The Benefits of Globalization
Tuesday, June 10th, 2008 By Marc KilmerEconomist Tyler Cowen had an excellent article in Sunday’s New York Times about why globalization fears are unfounded:
Trade advocates focus on the benefits of goods arriving from abroad, like luxury shoes from Italy or computer chips from Taiwan. But new ideas are the real prize. By 2010, China will have more Ph.D. scientists and engineers than the United States. These professionals are not fundamentally a threat. To the contrary, they are creators, whose ideas are likely to improve the lives of ordinary Americans, not just the business elites. The more access the Chinese have to American and other markets, the more they can afford higher education and the greater their incentive to innovate.
Conservative and liberal economists agree that new ideas are the fundamental source of higher living standards. We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others who invest in innovation. A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future.
Those benefits will take time to arrive, but trade with China has already eased hardships for poorer Americans. A new research paper by Christian Broda and John Romalis, both professors at the Graduate School of Business at the University of Chicago, has shown that cheap imports from China have benefited the American poor disproportionately. In fact, for the poor, discounting in stores such as Wal-Mart has offset much of the rise in measured income inequality from 1994 to 2005.
Cowen then makes an interesting point that is not often discussed:
What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature — namely, our tendency to divide people into “in groups” and “out groups” and to elevate one and to demonize the other. Americans fear that foreigners will rise at their expense or “control” some aspects of the economy.
As Cowen notes on his blog, Marginal Revolution:
Virtually all of the “second best worrying” about trade could be applied also — in fact more so — to technical progress. Or to trade across the fifty states. Yet when it comes to foreigners, the worries acquire a more dangerous credibility. That is the real second best problem, not any theorem you might derive about trade and externalities.
The notion that it is somehow bad to buy things from people who have a different nationality makes little economic sense. Unfortunately, as we saw in Ohio during the Democratic primary, this fear of foreign goods drives a large part of the Democratic Party’s trade debate (it also unduly influences the GOP views on trade, too).
Tags: Economy, Free Enterprise, Free Trade, Trade
