The Costs of Globalization

A considerable number of Americans are now aware that the U.S. economy is sending an obscenely high proportion of its rewards to people at the very top of the income scale. The Occupy Wall Street demonstrations have helped to make that salient. We can be thankful to the protesters for that, without depending on them for deep insight into causes or solutions.

What are the policy responses we should be advocating? David Grusky deplores the focus on tax increases for upper-income groups. He reminds us that they are difficult politically, and that increasing inequality originates in before-tax income. A low tax rate on the rich may not have been the cause of the huge flow of money in their direction, but higher taxes on them can claw back some of their loot for much-needed public uses. We need that to happen, and other remedies as well.

Grusky suggests two: improving access to higher education and making corporate boards more independent of the executives whose pay they set. While these are excellent longer-run goals, they will not fix the problem we face.

What is the problem? It is not just an attack by the rich on the poor. The broad middle class is also under attack, and its condition is deteriorating. Consider the following developments: the loss of well-paying factory jobs, attacks on the remnants of the union movement, outsourcing of professional jobs, reduction of employer contributions to pensions and health insurance, attacks on Social Security, demeaning of public employees and assaults on their compensation, new workers hired at lower pay. The likely persistence of high unemployment and the successful fight of Republicans against adequate measures to counter it are also part of the picture.

Call it socialistic if you want, but it’s what we need.

The upper echelons of the business community are conducting an attack on the rest of us, with the aim of making the distribution of income even more lopsided. The OWS slogan—1 percent versus 99 percent—describes it perfectly. What has caused the 1 percent to behave this way? One important cause is the advance of globalization. The upper echelons used to be concerned with the prosperity of the rest of us because we were their customer base. Now they have moved out into the world economy, and are earning close to half their profits abroad. There they employ workers who are paid a small fraction of what American workers get and are more subservient. The business bosses see American workers as overpaid and over-privileged.

A second cause is the success of right-wing rhetoric that characterizes government as the enemy of the middle class—tax collectors sucking up their hard-earned money and giving it to worthless loafers. A substantial share of voters have bought this rhetoric; Tea Party adherents are only the most passionate.

We need to repair the damage globalization has done to our high-wage economy. To the greatest extent possible, our government, along with the governments of other countries with high-wage economies, must insulate its workers from low-cost competition by limiting imports from low-wage areas, strengthening safety nets, and delivering benefits that bolster the standard of living of those afflicted by declining wages.

Free trade has net positive consequences if its hurtful effects can be limited, allowing those harmed to take refuge in parts of the economy that are expanding. But where a high proportion of wage earners are under siege, trade may bring a net loss. Currently it adversely affects a large number of Americans who work for a living, and it is difficult to see a way out of wage decline and high unemployment if we do not try to protect our markets from imports made with cheap labor. We will not be able to do this completely. So to take care of the casualties, and put a solid floor under the standard of living of those whose wages are falling, the United States needs to emulate the social democracies of Scandinavia and France, which deliver generous benefits in the form of unemployment insurance, medical care, child care, housing subsidies, higher education, job training, and cash to families with children. To finance this they have high taxes, as high as 50 percent above U.S. levels. Substantial government benefits reduce the pain of high inequality.

Taking advantage of Americans’ jingoistic belief in the unique superiority of our institutions, the 1 percent have been able to forestall discussion on the merits of the European social democratic regimes with their high taxes and generous safety nets. They know the Democrats cower whenever Europe or socialism is mentioned. So people on the left must develop a new rhetoric to counteract the 1 percent and cowering Democrats alike. We need to say, “Call it socialistic if you want, but it’s what we need.”

None of this will be an easy sell. But if we don’t start trying to sell it, it will never come to pass, and the middle class will continue to suffer and shrink.