Deep Dive Topic: Globalization

By: Jim Cowles

Last week The Venn Deep Dive was Globalization and we highlighted 3 podcasts we think give a good overview of the issue. Below I outline the reasons we chose this topic.

Does the topic of globalization make your heart race? Perhaps not. So why, as we are building The Venn, did we pick this as one of our early Deep Dive topics? In previous weeks we have chosen topics that are at the forefront of American politics generally, or of the 2020 election specifically: Medicare For All, Green New Deal, Border Control, etc.

So again, why Globalization? Because, like climate change, there is no turning it back. Because globalization is either at the heart of, or influences, so many issues: trade, immigration, education, inequality, drug addiction, the rise of populism. I could go on, but you get the point. Proponents of globalization would use both an academic and an empirical argument to support it.

First, globalization is, in essence, built on the economic principle of comparative advantage. This is the idea that if I produce a product (let’s say shoes) really well, and you make something else better than I do (coffee), then I should spend my time making shoes (think Adidas) and trade my excess shoes for your coffee (think Starbucks). This concept leads to the best allocation of resources and the greatest overall economic growth.

Second, on an international level, globalization is responsible for lifting millions of people out of poverty, as third world countries have enjoyed a great economic boom through making products for the rest of the world. According to the World Bank, global trade (between 1990- 2010) has helped reduce the proportion of people living in extreme poverty by fifty percent.

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Now, there are some who are against globalization because it produces winners and losers. In developed countries such as the U.S., it does lead to the demise of certain industries, as other countries show that they have the ability to produce certain goods at lower costs and/or of a higher quality. And this in turn leads to the displacement of certain jobs. Some would argue that the opioid epidemic and drug addiction in various blighted communities is a result of economic depression brought on by factory closures.

So what to do? Most people would agree that the policies we have in the US don’t adequately counter the ills caused by globalization. And would agree that the solution for dealing with globalization does not lie at the extremes of a policy spectrum that at one end involves the complete walling off of US markets, and at the other suggests an unfettered free market with no restrictions. So, as we are deliberating in the U.S. where on the policy spectrum we should be, let’s first ask the question: what are we solving for?  

A few sample questions might frame our thinking around this: are we trying to protect some industries that we consider a national security issue? Some people have long maintained that steel is such an industry. Are we trying to protect workers or protect specific jobs? Trying to protect specific jobs often ends in tariffs and quotas. If, for example, our textile industry is no longer competitive, instituting tariffs or quotas on imports is a policy of protecting particular jobs. However, if the goal is trying to protect workers, this calls for policies that offer more robust training, educational, and unemployment benefits for workers displaced by the effect of globalization. Lastly, are we trying to level a global playing field that we believe has been tilted against us? This is the current argument regarding China, in which some Americans believe China has stolen US intellectual property, not honored their previous commitments to open their markets, and have illegally dumped (sold products below production costs).

As we consider the future of our policy approach to globalization, focusing on what it is we are solving will help us find better solutions.