ONE WORLD, ONE MARKET
August 11, 1998
Is globalization good or bad for Americans? Business correspondent Paul Solman takes a walk around his neighborhood to find out.
PAUL SOLMAN: It's become a commonplace: globalization is defining the world, for better and worse. The global market has raised regions like East Asia from poverty; but it now threatens to return them to that condition, thus, destroying them as markets for what the rest of us sell, and, as a result, imperiling global prosperity. And in the-the Asia crisis began to drag down the U.S. economy in the last quarter.
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The International Monetary Fund .
The Treasury Department .
In other words, globalization brings a potential for economic growth, and the enormous benefits that go with it, but also the potential for dramatic reversals and economic contraction. The only thing for sure: wrenching change, both abroad and right here at home.
Okay. Is globalization more bad than good? And does it represent a clear and present economic danger for us Americans? For answers to those questions I thought I'd check with a favorite source. And so in the spirit of thinking globally but acting locally, I called Harvard Professor Robert Lawrence, who lives three blocks from my house here in Brookline, Massachusetts. Lawrence, one of the world's top trade economists, and surely number one here in the neighborhood, suggested we start by meeting at the corner for a local show and tell. And if I wanted to prepare, I could read a copy of a recent book he's co-authored, Globaphobia: Confronting Fears About Open Trade.
World, meet Brookline, Massachusetts.
The book winds up on the free trade side of the age-old trade debate. Its co-author has long been a strong voice against protectionism.
PAUL SOLMAN: My first question: You're not usually a melodramatic guy, but the name of your book is Globaphobia.
ROBERT LAWRENCE: Yes. Globalization is a word that we keep hearing, and people use it as if it's a great threat to our economy. What we wanted to emphasize in using that word is that the risks of globalization have been exaggerated and the benefits have been ignored.
PAUL SOLMAN: All right. So second question: Why did you ask me to meet you on the corner?
ROBERT LAWRENCE: Precisely because I wanted to go around this neighborhood and show you the fact that most Americans work in jobs that are not threatened by international competition.
PAUL SOLMAN: Lawrence was about to make an almost obvious point: To show how buffered most of us are from global downturn. That, for instance, is Carl Levine, our neighborhood's amiable dry cleaner.
ROBERT LAWRENCE: What does the Asian crisis mean to your business?
CARL LEVINE: It doesn't mean anything. People are going to come in here, they want to look good, they want a good product, and that's what we offer them.
ROBERT LAWRENCE: So you care about what happens in Brookline?
CARL LEVINE: That's my main concern is how I'm going to make a living here, and then I'll worry about the outside world.
PAUL SOLMAN: Carl's assistant, Jimmy Clark, underscored the obvious: What's to worry about? Competition from some super efficient dry cleaner in Japan?
JIMMY CLARK: They'll still be in Japan, and we'll still have Brookline.
ROBERT LAWRENCE: It's a long way to go to get your pants dry-cleaned.
JIMMY CLARK: It's a hard place to ship. We're not going to have flights out here just going to Japan to get your pants.
PAUL SOLMAN: Well, the fact that my dry cleaner doesn't compete with Japan wasn't exactly a revelation. Besides, how representative was it of business in our increasingly global neighborhood?
Service jobs are not affected by globalization.
PAUL SOLMAN: All right. Dry cleaning I buy, but two stores away is the Thai grocery, with the Thai CD's and here Brasili's is opening in a week, "the Brazilian way to be in America," and on the corner is the travel place, which as Israel and Egypt and Africa, the Caribbean. I mean, that's international.
ROBERT LAWRENCE: Yes. But what they're-all these stores are doing is providing local services, and the essence of a service is that it has to be produced in the same place as it's consumed. Now, most of these people are in the service economy, most Americans work in the service economy. Only about 15 percent of Americans are employed in manufacturing. Only about 2 percent are employed in agriculture, and those are sectors which are severely subject to international competition. For the rest of us there may be some elements of international competition, but, by and large, our economy is self-contained.
PAUL SOLMAN: Now, Robert Lawrence isn't the only trade maven in Brookline. About a mile from his and my homes, within earshot of the local trolley, is another neighborhood, which includes the home of Robert Kuttner, a global skeptic, who finds fellow townsman Lawrence inconsistent.
ROBERT KUTTNER: I find it very ironic that the standard view is that trade is very good for the American consumer, and it would be terrible to put up any barriers against trade, but at the same time, when something bad happens to some other part of the world, then somehow we're insulated. How can both things be true?
Does globalization generally make a positive difference?
PAUL SOLMAN: Well, of course, globalization does make a difference to the U.S. economy, especially in global industries, but it's mainly a positive difference, says Robert Lawrence, as he tried to demonstrate at our next stop, a firm called NECX, just outside Boston.
This is a brokerage outfit, but it doesn't trade stocks or bonds. Instead, it buys and sells competing microchips all over the world. Larry Marshall is chief operating officer.
LARRY MARSHALL: We actually thrive on international trade. All of our business is done around the world. We buy all the products that we sell in many, many countries, and bring them into the United States and ship them within the United States and back out to other countries. We manufacture no product at NECX. Everything we do is bought and sold through international trade.
ROBERT LAWRENCE: Has the Asian crisis really affected you?
LARRY MARSHALL: What the Asian crisis and the circumstances around the world relative to the United States has done for us is put us in a position of being an importer, as opposed to an exporter. And right now we're bringing more product into the United States than we're shipping out of it at this point in time.
PAUL SOLMAN: Of course, if the global economy is hit hard, the same would be true for firms immersed in it. Indeed, any NECX's sales have been flatter than expected this year, and neighboring manufacturers have even begun laying off employees. But over the long haul, says Robert Lawrence, global jobs are better jobs. And, in fact, brokers here, working on salary and commission, start at around $40,000 a year, average more than $100,000. The top guns make more than half a million. A college degree may be standard but it's not mandatory. The keys here are aggressiveness, street smarts, diligence, and motivation. So, high-paying jobs for those with the right stuff, isn't that what critics like Bob Kuttner have long called for?
ROBERT KUTTNER: Certainly some of the jobs created by more trade are very good jobs. On the other hand, some of the jobs destroyed by trade are good jobs. And I think in a more subtle way there is a whole social compact that was typical of the post World War II era with strong unions and higher social protections, and that is eroded by trade.
PAUL SOLMAN: Now, it's not that globalization's dangers are lost on Robert Lawrence. It's simply that he considers them the price you pay for the benefits of a broader, freer market, which is what he says a global market is all about.
ROBERT LAWRENCE: It's a bigger marketplace. It offers more choice. It offers more opportunity than just the domestic or local market.
PAUL SOLMAN: So it's the same idea of a free market, except it's a free market with no national boundaries?
ROBERT LAWRENCE: Yes. We find it's very-we would find it very strange if someone built a wall straight down the United States and said, you know, the East of this country trade with the West. We would also imagine it could be quite disastrous for both sides. But we somehow-many people believe it's somehow natural that we have barriers between countries, yet, the argument is exactly the same.
A walk in the mall.
PAUL SOLMAN: Robert Lawrence had one more destination in mind-the Prudential Mall in downtown Boston-to make perhaps the most familiar point in this debate: that as consumers we all benefit from globalization. Why has inflation been so low for so long? Largely because of cheap imports from abroad.
ROBERT LAWRENCE: By importing, we get things at lower costs than we would have to spend if we had to make them at home.
PAUL SOLMAN: Well, of course, but what about people who make the imports? We walked into the first store we saw-Britches USA.
PAUL SOLMAN: Britches USA. Let's just see where this is made. No rigging here. Hold on. It's made in Mexico.
ROBERT LAWRENCE: That's my whole point. It's cheaper to make these clothes in Mexico and that's why American consumers will benefit from trade.
PAUL SOLMAN: Yes. But wait a second. The classic argument is that Mexican workers are being exploited so that we can buy things cheap, low wages; they can't form unions, and so forth.
ROBERT LAWRENCE: The conditions in Mexico are not ideal, but you have to ask yourself wouldn't they be worse off if they weren't able to sell the fruits of their labor.
Globalization: a thing to fear?
PAUL SOLMAN: Well, would they be better off, or wouldn't they? You could pose that question almost anywhere in the mall--here at the toy store, for instance, where most of the items are made in China. With that thought hanging, we decided to take our free trader to a last destination of our choosing-and so back to Brookline, to have Robert Lawrence debate Robert Kuttner face to face. The first question was for Kuttner: When globalization extends to places like Mexico and China, isn't it good for American consumers?
ROBERT KUTTNER: Well, it's very good for American consumers. The question is: Is it good for American workers, who are the same people as American consumers between 9 and 5? And I think there are two separate but related issues about workers. One, how many workers are displaced by these imports and what happens to those workers? And secondly, what happens to the workers in China? Are they being paid wages that are sufficient to allow them to import products back from the United States? If that were the case, then everybody would benefit the Chinese workers we know are being paid very low ages.
PAUL SOLMAN: Robert Lawrence, however, insisted that globalization is the best bet for workers in China, or anywhere else.
ROBERT LAWRENCE: Well, I think that the best chance that foreign workers have to raise their wages comes from increasing the demand for the products that they make.
PAUL SOLMAN: But, counted Robert Kuttner-
ROBERT KUTTNER: The problem with that is you've had twenty or thirty years now in countries like Bangladesh where wages have remained very, very, very, very low and rising demand in Europe and United States hasn't really raised the wages. It would be a much more direct route to have minimum wage laws, to have global labor standards. That would get the wages up.
PAUL SOLMAN: Robert Lawrence continued to hold his ground.
ROBERT LAWRENCE: The real way to raise incomes is to get the pie to grow. And that's what trade does.
PAUL SOLMAN: Do you really think that there's an alternative to open markets because can you really keep Bangladesh from trading with the United States, and is that going to help Bangladesh more than trading with the United States does?
ROBERT KUTTNER: No, absolutely not. And I think where Bob and I would agree is on the point that trade is good for growth and where we disagree is on the question of how much do you have to regulate it.
PAUL SOLMAN: We started this piece: Is globalization more bad than good? Does it represent a clear and present economic danger to the American economy? What's your answer?
ROBERT KUTTNER: I think Asia is potentially much more serious than people being displaced from jobs by foreign workers, because Asia is about a speculative meltdown of a whole region of the world who are potentially our customers.
PAUL SOLMAN: And do you worry about it? Do you think there's a clear and present danger of Asia melting down and affecting us?
ROBERT KUTTNER: Yes. I do. I think for the moment we're complacent because we seem to be insulated; the other shoe hasn't dropped yet. And I think it's potentially very serious.
PAUL SOLMAN: Robert?
ROBERT LAWRENCE: Yes. I agree that we need the proper kind of global institutions to manage globalization. I think on that there is no question. What I'm very worried about is the fact that currently our Congress doesn't either want to pass trade negotiations or funding for the International Monetary Fund, so that-under those circumstances I think globalization can be dangerous.
ROBERT KUTTNER: I think where we disagree is that he's for more negotiations to facilitate more free flows of trade, and I'm for more negotiations to facilitate standards.
PAUL SOLMAN: But you're both worried?
ROBERT KUTTNER: I'm worried, yes.
ROBERT LAWRENCE: And I'm worried.
PAUL SOLMAN: And so what would seem are the administration--Alan Greenspan, the Senate, all of which are supporting the IMF. The House remains divided and is holding up funding. In the final analysis then the surest thing you can say about globalization is not that it's good or bad, but that it's scary because of the changes and the lurches a worldwide free market inevitably implies.