How can the United States successfully manage the challenges of globalization? A new paper by Peter Orszag (Brookings Institution) and Michael Deich (The Hamilton Project), “Meeting the Challenge of a Global Economy: Trade, Economic Security and Effective Government,” recommends a philosophy of “embracing international competition while investing in workers and market-friendly insurance.”
The paper, which provided the basis for a July 25 seminar, at the Brookings Institution in Washington, D.C., calls for boosting overall productivity in the United States through a broader sharing of the benefits and costs of trade, which can be achieved through investment in education, research, and social safety nets.
A new social compact
In separate panels, Gene Sperling (Center for American Progress) and Larry Mishel (Economic Policy Institute), who were skeptical about free trade and globalization, parted company with Robert Rubin (Citigroup, Inc.), Lawrence H. Summers (Harvard University), and Robert Altman (Evercore Partners), who expressed staunch optimism.
Sperling voiced concern over the stagnation of median wages and the job insecurity faced by white-collar workers. He called for a “new social compact on globalization” that takes into account the implications of free trade for the average U.S. worker, social safety nets, and labor and environmental standards. Mishel noted that “trade between consenting adults is fine” but also argued that safety nets and universal health care were essential, too.
A seismic shift in economic history
Rubin, Summers, and Altman were in agreement that the current wave of globalization represented a seismic shift in economic history. Summers said, “I don’t see how anyone could think that you can add several hundred million people to the world labor market and substantially broaden the range and number of tradable goods without having pervasive effects that will be felt throughout the spectrum.”
Rubin regretted that the U.S. political system has been silent on these issues. The conditions for such a debate,” he said, “don’t even exist.” When asked whether ecological issues should be a topic for discussion, Rubin said that “concerns about global warming and climate change are growing and are likely to become an important part of public policy debates.”
However, Altman cautioned against excessive pessimism about the impact of the seismic shift. China and India are becoming the world’s biggest markets for goods and services, and this, he said, will have a positive impact on the United States by increasing the wealth of its economy. The idea that China’s economic progress will be smooth is fallacious, he added. As with other countries in the past, it will not occur without interruptions or hiccups.
Altman also warned against too much focus on international wage differentials, because moving jobs around the world has costs. The press continually fails to mention the additional costs involved, for example, supervisory management costs, which make net cost differentials significantly smaller, he argued. There are plenty of opportunities for the United States to go on the offensive, Altman pointed out, because the United States “has not been as diligent,” particularly in enforcing existing trade agreements and encouraging freely floating exchange rates, especially in Asia.
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