Blog Spotlight: Economist’s View

Thursday, November 09, 2006 | 07:00 PM

For the next edition of our series, Blog Spotlight, we travel West to Mark Thoma at the University of Oregon for his  Economist’s View.

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987. His research involves the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables, and he has conducted research in other areas, such as the relationship between the political party in power and macroeconomic outcomes. Mark blogs daily at Economist's View.

This is part of our ongoing short list of excellent but somewhat overlooked blogs that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.


Today's focus commentary looks at:  Worker Security, Social Insurance, and Protectionism

More on the decline in worker security:

US faces globalisation without safety net, by Alan Beattie, Commentary, Financial Times: If Americans are feeling ever more insecure about inequality, jobs and globalisation, they are not alone. The concerns of the "anxious middle" income earners are echoed across the Atlantic. But ... Americans have tended to display a much greater tolerance for the type of economic dislocation that can accompany globalisation...

Statistically, the European Union and the US show the same level of enthusiasm for foreign trade and globalisation. Trade also accounts for a similar percentage of both economies. But Europeans demand a larger social safety net ... to shield them from the vagaries of competition, judging by studies of trade, taxes and welfare payments. ...

Meanwhile, differences in inequality between the US and Europe owe as much or more to redistribution as to unequal wages. ...[W]hile wage disparities are similar, in the US government cash benefits reduce the proportion of households in poverty by less than one-quarter, while elsewhere in the OECD welfare systems reduce that proportion by more than half. Among rich countries, the US is thus left with the largest proportion of households living in poverty.

European workers are also much more cushioned if they become unemployed. ... On top of this the European workforce receives a higher "social wage" - public education, healthcare and housing provided free or heavily subsidised by the state - whether employed or not. ...

Who's responsible for the decline in worker security in Europe and the U.S.? According to this, you are:

Consumers Are Killing the Welfare State, by Gabor Steingart, Spiegel: Consumers just want a good deal -- they don't care where a product has been made or whether there is any social safety net in that country. ... We ... expect legally mandated vacations, protection from being fired and sick days. If everything goes wrong in life, we fall back on welfare...

And therein lies the rub: With its surcharges to fund the social safety net, ...[this] significantly increases the labor costs of each employee... [O]ne of the primary reasons for price differences between new and old members of the world labor market is the welfare state. ...

[O]pponents of the welfare state warmly welcome the worldwide glut of workers, which has already proven to be the most-effective method for dismantling the social safety net. One no longer has to clamor for, or instigate, its destruction -- it seems to take place all on its own. One can simply ignore the welfare state by ordering goods from countries in Asia that have no social safety net. But that choice is tantamount to a plea for lower salaries and against the protections our welfare state provide us. ...

The attackers are no strangers: In the free markets with free consumers, the decisive twist of the knife is delivered by friends. Whether a consumer's political heart beats on the left or right, the moment he sets foot in the supermarket or shopping center, he refuses to pay a welfare contribution...

It is only outside of business hours that he occasionally entertains idealistic doubts. And only then does he start to ask himself how it can be that he can obtain such large carpets so cheaply or why the prices on computers and mobile phones these days are so low...

But before we berate company managers and bargain hunters, we should pause and reflect. It would be wrong to reproach them for selfishness. It was a two-fold political will that linked the Asian and eastern European countries to the international division of labor -- their will, and ours. They wanted to become part of the Western production network and to tie their own to it. We have encouraged them, supported them and often enough also cheered them on.

The question here is not about what's wrong or right. What is important at this juncture is simply the realization that the ... demand for labor now moves from one land to another, and naturally prefers those states with the lowest possible supplementary social costs.

Many who considered the social market economy to be the final stage of history are now being forced to admit they made a colossal error. Capitalism has, thanks to a global labor and finance market, increased its range, while the social safety net has lost ground. The market has gained power, speed and apparently also inevitability. But the social triumph of yesteryear has faded. Indeed, capitalism is going back to its roots.

At first, I thought the author was going to blame consumers for the demise of the welfare state, and end with a buy at home message. But it doesn't. Individuals acting alone, or firms acting in isolation, cannot solve the problem. People won't pay more for goods rather than less when doing so has no influence on globalization trends, nor should we expect an individual firm to earn less profit by, say, not offshoring if all other firms are taking advantage of low-cost foreign labor. However government, unlike individuals, can help. But I hope government is smarter than this:

Protectionist Stance Is Gaining Clout, by Greg Hitt, WSJ: Bidding for a congressional seat held by a free-trade Republican for nearly two decades, Democrat Bruce Braley has gained an edge by taking the opposite view: bashing globalization.

In one of the most closely watched congressional races, Mr. Braley has made opposition to the Bush administration's free-trade agenda a centerpiece of his campaign. He has run ads blaming the state's job losses on President Bush's "unfair trade deals." He has urged more focus on labor rights in national trade policy and talked of using economic sanctions to keep America competitive. "Our workers aren't on a level playing field," he says.

Mr. Braley's stance has helped propel ...[him] into position to ... secure a Democratic win in Iowa's First District. His strong showing not only underscores how trade concerns have emerged as a central issue in many of this year's races but also suggests a more-protectionist U.S. trade policy if Democrats take Congress.

Even if Democrats don't win control, the campaign rhetoric may have a lasting effect, because some Republicans are finding it more painful politically to defend free trade. ...

In western New York, Tom Reynolds, head of the Republican House campaign committee, is fighting a protectionist businessman and may lose. Richard Pombo, a California Republican who cruised to victory two years ago, is facing an eleventh-hour challenge from a Democrat pledging to "change our trade policy" so American farmers can better compete against foreign producers. In the Senate, which approves many trade treaties, Democrat Sherrod Brown is poised to unseat Ohio Republican Mike DeWine by capitalizing on worker resentment over globalization.

Pew Research data show the sense of vulnerability among workers. A recent poll shows low-skilled U.S. workers are over 40% more likely to believe their jobs could be sent offshore. ...

Trade policy may be the biggest issue in which a Democratic majority in the House could make headway against the president in the next Congress. That is because President Bush's ability to send trade deals to Congress for a vote without amendments will expire in July. Congress will decide whether to renew his authority, with action beginning in the House.

That would give Democrats leverage to seek Bush commitments to help U.S. workers, such as putting labor rights and environmental protection alongside corporate concerns like patent protections in negotiations with other countries. Democrats might seek an overhaul of programs to help workers who lose jobs to foreign competition. ...

I won't be able to agree with Democrats who call for protectionism. The answer is for government to protect workers, not business. Protectionism will help business, but it won't guarantee workers health care, it won't provide retirement security, and it won't provide any of the other social services people need. If workers should become unemployed, and more will with protectionism, trade sanctions do nothing to provide for workers and their families until they are able to find new employment. But trade restrictions do ensure profit for some business owners.

The answer is not for government to protect business, though business will try very hard to convince you that it is. The answer is for government to begin taking worker security seriously. Government should not undermine the flexibility firms need to adjust their labor needs and compete in the global marketplace, but it should do much more than it has to ensure that workers, who are innocent bystanders in the globalization process, are insulated from the costs of those adjustments.

Thursday, November 09, 2006 | 07:00 PM | Permalink | Comments (5) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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they will take our funny money and like way or another.

Posted by: DD | Nov 9, 2006 9:28:47 PM

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