Complaining about Gravity

December 20, 2007

November 28, 2007

Globalization has become an overused term.  Although it has been going on for decades, if not centuries, you hear the term so frequently these days that is has become almost a buzzword.

Paul Freidman describes the flattening of the world; it’s a good way of visualizing how interconnected things are in the global economy.  Globalization, free trade, the fight for intellectual property rights, the loosening of the movement of capital and labor are certainly the big topics of the day. 

As with every economic interaction, there will be winners and losers.  Globalization will come with some severe economic pains – to individuals, businesses, communities etc.  People will need to be retrained.  People will lose their health care and they will need some form of income support mechanism. 

But the movement towards globalization holds the promise that things will get better – both economically and politically – for all mankind.  There is the opportunity also for a more equitable distribution of income. In a perfectly competitive environment, prices will be lower.  Tremendous opportunities exist for all involved. 

Complaining about globalization is akin to complaining about gravity.  It might be a popular stance to take for the Presidential candidates, but how can the United States not embrace the FREE movement of capital and labor.

Yet, strict immigration rules will lead to fewer bright people coming here from other nations into our graduate programs.  More graduate students are already choosing to go to other countries or stay at home.  Microsoft announced this summer that it was locating a research and development center in Canada because the entire allotment of visas for high-tech workers had been used up in the U.S.  The immigration debate at the national level seldom seems to go beyond the do we build a wall on the Mexican border issue.  The truth is we need more immigration and the ability to attract global talent has been a traditional engine for the US economy.  (See David Brooks’ OpEd in The State on Wednesday, November 28).

Health care is too big an issue not to fix, but as pointed out in a recent article by Brad Warthen of The State, it has proven incredibly resilient to change. There are just too many built in profit centers in the delivery system for us to expect any major change.  Still the media is starting to hammer away at this critical point: high health care costs affect our competitiveness. 

The escalating cost of health insurance means that fewer people will want to take the risk of starting their own business. 

Deficits are too high.  We will have to borrow money to pay this back and this is done by selling bonds on the international markets.  In order to entice foreigners to buy these bonds we will have to raise interest rates.  High domestic interest rates will curtail consumption and investment.  We need investment in our technology start-up companies – that’s our strategy in the knowledge-based global economy.  Isn’t it?

I heard an amazing story on NPR last night about the sock industry in the state of Washington.  They outlined how global competition has decimated the sock manufacturing industry and caused huge job losses in one particular town.  The owner of a sock company was fighting hard to impose a tariff on imports of socks coming into the US from Honduras so that his business would be saved.  As fate would have it, Congress had passed some quirky stipulation that allowed the US to re-impose protective tariffs on sock manufacturing in 2007. The sock industry of this town will potentially be preserved, but the irony is that much of the now defunct sock manufacturers have already converted their businesses to other, higher paying industries.

I like David Brooks’ attitude.  The foundations of American prosperity are strong and we still have much more to gain by openly competing in the global market than by retreating into a protectionist, defensive stance. 

Fix immigration. Fix health care.  Control the deficit financing.  Stop complaining about gravity.

Alan Cooper