Globalization:%20Who%20Benefits?

1
Globalization Who Benefits?
2
Globalization Who Benefits?
Part of what makes the globalization debate
heated is that both protectionist and globalist
positions are logically consistent. However, each
proceeds from a different underlying
assumption. Protectionist Assumption Globalizat
ion leads to a centralization of political power,
decreased competition, and the concentration of
wealth. Globalist Assumption Globalization
leads to a decentralization of political power,
increased competition, and the dissemination of
wealth. The purpose of this analysis is to ask
whether empirical data support one assumption
over the other.
3
Globalization Who Benefits?

• Goal Examine conventional wisdom regarding the
  impact of globalization
• on various social and economic measures.
• Income level, distribution, and growth
• Health longevity, infant mortality, food intake
• The environment CO2 emissions, deforestation
• Gender equality equality in opportunity and
  outcome
• Individual rights childrens rights, rights to
  education and health care, property rights
• Employment in the U.S.

4
Per-Capita Income
Conventional wisdom Globalization leads to a
shift in wealth from workers, consumers, and
developing countries to multinationals. Theory
In developed countries, workers become unemployed
as their jobs move abroad where labor is cheaper.
In under-developed and developing countries,
workers earn lower wages as the number of
employers declines via consolidation and buy-outs
driven by multinationals. Example McDonalds
is accused of preventing union formation and
paying substandard wages in its restaurants
abroad.
5
Per-Capita Income
Luxembourg
Belgium
Ireland
Netherlands
Bahrain
Japan
US
Source International Financial Statistics,
International Monetary Fund, December 2001
6
Per-Capita Income (Lower Middle, and Low Income)
Conventional wisdom Globalization shifts wealth
from developing and under-developed countries to
developed countries. Theory Multinationals are
based in and owned by residents of developed
countries, therefore the income garnered by
multinationals accrues to the developed countries.
7
Per-Capita Income (Lower Middle, and Low Income)
Suriname
Lithuania
Samoa
Guyana
Russia
Peru
Colombia
Source International Financial Statistics,
International Monetary Fund, December 2001
8
Per-Capita Income
Data suggest For both developed and
under-developed countries, increased
globalization accompanies increased per-capita
income. Supporting theory Globalization
promotes competition which (1) results in more
jobs as workers are hired to produce export
goods, and (2) more available goods as currency
earned via exports enables consumers to import
more goods.
9
Per-Capita Income
Example Affiliates of US multinational firms
pay a wage premium that ranges from 40 in
high-income countries to 100 in low-income
countries. Workers in foreign-owned apparel and
footwear factories in Vietnam rank in the top 20
of wage earners. In 2000 at Nike factories
abroad, annual wages were 670 compared with an
average minimum wage of 134. In Indonesia,
annual wages were 720 compared with an average
annual minimum wage of 241. In Mexico, firms
that exported half of their product paid wages
that were, at the low end, 11 higher than wages
of non-export oriented firms. Firms that exported
most or all of their product paid wages from 58
to 67 higher than wages of non-export oriented
firms. Source Brown, Drusilla K., Alan V.
Deardorff, and Robert M. Stern, The Effects of
Multinational Production on Wages and Working
Conditions in Developing Countries,
discussion paper no. 483, School of Public
Policy, The University of Michigan, August 2002.
10
Income Distribution
Conventional wisdom Globalization results in a
concentration of income so that the few benefit
disproportionately to the many. Theory Globaliz
ation does result in an increase in income for
some (e.g. multinational corporations and their
affiliates), but the consolidation of economic
power by the multinationals results in a
concentration of more and more income in the
hands of fewer and fewer individuals. Example B
ill Gates (41 billion). Sam Walton (25 billion
in 1992).
11
Income Distribution
Singapore
Hong Kong
Ireland
Netherlands
Switzerland
Norway
Denmark
Austria
Sweden
Finland
Canada
Germany
France
Israel
Slovenia
Malaysia
Cyprus
US
Gabon
South Africa
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
12
Income Distribution
median
65 of countries with above median globalization
have better than median income distributions.
35 of countries with above median globalization
have below median income distributions.
median
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
13
Income Distribution
median
100 of countries with per capita trade of at
least 7,700 have better than median income
distributions.
No countries with per capita trade of at least
7,700 have below median income distributions.
7,700
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
14
Income Distribution
With only two exceptions, increased globalization
improves the Gini coefficient, but only to a
point.
26
A flatter distribution implies greater
opportunity to garner wealth from productivity
the carrot.
A distribution that is too flat implies no cost
to free riders the stick.
Finland
Cyprus
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
15
Income Distribution
Argument If income is less concentrated in more
globalized countries, what were seeing is simply
a big country effect big countries control
most of the income and are more
globalized. Counterargument 1. The Gini
coefficients we examine are within country
that is, we are not asking how is income
distributed across countries, but how is income
distributed within countries. Example
Cyprus has a Gini coefficient half that of
the US. 2. Our measure of globalization is on a
per-capita basis. 3. Nonetheless, if we focus
only on lower middle and low income countries, we
find similar results.
16
Income Distribution (Lower Middle, and Low Income)
median
Lithuania
62 of countries with above median globalization
have better than median income distributions.
Fiji
Thailand
38 of countries with above median globalization
have below median income distributions.
Ukraine
median
Malawi
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
17
Income Distribution (Lower Middle, and Low Income)
median
Lithuania
82 of countries with per-capita trade of at
least 870 have better than median income
distributions.
Fiji
Thailand
870
Ukraine
Malawi
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Measuring Income Inequality A New Database,
Deininger, Klaus, and Lyn Squire, World Bank,
2002
18
Income Distribution
Data suggest Increased globalization leads to a
decrease in income disparity within
countries. Supporting theory More
globalization implies greater opportunities (1)
producers see more opportunity to sell on new
export markets, and (2) buyers are able to
purchase at lower prices on new import
markets. Greater opportunities implies better
environment for entrepreneurship. More
entrepreneurship flattens the income distribution
by (1) providing a return to the entrepreneur,
and (2) creating new jobs. Individuals, more so
than established firms, are disproportionately
represented among entrepreneurial activities
because individuals can often see and respond to
market needs faster and more efficiently than
established firms. Example Microsoft, Cisco
Systems, Wal-Mart, Novell, Intel, Advanced Micro
Devices, Oracle, Celera
19
Income Growth
Conventional wisdom Globalization increases
disparity of growth across countries by slowing
the income growth of lesser developed countries
and augmenting the income growth of developed
countries.
20
Income Growth
Source Catching Up, The Economist, August 21,
2003
21
Income Growth
Source Catching Up, The Economist, August 21,
2003
22
Income Growth
Data suggest The majority of people living in
low income countries are experiencing per-capita
income growth more than twice that of people
living in high income countries. Supporting
theory Because globalization allows producers
in low income countries to compete with producers
in high income countries, people in low income
countries have a natural labor advantage. This
advantage causes the income growth rate to rise
faster in low income countries. Example US
call centers are frequently located in India.
23
Health (life expectancy, infant mortality, food
intake)
Conventional wisdom Increases in life
expectancy, decreases in infant mortality, better
nutrition accrue mostly to developed countries.
Globalization causes a reduction in health
measures for lesser developed countries. Theory
Globalization causes agricultural resources to
be diverted to meet the needs of exporters rather
than local needs. People driven off rural land
are forced to work in overcrowded cities without
proper water and sanitation. Foreign-owned firms,
unfettered by environmental and health
regulations, pollute the environment of lesser
developed countries and maintain inadequate
working conditions.
24
Life Expectancy
Botswana
US
India
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
25
Life Expectancy
Argument Again, we can argue that what we are
observing is a developed country effect.
Developed countries are more globalized and have
better health care, therefore it will appear that
life expectancy and globalization are
related. Counterargument If we focus only on
lower middle and low income countries, we find
similar results.
26
Life Expectancy (Low Middle, and Low Income)
Jamaica
Congo
Lesotho
Albania
India
Sierra Leone
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
27
Infant Mortality
US
Gabon
Botswana
South Africa
Lesotho
Ivory Coast
Azerbaijan
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
28
Caloric Intake
recommended
Hong Kong
US
Myanmar
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
29
Protein Intake
recommended
US
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
30
Health (life expectancy, infant mortality, food
intake)
Data suggest Increased globalization leads to
improved health and longevity. Supporting
theory Globalization makes goods and services
available that would not otherwise be available.
Goods which can be competitively produced
domestically are traded for food and medicines
that might not be competitively produced
domestically. Capital flows make foreign
investment in hospitals and health care
infrastructure possible.
31
Environment
Conventional wisdom Globalization is bad for
the environment. Theory Firms in developed
countries have incentive to exploit the
environment in developing and under-developed
countries. Greater industrialization and
consumption put greater stress on the
environment. Example Rainforests.
32
CO2 Emissions
Singapore
Hong Kong
Luxembourg
Belgium
Switzerland
Kuwait
US
Poland
Russia
Kazakhstan
Ukraine
Countries that are more globalized generate more
CO2. This is to be expected because greater
globalization usually implies greater industrial
and consumer activity.
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
33
CO2 Emissions per Dollar Trade
Singapore
If we think of CO2 as a cost of globalization,
then we see that the cost per dollar trade
declines as trade increases ? the more globalized
countries become, the more environmentally
efficient they become.
Hong Kong
Luxembourg
US
Russia
Romania
Kazakhstan
Ukraine
Iran
Bolivia
China
Azerbaijan
India
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
34
CO2 Emissions per Dollar Trade (excluding
outliers)
Singapore
Hong Kong
Luxembourg
US
Eliminating the outliers reveals that the
efficiency gains to the environment are
exponential with globalization.
The implication is that CO2 emissions are only a
function of globalization for less globalized
countries.
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
35
Deforestation
Ireland
Malaysia
US
Greece
Lebanon
Jamaica
Armenia
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
36
Deforestation
median
Ireland
73 of countries with above median globalization
have rates of deforestation below the median.
27 of countries with above median globalization
have rates of deforestation above the median.
Malaysia
US
Greece
Lebanon
Jamaica
median
Armenia
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
37
Deforestation
zero
Ireland
61 of countries with above median globalization
experience no deforestation.
39 of countries with above median globalization
suffer deforestation.
Malaysia
US
Greece
Lebanon
Jamaica
median
Armenia
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
38
Deforestation (Lower Middle, and Low Income)
median
Suriname
58 of countries with above median globalization
have rates of deforestation below the median.
Thailand
Jamaica
42 of countries with above median globalization
have rates of deforestation above the median.
median
Armenia
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
39
Environment
Data suggest Increased globalization leads to
better environmental conditions. Supporting
theory There is some optimal level of
environmental use. Under utilization of the
environment can be as bad (i.e. living without
power, transportation, etc.) as over utilization
(i.e. dead oceans, barren land,
etc.). Example Cows and elephants. Christmas
tree farms.
40
Gender Equality
Conventional wisdom Because the globalization
is founded on the premise of exploitation, gender
inequality (like child labor rates) will worsen
in the presence of globalization. Theory Politi
cally and economically weak demographic groups
are least able to resist the consolidation of
power that accompanies globalization.
41
Female Adult Literacy (relative to male)
Oman
Libya
Morocco
Yemen
Haiti
Myanmar
Burundi
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Human Development Report, United Nations
Development Programme, 2002
42
Gender Related Development Index
GDI Human Development Index adjusted for
disproportionate gains for men vs. women
Oman
US
Botswana
Ivory Coast
Azerbaijan and Albania
Myanmar
GDI measures equality of quality of life
(longevity, education, literacy, income).
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Human Development Report, United Nations
Development Programme, 2002
43
Gender Empowerment Measure
GEM measures the proportion of women in
legislatures, among senior officials, and holding
technical and management positions as well as
gender differences in income (as a proxy for
economic power)
Singapore
Luxembourg
Norway
Kuwait
Sweden
South Korea
US
Jordan
China
Niger
Mozambique
GEM measures equality of economic and political
power.
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Human Development Report, United Nations
Development Programme, 2002
44
Gender Equality
Data suggest Increased globalization leads to
greater gender equality. Supporting
theory Because globalization decentralizes
power and augments competition, demographic
groups that would seek to dominate others are
disempowered. Economic and political power accrue
to those who provide the innovation, goods, and
services that others desire. Example Historical
ly, oppressed demographic groups have gained
greater freedoms coincident with general economic
gains slavery in the US ends as industrial
revolution waxes women in the US attain suffrage
as technological advances from industrial
revolution reach into the home the most
repressive Islamic countries today are also among
the poorest.
45
Child Labor
Conventional wisdom Increased globalization
leads to exploitation of children. Theory Devel
oped countries import manufactured goods from
underdeveloped countries that can supply the
goods at lower cost by employing child labor. The
increased trade encourages underdeveloped
countries to increase child labor. Example Nike
employs child labor in Pakistan.
46
Individual Rights Child Labor
Hong Kong
US
Gabon
Botswana
Sierra Leone
Burundi
Source International Financial Statistics,
International Monetary Fund, December 2001, and
World Development Indicators, World Bank, 2002
47
Individual Rights Child Labor
Data suggest Increased globalization leads to a
reduction in the exploitation of
children. Supporting theory Increased trade
results in increased income increased foreign
demand for the output of an underdeveloped
country means (1) more people are hired to supply
the foreign demand, and (2) those people earn
better wages due to increased foreign demand. As
income increases, basic needs (food, clothing,
shelter) are met and surplus income becomes
available for education. Increased education
rates reduce child labor in the current and
subsequent generations because (1) children are
in school instead of in factories, and (2) the
children grow into educated adults who, with
greater earning power, can afford to educate
their children.
48
Individual Rights Economic Freedom
Conventional wisdom Increased globalization
leads to the subjugation of less powerful
countries by more powerful countries. Theory Mu
ltinationals move into underdeveloped countries,
absorb existing industries, strip the countries
of resources and effectively enslave their people
by exercising monopoly power in labor and goods
markets within the countries. Example The
McDonalds juggernaut.
49
Individual Rights Economic Freedom
Singapore
Libya
US
Uganda
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Index of Economic Freedom, Heritage Foundation,
2002
50
Individual Rights Economic Freedom
Data suggest Increased globalization leads to
an increase in peoples economic freedom. Over
the past twenty-five years, the number of
multinational corporations has increased almost
six-fold (7 annually) while world RGDP has
increased less than three-fold (4 annually). The
implication is that economic power is becoming
progressively less concentrated ? halved every 25
years. Supporting theory Globalization results
in a decline, not increase, because opening world
markets results in (1) greater competition among
existing firms, and (2) greater opportunity for
new firms, which results in (3) even more
competition for existing firms. Competition is
usually thought of in terms of price reduction.
A more important result of competition is
innovation. Increases in standards of living
are more a function of new goods and services
rather than lower priced goods and services.
51
Individual Rights Human Development
Conventional wisdom What is important is not
simply the economic ramifications of
globalization, but also the social
consequences. Theory If globalization produces
more wealth in the aggregate, it does so at the
expense of non-economic goods such as health,
education, and well-being. Example Robber
barons of the industrial revolution.
52
Individual Rights Human Development
US
Myanmar
Sierra Leone
Source International Financial Statistics,
International Monetary Fund, December 2001, and
Human Development Report, United Nations
Development Programme, 2002
53
Individual Rights Human Development
Data suggest Increased globalization leads to
an increase broader human development. The Human
Development Index is a composite measure that
equally weights (1) life expectancy, (2)
educational enrollment, (3) adult literacy, and
(4) per-capita income. Supporting
theory Because globalization contributes to
both an increase in wealth and an increase in
economic freedom, globalization provides peoples
with the tools and opportunities to better their
lives.
54
Employment in the U.S.
Conventional wisdom Increased globalization
leads to unemployment of U.S. workers as foreign
competition destroys American jobs. Theory Less
er developed countries can supply labor at a
lower wage and without the added costs associated
with labor protection laws that apply to U.S.
workers. Firms in these countries export product
to the U.S. at prices with which American firms
cannot compete. American firms then layoff U.S.
workers. Example Steel.
55
Unemployment vs. Trade Over Time
Source Bureau of Labor Statistics, and Bureau of
Economic Analysis
56
Summary
This analysis looks only at the correlation
between globalization and socio-economic
measures. While the argument can be made that
globalization directly impacts income, the
argument that globalization directly impacts
health, longevity, and the environment is more
tenuous. What is more likely is that
globalization is not the cause of improved
socio-economic measures, but is one result of
underlying conditions responsible for improving a
broad variety of social and economic
measures. The underlying condition, and the
common thread throughout this discussion, is
freedom economic and political. Political
freedom ensures that individuals can think,
speak, and act as they please. Economic freedom
ensures that individuals can generate income and
comfortably own property that is dependent on
and/or arises from their thoughts, words, and
actions.
57
Summary

• This is not, however, the end of the story
• While globalization is clearly better for society
  as a whole, there are losers.
• Globalization puts some hard-working, American
  taxpayers out of work.
• Many of these people have families to support.
• Many of these people are at a stage in life in
  which they cannot be retrained.
• For these people, globalizations harm is
  morally wrong.
• Is compromise possible?
• Yes. Use the power of globalization to protect
  those who would be disenfranchised by
  globalization.

58
Summary
Example Remove protective tariffs on steel
while simultaneously enacting a Steel Workers
Income Security Act (SWISA).

• SWISA
• The act will guarantee that any steel workers who
  are laid off as a result of the removal of
  protective barriers would continue to receive the
  income and benefits they would have received had
  they not been laid off. This compensation will be
  paid by the government and will be paid until age
  65.
• The cost of SWISA will be paid by a general sales
  tax levied on all Americans.

59
Summary
Short-run win Under SWISA, (1) steel workers
will be as well off as they would have been under
a protective tariff, and (2) Americans in general
will be better off than they would have been
under a protective tariff. Long-run
win Because SWISA will apply only to those
steel workers who are employed in steel
manufacturing at the time protective tariffs are
removed, SWISA will allow for a gradual
downsizing in capacity in the steel industry.
This downsizing will free up valuable capital for
use in other industries via natural attrition
rather than layoffs.
60
Summary
SWISA Protective Tariff
Steel workers Retain income and benefits. Retain income and benefits.
Other Americans Cost of paying for SWISA outweighed by benefits of free trade Short run win. Must endure cost of protective tariff.
Steel industry Allowed to downsize gradually via labor attrition rather than layoffs Long run win. Industry persists, tying up valuable capital that could be put to better use in other industries.
61
Summary
Hypothesis Without political freedom, economic
freedom is unattainable. Without economic
freedom, political freedom is meaningless.