Center for progressive economics

Decoration Icon

CPE Articles, Essays and Position Papers

PROGRESSIVE ECONOMIC PRINCIPLES: Creating a Quality Economy

— Page 5 of 10

GLOBALIZATION & TRADE

Globalization is the continual increase and expansion of commerce by individual firms worldwide. As a consequence, this is producing the gradual elimination of national boundaries, where commerce is concerned. However, these firms are basically in competition with each other not with individual countries. Eliminating boundaries has generated both positive and negative effects. The three flaws of capitalism have followed globalization and must be dealt with on an international level.

There are limited international regulatory bodies to oversee these firms except the World Trade Organization, which does not have much power.  Obviously, we will need to develop more institutions for this purpose. It will be a major task for future administrations to comprehensively address these issues. So, how can we compete as a nation when our firms and other country’s firms buy, sell and produce all over the world to take advantage of these flaws of capitalism? We cannot! Therefore, the major area of concern for our government is and should be the economic well-being of our people, our customers. The concept of a well-compensated work force, thus creating quality customers, is the major objective of every nation. In order to rebalance global trade and wages, we must have the wages of the international work force progress towards us and not ours being lowered to theirs.

Countries like China are attempting to compete as a country not as independent businesses. The government owns many, if not all of their companies. This is a socialist scheme not capitalism. They compete by making use of flaw number two, outlined above. They are taking advantage of the huge consumer base (middle class) in the United States. The major long run problem with this strategy is that it is not building a large enough adequate consumer base in China. If the U.S. consumers slightly lower their consumption because of lower wages, less credit card and home equity-line debt or a basic recession, China could see a significant recession/depression.

Since the U.S. is still the primary customer, it has the power to use tariff changes, not to protect industries but to protect the middle class purchasing power and more importantly – to force low wage countries to pay an adequate wage so they can become adequate consumers. We do not have to insist on equal wages but reasonable non-slave labor wages that are rising to continue to allow access into our markets. Yes, Labor Unions are an additional method to help accomplish an adequate consumer base goal but tariff changes are needed as well. The concept of Americans having super cheap goods and services, which offsets our wage declines, is absurd. This differential, so we can buy 10 shirts instead of 9, is not economically justified when those workers, who make the shirts, can’t buy any of our production of goods and services. Furthermore, the increase in the labor component of manufacturing in other countries will not significantly raise prices to alter our consumer habits. We should eliminate or reduce all tariffs on countries with adequate wages and environmental practices. We should raise tariffs on all those who do not. Also, we should probably continue with a small general tariff on all goods as a revenue raising structure in addition to taxes.

The excessive trade deficit is deceiving to some degree as well. It does not include monies coming into the United States in terms of education of foreign students, investments in stocks, real estate and government bonds. They receive our paper and we receive their goods and services. What it does mean is that foreign individuals, enterprises and countries will own our assets as we will own theirs. This is true globalization! How do we compete in this environment? The solution is to reduce our dependence on foreign oil and create an increase in the wages of other countries, through tariff increases, so their workers can afford to buy our goods and services.

The “Fair Trade vs. Free Trade” argument is somewhat bogus as almost all industrialized countries have some sort of tariffs. I am for total free trade with the proper tariffs to protect the consumer base-wage differentials, ecological differences and anticompetitive practices (dumping & subsidies) by governments with large pocket books. Our firms can compete with any firm globally – they only need a relatively level playing field.