn't.