Globalization, Slow Down!

Article excerpt

It doesn't take a degree in economics to see dangers in globalization. An emerging China and India - with low wages, cheap exports, and rising technological abilities - are causing layoffs and depressing wages in the United States.

But when a renowned economist points to the same risks, more people begin to listen.

Is it time to slow down the march toward free trade?

"It is going to become so big a problem that some slowing down is going to be politically popular - and has some merits," says Paul A. Samuelson, Nobel laureate and author of an economics textbook that has educated millions of students over the decades.

He has stirred up a fuss by writing an article for the latest Journal of Economic Perspectives that questions a basic assumption of most economists - that the gains in the US from various types of international commercial battles are big enough to more than compensate for the losses.

This view, he writes, "is dead wrong about necessary surplus of winnings over losings."

In other words, nations can sometimes lose from free trade.

That has not been America's experience so far. From World War II to the early 1980s, increased trade with a revived Europe and the Pacific Basin accounted for 30 percent of the rise in the average American's standard of living, estimates Mr. Samuelson.

Economists see that as a result of the "law of comparative advantage." Nations specialize in the output of certain goods and services, and all trading partners benefit in the long run from the process.

But Samuelson doesn't expect the US to gain as much from trade, outsourcing, investment, and other aspects of globalization in the coming 30 years. Maybe it will improve living standards 10 or 15 percent, he says in a telephone interview, or maybe the US could even lose out on a net basis. In the latter case, a minority of Americans would gain, but more would suffer lower living standards.

"The general dogma that anything that expands globalization is good for everyone isn't right," Samuelson says.

Certainly he would get agreement on this point from those protesting globalization at meetings of the World Trade Organization, the World Bank, and the International Monetary Fund.

Most economists, too, would agree with Samuelson that expanding imports can cause layoffs and that offshoring can send service jobs abroad. But they further argue that the lower prices for imported goods and trimmed costs of services more than offset those job losses.

"Characteristic Samuelson," charges Richard Cooper, a Harvard University economist specializing in international economic issues. "With impeccable logic he develops some interesting and counterintuitive logical possibilities, but with no commitment to whether or not they match reality."

Free trade is "not moving too fast for me," Professor Cooper adds. …