How Do We Pay for the Costs of Globalization?

SUMMING UP The benefits of globalization outweigh the problems it causes, but James Heskett's readers are far from united on how to the fix human and societal costs. What do YOU think?
by James L. Heskett

Should We Encourage the Redistribution of Benefits of Globalization? If So, How?

The benefits of globalization outweigh the costs. But the costs are not being distributed equitably among investors, workers, consumers, and the public in general. The appropriate remedy is still in question.

That’s a three-sentence summary of responses to this month’s very thorny question on how the human and societal costs caused by globalization can be remedied.

As if the topic were not sufficiently complex, Hugh Quick questioned my use of the term globalization. In his words: “It is a mistake to try to see and limit ‘globalization’ to commercial terms… To me, ‘globalization’ means increasing knowledge of how other people in the world live and think.”

Doug Kinsey set forth a view shared more or less by many discussants when he said, “Sure, we’ve benefitted from lower-priced goods from abroad, and freer trade between nations, but the cost is horrendous… I remember reading Thomas Friedman’s book, The World Is Flat, and thinking that it sounded good in theory, but there would be years, if not decades, of employment pain here in the U.S.”

Sources of the problem were variously identified as short-sighted government policies, short-term corporate management thinking, the World Trade Organization (Paul saying, “Personally, I’m a long-time supporter of globalization, but the WTO decision-making process needs to be more transparent and subject to checks and balances.”), general self-interest, and the political process.(including Marco’s comment that “political campaign financing is a related issue”).

Those proposing remedies implicitly seemed to agree with RCW’s comment that, “Historic thinking seems to be: ‘It will all work itself out for the best somehow. Let capitalism’s Invisible Hand work its magic.’ Sorry, but it hasn’t.” They advanced possible responses with much more reliance on carrots than sticks. David Wittenberg, for example, said that, “Punishing companies for making economically rational decisions violates our treasured economic liberty. Enacting protectionist policies … will result in mounting and ultimately unsustainable costs over the long term.”

Nello set forth the simplest and most direct form of incentive to address the issue, saying “How about reducing corporate taxes to 15% for companies that have 70% of their employees in the USA?” Edward commented, “You can try to mitigate via duties and taxes or offer short term support to displaced workers but (it is) … far better to come to grips with where your country has real sustainable global advantages. Many of those America once had are gone …” Doug Kinsey followed with a specific suggestion: “Let’s pick a problem, like transportation, and develop an industry around it, with meaningful careers and a meaningful solution.”

So in our small sample we have an answer to one of our questions: Should we encourage the redistribution of the benefits of globalization? We’re still seeking answers to the matter of just how to do it. What do you think?

Original Column

The Brexit vote by citizens of the United Kingdom to leave the European Union was neither the beginning nor the end of the anti-globalization, anti-establishment movement. But it grabbed the attention of a wide audience to a trend that represents one kind of backlash fostered by a long period of neglect of globalization’s effect on labor markets worldwide.

Globalization takes many forms: common markets; free flows of workers including refugees and migrants; and multinational organizations capable of moving resources more freely, to name just three. Research has shown that the benefits of globalization are substantial. For example, a study of the effects of the pending Trans-Pacific Partnership by the Peterson Institute for International Economics projects benefits in US economic growth and individual incomes that far outweigh the costs of increased job churn (which will occur), with no significant gain or loss of jobs.

The problem generally is that the benefits of globalization flow largely to investors and consumers while workers bear a disproportionate share of the costs, depending on how well-educated, skilled, and mobile they are. When the imbalance reaches a certain point, it shows up in the votes that can potentially derail globalization.

In the United States, the issues have been packaged for us by the Carrier Corporation, an organization that has—rightly or wrongly—become the poster child for globalization’s downside. Carrier’s leaders probably didn’t anticipate this when they decided to take an action that others had taken before them—moving 1,400 jobs from the US (in this case, Indiana) to Mexico to reduce labor costs by nearly sevenfold and remain competitive globally.

A YouTube video of the meeting where the decision was announced captures the despair and anger of the workers to be displaced. It also captures a management team trying to act reasonably by giving workers a rare one-year notice of the move—but doing so with a tin ear. For example, protesting workers at the meeting were asked to quiet down for important information. It turned out that the information was largely an explanation of the benefits for the company in moving. Then employees were asked to maintain their commitment to quality over the final months of their employment.

Carrier management underestimated how badly the decision would be received. After all, Carrier’s decision came just after another organization did precisely what Carrier did and was able to pull it off without creating a firestorm.

Regardless of what Carrier is doing to defray the shocks of the move to its Indiana work force—announced measures include picking up tuition costs for workers seeking further schooling and separation benefits—clearly it isn’t enough. Indiana’s Governor has offered some retraining support. The City of Indianapolis has threatened to “claw back” tax benefits offered to Carrier to induce it to locate there in the first place. But the move will leave behind several hundred workers (out of the 2,100 whose jobs that will be terminated) whose skills may not be transferable, especially in today’s high tech labor market. The economic impact on their community will be shared by thousands of their fellow citizens.

No one suggests that there is anything illegal about what Carrier, or many companies before it, is doing. It is carrying out the wishes of shareholders of its parent, United Technologies. As UT’s CEO, Greg Harris, put it in explaining his company’s continued high profit performance, “what will drive world class margins … is because we have been relentless in taking out costs.”

Let's assume that this is free enterprise at work, producing benefits along with costs to be paid. But who picks up the costs and how? At least one US presidential candidate has recommended imposing taxes on products Carrier (and presumably others) produces in Mexico and ships back to the US under government contracts. Another tax could be devised to help defray worker retraining and relocation costs. Trade treaties could be renegotiated. The list goes on.

It’s becoming clear that if supporters of globalization don’t start coming up with ways of paying for these costs to society, their ideas and efforts may be thwarted in the voting booth in the future. How do we pay for the costs of globalization? What do YOU think?

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