Globalization and Workers

Stan G. Duncan

Dani Rodrik, a very thoughtful economist at Harvard (yes, it's possible), posted the chart below the other day (his original is here) and it got me thinking.

It's a little confusing, but here's what you want to look at. There are three bars. The bottom bar represents the growth in labor productivity before the modern leap into globalization, 1950 to 1975. He refers to this as the era of "Import Substitution," when countries tried to substitute imports with their own internal manufacturing.

The middle bar is the time during the heart of the debt crisis, when the Reagan and Thatcher administrations and the IMF were trying to use the debt of poor countries as a tool to launch the world into a radical "free" market economy, 1975 to 1990. And the top bar represents full bore, "Washington Consensus" economic globalization, 1990 to 2005.

I might argue a bit with his dates (he puts the beginning of the debt crisis with when they started borrowing. I would have set it at when they had to start paying the debts back) but basically I get his point.)

Now look at the shading. The movement of labor within one sector of the economy is the gray area, between sectors, say farming and manufacturing is black and across both is white.

Ignore the middle period for now and note that the growth of workers within one sector didn't change much in the bottom and top. But the really interesting thing to look at is the black band.

The chart measures the amount of labor productivity of the two eras. The first thing to notice is that labor productivity in the pre-globalization era, which was based on import substitution, is almost twice as large as the era of extreme globalization. Even more interesting to me is the growth in workers who move around between industries. In the pre-globalization age, labor is about seven times larger than in the globalized age.

Here's why. During both eras people moved from the farms to the cities. That's not always a good thing, but in the first era they at least moved off the farm and into productive work. They then moved around within the jobs. They advanced. Their incomes by and large went up . In the era of rapid globalization, they also moved from the farms to the cities, but then they got a job with pud wages and eventually when their wages were about to go up they got laid off and the plant hired somebody else just off the farm and hungry enough to work for pud wages again. The age of globalization brought very high productivity (mainly for exports) but with seven times less employment. People came to the cities, took a job, lost it, then moved to the beaches to sell tee-shirts and Chiclets, or sell drugs, or beg, or move to the US to pick water melons or clean houses. The human cost of globalization has been catastrophic. And in it's own geeky simple way, this chart shows that.