The Impact of Globalization on U.S. Labor Markets: Redefining the Debate

Article excerpt

The term "globalization" has become the focal point of intense political and economic controversy. On the one hand, globalization in all its forms is presented as a fount of opportunity. The United States has much to gain and little to lose from lower trade barriers, foreign direct investment (FDI), and flows of financial capital. Advocates of increased globalization include most orthodox trade economists and the leadership of both U.S. political parties. On the other hand, globalization is viewed as a threat to economic prosperity and political sovereignty. Concern over increased globalization has produced a diverse coalition of opponents from Ralph Nader and Noam Chomsky to Pat Buchanan and Ross Perot. At the center of the controversy is the American worker who is portrayed either as a potential victim who shoulders most of the cost of globalization or as an obstructionist "special interest" who is willing to sacrifice societal gains for his or her own personal benefit. Only in the most optimistic scenarios of trade theory or political discourse does globalization lead to gains for American workers.

What are the costs to workers of globalization? The usual approach to this question is to assess potential job losses and downward pressure on wages through a microeconomic analysis of particular labor markets. For example, the debate over the North American Free Trade Agreement (NAFTA) was, and still is, dominated by conflicting estimates of numbers of jobs lost versus numbers of jobs gained. Workers in import-competing industries may suffer, but workers in export industries will gain. Workers lose their jobs when a plant relocates to an offshore location, but other workers gain with inflows of new foreign investment. The purpose of this paper is not to add another voice to the growing body of competing empirical evidence. The reason that the controversy over globalization continues is not, after all, because the definitive econometric analysis has not yet been found. The problem is in how the debate has been defined. The complex phenomenon of globalization is not about supply and demand. It is about cultural and political institutions.

Our paper is organized as follows. In the first section, we review the conventional view of globalization that dominates both the mainstream political and economic literature. In essence, globalization consists of an expansion of markets and the reduction of impediments to the free exchange of goods, services, and assets. That is, the conventional wisdom is that globalization is first and foremost a market phenomenon. In section two, we challenge this economistic interpretation and present an institutional view of globalization. It is our contention that globalization is an extremely complex process that cannot be explained within the confines of conventional trade theory.

Globalization as a Market Phenomenon

In the United States, the debate over the impact of globalization on workers has focused primarily on trade and FDI.(1) In developing countries, the debate also includes discussions of the impact of financial capital flows and International Monetary Fund (IMF) stabilization policies. All three types of activity - trade, FDI, and financial capital flows - are viewed as market phenomena in mainstream theory. Thus, the debate over globalization is typically framed as a debate over the virtues of free markets. Until recently, the dominant view among both mainstream economists and policymakers has been that free markets were best. However, the financial crises in Mexico and East Asia, along with political unrest in several developing countries, have led to a weakening of this position in regard to the flows of financial capital. Treasury Secretary Robert Rubin has recently proposed greater financial reporting requirements on international asset markets [Faux 1998]. Some countries have suggested instituting capital controls [Fielke 1996]. No such weakening of the free market position has occurred in regard to trade or FDI, however. …