Wednesday, April 13, 2011

It's Harder to Protest Globalization

Muhammad Shaaban Azouz
That is the word from Muhammad Shaaban Azouz, leader of the World Federation of Trade Unions. The reason, he says, is that diminished union strength due to globalization makes it harder to coordinate protests between heavily debt-laden countries, such as Greece, in Europe.

Another reason might be, however, that international trade, per se, is no detriment to anyone's real income or wealth. That voluntary exchange is mutually beneficial is a foundational economic principle. As long as people are not coerced into an exchange, each trading party values what it receives more highly than what it trades away. Both parties, therefore, benefit from the exchange. What is true for trading consumer goods is also true in labor markets. When an entrepreneur hires a worker, both he and the worker benefit. What's not to like?

One concern by some in more developed countries is that expanding the global division of labor makes it easier for producers to tap into cheap labor from less developed countries. This, so it is worried, reduces wages and employment for workers in more developed countries. As Mises put it in Human Action (1949),
When the American wage earner refers to equality, he means that the dividends of the stockholders should be given to him. He does not suggest a curtailment of his own income for the benefit of those 95 per cent of the earth's population whose income is lower than his (p. 836).
It turns out, however, that while globalization does result in changing labor patterns, it does not necessarily mean doom for domestic workers in wealthier countries. By any measure, the world economy has become more integrated over the past two decades. What has this meant for the U.S. employment scene? Since January 1980 private employment has increased from 74.6 million to 108.3 million.

At the same time, real compensation increased 38.8 per cent.

Economic history reveals that as the U.S. has become more integrated in a more global economy, total employment and real compensation both increased. This is due to labor becoming more productive as the division of labor expands. Anytime a domestic firm utilizes foreign labor, it does not reduce net jobs in the U.S. It merely frees up labor that can be used producing other things. As the division of labor expands, people can focus even more at producing new things at which they have a comparative advantage. In general labor becomes even more productive, which allows entrepreneurs to increase wages. Employees earn higher wages and, because production is more efficient, are able to buy more goods while paying lower prices. It is hard to protest against that.

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