Archive for May, 2008

Globalization: not “whether,” but “how”

Thursday, May 22nd, 2008

A lot of the distress felt by American workers has been due to globalization, particularly due to good-paying jobs being sent overseas.

I think it would be pointless to say that therefore globalization should be stopped; that’s not possible even if the conclusion were warranted.

What is fruitful is to consider how globalization is implemented in this country.

The canonical (and generally accurate) defense of globalization is based on the idea of comparative advantage and the efficiencies of trade. Those efficiencies increase the GDP, the aggregate material wealth of the trading country. In the big picture, the country is better off if some jobs are lost but imports become cheaper and workers can find other, higher-value jobs.

The problem is that the aggregate big picture is not what individuals experience. We know there have been big winners, particularly among US professionals, and especially among US financial professionals. We also know there have been lots of losers, particularly among manufacturing and exportable service workers.

Imagine if I told you “We’re going to change the rules. I’ll be better off, and you’ll be worse off. But don’t worry, I’ll gain more than you’ll lose, so in aggregate we’ll come out ahead!”

Does that sound like an attractive deal to you? Nor to me.

The bad news is that that’s how globalization has generally played out so far. The good news is that it doesn’t have to be that way.

Assuming there really is an aggregate gain, ie, a surplus is created, then how do we divide the surplus? Can we assist the workers who are losing their jobs, by making them whole through training, outplacement, relocation, and income support during the interim?

If we can, we should, even though that would decrease the share of the surplus going to the current globalization winners.

If we can’t, if the assistance described is too expensive and would leave no incentive for the job loss, then the surplus was an illusion, and the aggregate wealth was not really being increased. Then it would be a clear case of robbing one domestic group to benefit another using globalization as a cover.

In most cases, I believe the surplus is there and should be distributed better. In those cases where the surplus isn’t sufficient, don’t make the change.

As investors, we need to make sure company managers are aware of and make their decisions based on this principle.

-R


One quick rant

Monday, May 12th, 2008

Ronald Reagan said,

“Government is not the solution to our problem.
Government IS the problem.”

(First Inaugural Address, Washington, D. C., Jan. 20, 1981)

George Bush has set out to prove it.

He has broken almost everything he has touched.

  • The economy
  • The Federal budget
  • The dollar
  • The Army
  • The world’s respect for America
  • America’s faith in its government
  • Our Constitutional protections against government excess
  • The Constitutional concept of the balance among three co-equal branches of government

(In fairness, some of these are merely badly bent, and could be repaired if the next President takes a very different approach.)

Some things he broke were not entirely his fault, but he helped make them much worse rather than better:

  • the global climate
  • New Orleans
  • Iraq

But Hey! It’s not all bad. He also broke

  • The Republican Big Tent
  • The Republican Congressional majorities
  • The people’s trust in Republicans as sole providers of National Defense
  • The people’s trust in Republicans as sole executors of Fiscal Conservativism
  • The people’s trust in Republicans as sole protectors of the Free Market
  • The illusion that The Ownership Society will include most Americans
  • The neocon illusion that being #1 means we can be unilateralists at will
  • His attempted atrocious Social Security overhaul

Heck of a job, Bushie!