Dec

25

On Misdirected Workplace Worry, by Rick Carew, from WSJ.com

Worried about your job being sent to China? If so, then you'll never see the bigger threats lurking on the other side of the cubicle wall. Advances in technology and budget cuts by management are much more of a menace to your future employment than some two-bucks-an-hour worker in a southern China boomtown. At least that's the message of Columbia Business School professor Bruce Greenwald and historian Judd Kahn in "Globalization," their bracing response to the "irrational fear" of outsourcing and other bogeymen of the antiglobalization brigades.

Messrs. Greenwald and Kahn argue that the key forces shaping our lives are local; it's not that international trade is unimportant, it's just that other factors are more important. Consider the significance of technology in the workplace, something often overlooked by globalization worrywarts. Examining data on changes in the U.S. work force, the authors show that job losses due to higher productivity — often the result of improving technology — greatly outnumber those lost to globalization. The authors cite Commerce Department figures estimating that 65% of job losses in manufacturing between 2000 and 2006 were due to productivity increases; just 35% of job losses owed to overseas outsourcing. "The data actually reveal that fears about the havoc from globalization on workers in high-wage economies have been wildly overblown," Messrs. Greenwald and Kahn report. Think of the legions of secretaries and office workers eliminated by the desktop computer or the increasing use of technology in the auto industry.

So if globalization hasn't sent your job to another country, it must at least be the reason for the economic rise of China and India, right? Wrong. If globalization were the cause rather than a condition, Latin America and Africa would have arrived at the party a long time ago. Instead, globalization and trade help countries that have made the tough local decisions to liberalize markets, tamp down corruption and unleash the powerful incentives of capitalism. Hence the influential role of local decision-making in everyone's future.

If this sounds counterintuitive, given the conventional wisdom about world economics, it helps to remember that "globalization" is just another word for a phenomenon that we've seen before. Messrs. Greenwald and Kahn find similarities between our era of expanding global trade and international markets a century ago. Trade as a share of global output rose until 1920, thanks to improvements in shipping, which helped build foreign markets for commodities such as grain and coal. But this trade expansion proved limited and cyclical. Commodities became cheaper and thus commanded a smaller share of household budgets. Consumers were able to spend more money on manufactured goods, such as washing machines and automobiles, that were harder to globalize because they depended on local sales networks and consumer preferences. That caused global trade's importance to shrink — until midcentury, when overseas markets heated up again.

Globalization: The Irrational Fear That Someone in China Will Take Your Job By Bruce C. Greenwald and Judd Kahn (Wiley, 186 pages, $29.95) Fast-forward to today. Will trade continue its post-World War II boom? The authors argue that global trade has peaked again — independent of the world-wide recession that has so constricted consumption. The demand for computers, cars and appliances fueled the increase in global trade because companies learned how to produce cheaply manufactured products that could be tailored to meet local market demands. In other words, manufacturers finally figured out how to commoditize the modern equivalents of yesterday's washing machines. Computers, iPhones and automobiles are now all global goods, easily tailored and distributed to meet local market needs.

But Messrs. Greenwald and Kahn believe that we will again shift more of our spending to things that are hard to globalize. "Services are likely to be the greatest area of growth, and the majority of these items will be locally produced and locally consumed: housing, medical care, education, legal and social services, recreation, utilities, telecommunications, and others."

The authors' contrarian view of globalization leads to several provocative arguments. Among the more startling is the contention that liberalizing global financial markets isn't necessarily a positive development. Local investors will always have better information than investors who are widely dispersed geographically, Messrs. Greenwald and Kahn argue. The authors offer a vivid example of how information gets lost as the distance grows between investors and the assets they're buying: the repackaging and sale of toxic subprime mortgages across the world.

While local knowledge is certainly important, Messrs. Greenwald and Kahn might have at least spared a word of praise for the way that deploying capital globally can produce worthwhile investments. Disciplined foreign investors made out very well in the aftermath of the Asian financial meltdown of 1997 and in crises where fund managers were able to move money quickly from capital-rich investors in one part of the world to capital-starved countries elsewhere.

Messrs. Greenwald and Kahn also might have spent a little more time on the subject of wages around the world. They dismiss concerns about the income stagnation caused by global trade, noting that wages have done slightly better as global trade has expanded. But a more rigorous analysis of the forces influencing anemic income growth in the U.S. would have been welcome; they may well include migration, the quality of new service jobs or other matters related to globalization. Still, in its crisp, stimulating way, "Globalization" presents a rational element in a debate too often characterized by hysteria.

Mr. Carew covers Asian mergers and acquisitions for The Wall Street Journal in Hong Kong.


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