Among the many myths about globalization, the worst is that the loss of large numbers of manufacturing jobs in the United States (and Europe) was inevitable. Because the developing world is full of low-paid workers, this argument goes, it was impossible for Americans to compete. Economists and politicians promoting this view might consider the outcome unfortunate for U.S. workers, but also unavoidable. They take comfort in the growing living standards of billions of impoverished people in the developing world.
This is a palatable view of the history of the last forty years for those who were not its victims, but it is wrong in just about every way.
Globalization need not have taken the course it did. There was nothing inevitable about large U.S. trade deficits, which peaked at almost 6 percent of GDP in 2005 and 2006 (roughly $1.1 trillion annually in todays economy). And there was nothing inevitable about the patterns of trade that resulted in such an imbalance. Policy decisionsnot God, nature, or the invisible handexposed American manufacturing workers to direct competition with low-paid workers in the developing world. Policymakers could have exposed more highly paid workers such as doctors and lawyers to this same competition, but a bipartisan congressional consensus, and presidents of both parties, instead chose to keep them largely protected.
It is not just the volume and direction of trade flows that reflect policy choices. A second assumption in the familiar story about globalization concerns the content of those flows. Trade deals negotiated by administrations of both parties have been designed to enable U.S. corporations to manufacture goods in developing countries and return the output to the United States with minimal restrictions. This choice puts U.S. manufacturing workers in direct competition with low-paid workers in the developing world. Our economy may gain as a whole from access to low-cost goods made in the developing world, but a predictable and actual outcome of this pattern of trade is the loss of U.S. manufacturing jobs and downward pressure on the wages of less-educated workers generally.
There were other options, and there still are. Just as we can save money on shoes and shirts by buying goods made in China, we could save on our medical bills and legal services if we allowed low-paid doctors, lawyers, and other professionals from developing countries to practice in the United States.
As it stands, almost nothing has been done in this era of trade liberalization to reduce the barriers protecting our most highly paid professionals. It is illegal for a doctor to practice medicine in the United States unless she has completed a U.S. or Canadian residency program. (The number of slots in these programs is strictly limited, with a small fraction open to foreign-trained doctors.) Dentists are prohibited from practicing in the United States unless they graduate from an American dental school; the lone exceptions among foreign nationals are graduates of Canadian dental schools.
It is absurd to believe that the only way to be a competent doctor is to complete a U.S. residency program. If we applied our free-trade principles to medical and dental services, as well as to the work of other highly paid professionals, we would establish an international system of credentialing that would allow foreign professionals to train to our standards and practice in the United States. This is not some absurd fantasy. Able workers in these fields already collaborate all over the world; the bones and teeth and hearts in India are no different from those of Americans.
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In short, almost everything about the story of globalization as a natural or necessary process is false. The United States does not need to run a trade deficit, large or small, with the developing world. And these trade deficits are not prerequisites for reducing poverty there.
If globalization in the current mode was not preordained, it was also not an accident. The exposure of American manufacturing workers to competition with low-paid foreign workers follows policy choices made by officials who knew their decisions would result in lower pay for Americans.
Ending protectionism for highly paid professionals and intellectual property would help to reverse the past four decades of upward income redistribution, but it will not be enough on its own. It is also necessary to attack the bloated financial sector and its excessive paychecks, fix a broken corporate-governance structure that allows CEOs outlandish salaries, and rethink macroeconomic policy that has sacrificed employment on the alter of low inflation. I address these issues more thoroughly in my new book, Rigged.
