Weighing the Pros and Cons of Globalization

Murray Weidenbaum, Mallinckrodt Distinguished University Professor and Honorary Chairman of the Weidenbaum Center, Washington University in St. Louis

Professor Weidenbaum spoke to the large and growing gap between advocates for and against globalization. By globalization, Professor Weidenbaum was referring to the cross border spread of trade, finance, information, people, and ideas.

Professor Weidenbaum stressed that there was nothing inevitable about the continued spread of globalization. He noted that with the widespread use of the gold standard and the enormous mobility of labor, the pre-World War I era was, by some measures, an even more globalized era then our own. The outbreak of war, followed by the Great Depression, and then World War II, disrupted or even destroyed many of the economic and political ties that had made a global economy possible. Now, that global economy faces some distinctly 21st century challenges. Modern globalization has spread by air and by telecommunications. However, both the airlines and the telecommunications sectors are facing such serious economic difficulties that it may slow the pace of innovation in these and other industries. The resurgence of terrorism has given national borders a renewed importance, raised the costs of international trade, and increased the risks of international investment.

It is against this historical and economic background that the debate over globalization has raged.

Advocates, often including professional economists and business leaders, usually focus on the bright side of globalization. They stress that the contribution that international trade makes to economic growth is, over time, eventually good for rich and poor alike. They point to international competition as a spur to innovation and the creator of better products and more efficient processes. The process of economic growth strengthens and expands a middle class that will become a force for political and individual freedom. While critics present themselves as advocates for the poor, advocates feel that they actually endanger the poor by being either ill informed or largely uneducated about the realities of economic growth.

Critics of globalization point to workers threatened by low cost imports, the reliance on overseas sweatshops, and the frequent presence of children in overseas factors. They paint a world of mobile capital where the prospect of overseas investment puts downward pressure on industrial country wages and where foreign direct investment is designed to take advantage of the developing countries’ low wages, weak labor laws, and the relative lack of strong and enforces environmental standards. Other critics see globalization as a kind of alien invasion that threatens national cultures. Critics often see the advocates of globalization as handmaidens of self-serving capitalists bent on profits at any cost, willing to exploit children, and, at best, indifferent to the global environment.

In place of an attempt to sort through the advantages and disadvantages of globalization, advocates and critics have developed an ever-higher decibel “dialogue of the deaf,” where the debate is conducted in ever louder voices with no sign of mutual understanding or compromise in sight.

How, Professor Weidenbaum asked, might we make progress in thinking about globalization. He started with two fundamental principles: First, take the concerns of the other side seriously. Second, identify common ground where possible agreement is possible. He went on to suggest five areas where advocates and critics might agree on positive steps.

First, open up the World Trade Organization (WTO): Weidenbaum thought that advocates and critics could agree that the WTO was often too closed, too rigid, and too bureaucratic. In his view, the WTO should become more transparent and accountable – including the use of congressional like hearings where a variety of voices could be heard with regard to WTO policies and procedures. He also argued for opening the WTO dispute settlement process with actual cases being argued in public while still leaving the equivalent of jury or judicial deliberations confidential.

Second, help those hurt by globalization: For the industrial countries, Weidenbaum encouraged more initiatives to help workers displaced by imports and streamline the processes already in place. He pointed to a number of the recommendations contained in the 2000 report of the Trade Deficit Review Commission (TDRC), which he chaired. In addition to efforts to help with interviews, job searches, and training, the TDRC recognized the difficulties older workers may have in training for eventual competition with younger workers. The TRDC proposed experimenting with wage insurance – allowing displaced workers to take another, possibly lower paying job, and still maintain a previous salary for some period of time.

Weidenbaum recognized the potential for displacement caused by the rise of China as a major manufacturing center but reminded the audience that it was not unprecedented. The United States had made a similar rise in the 19th century as had Japan in the 20th. While there initially was displacement, the overall result was that trade and national incomes rose.

For the developing countries, Weidenbaum recognized that limited national incomes did not lend themselves to the kind of assistance common in the industrialize world. He acknowledged a clash of perspectives – with industrial country labor fearing low wage competition, businesses stressing the need for low cost labor to meet the competition, and the fear of developing country governments that higher labor and environmental standards are simply disguised protectionism designed to keep their exports out of the industrial countries’ markets.

Weidenbaum did note that in the developing world, the multinational firms almost always paid higher wages and had better working conditions than their local counterparts. In addition, more and more multinationals were developing internal codes of conduct to guard against the exploitation of labor or neglect of the environment.

Third, strengthen the International Labor Organization (ILO): The ILO, like the WTO, is a global body with a global mission. It is explicitly charged with developing and encouraging the use of global labor standards. It was, Weidenbaum noted, the only world body where unions were fully represented.

The ILO needs to be strengthened. It is currently something of a paper tiger with no powers to enforce its core labor standards. The U.S. Congress could help by finally approving the ILO’s core labor standards.

Fourth, use the internet to empower labor and consumers: The ILO could use the internet (the ILO web site) to identify countries and/or firms that did not meet international labor standards. Concerned unions, consumers, and governments would have identifiable targets to express their concern. In many instances, consumers could be a powerful force to encourage the pursuit of core labor standards.

Fifth, welcome voluntary business standards: Over the past decade, more and more companies that either operate or source overseas have adopted codes of conduct. They have powerful incentives to develop and enforce such codes as a way of avoiding bad publicity and the potential loss of concerned consumers.

As part of the question of corporate codes, Weidenbaum stressed the importance of adopting uniform international accounting standards as a way of restoring investor confidence. He did not choose between the rules based American system developed by the Financial Accounting Standards Board (FASB) or the principal based system encouraged by Europe and the International Accounting Standards Board (IASB). Instead, he raised the possibility of combining features of both.

In sum, Weidenbaum described the growing gap between the globalizers and the anti-globalizers, urged each side to listen to the concerns of the other, and proposed five areas where advocates and critics of globalization might find common ground.

Kent Hughes, 202-691-4136