Globalization is the very same phenomenon that has done more to end poverty in the world than all the well-intentioned aid programs have ever done. Millions of Chinese and Indian workers have ridden the production of stuff for world markets to a level of affluence undreamt of only a decade or so ago. Millions of Russians and residents of former satellite nations are increasingly prosperous and free to travel and spend.
So far, so good. But globalization has also exacerbated inequality in many Western countries, including most especially America. Managerial skills can now be marketed internationally and fetch higher prices. The dealmaker who could make his tens of thousands merging one U.S. company with another can now make tens of millions putting together larger, cross-border mergers. The wealth manager who could cater to clients in New York, Chicago and Los Angeles can now add rich Indians to the client list. In short, the talented are now writing on bigger slates, and their rewards have risen commensurately.
The news is not so good for the woman sewing T-shirts or making trainers. She is the collateral damage of globalization. She did all that was asked of her: worked hard, paid her taxes, saw her children off to school every day. Not her fault that millions of $1-per-day Chinese were more than willing to compete with her, and that Walmart snapped up their products, triggering a massive shift of wealth from the U.S. to China, and from producers to consumers.
Also disadvantaged are the unionized workers in the manufacturing sector who, in a closed economy, could extract high wages from employers willing and able to pass on the higher costs. The extent to which globalization put an end to that is shown by the recent settlement agreed to by the United Auto Workers union and the carmakers. New hires are to receive about half the hourly wage of old timers, gradually bringing the costs of American manufacturers down to those of Japanese and other automakers — and now lower-cost China is dipping its toe into the U.S. auto market.
The only group not directly affected by globalization is public sector workers. Police, firefighters and clerks who issue drivers’ licenses have no fear of foreign competition. Because their unions are also large contributors to the campaigns of the politicians who sit across the table from them in wage negotiations, they pretty much could get the wage and pension packages they sought.
But that party, too, is coming to an end, an indirect effect of globalization. Hard-pressed voters, their real incomes stuck at years-ago levels, are no longer willing to pay the taxes needed to support the lifestyles and large pensions of public sector workers.
In Wisconsin, Republican Gov. Scott Walker faced down his Democratic opposition and angry demonstrations to reform the public sector bargaining process and start to get public sector compensation under control. Ohio Republican Gov. John Kasich did the same, and Democratic governors Andrew Cuomo of New York and Jerry Brown of California are moving in that direction. These moves will help relieve the burden on taxpayers, but they will also reduce the number of relatively high-paying jobs in America, and the compensation of those who survive the staffing cuts.
Nothing the president is proposing can do anything about these trends. Longer-term solutions such as massive retraining programs and growth-inducing tax reform would help. But those wouldn’t have much noticeable effect until after next year’s elections, and so at best receive only passing mention from politicians-on-the-make.
Examiner columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Policy Studies.