SMITH BRAIN TRUST — July 14, 2016 – Britons voting last month to exit the European Union fed a larger debate, playing out in Europe and the United States, about the merits of globalism. Many people, concerned about trade and immigration policy, link globalism to the loss of national identity, security and prosperity. Professor Kislaya Prasad, director of the Center for International Business Education and Research (CIBER) at the University of Maryland’s Robert H. Smith School of Business, studies the nuances related to the flow of products, services and labor across borders. He offers five answers to the central yes-or-no question: Is globalism a job killer?
- No. Globalism creates prosperity.The United States and other countries lowered their trade and immigration barriers after World War II, which led to a period of economic growth for everybody involved. “Once the economy opens, there’s a pressure on you to be more efficient,” Prasad says. “You have to compete with imports, and it makes you better.” China and India held out as long as they could, paying a price with inefficient and outdated factories. Their economies did not take off until after they joined the world economy. “Billions of people have been lifted out of poverty as a consequence of these countries competing in the world economy and opening up their own economy to competition,” Prasad says. “If countries wall themselves out of the global trading system, they put this prosperity at risk.”
- Yes. Jobs get displaced.Manufacturers worried about inefficiency quickly realize they can find cheaper labor overseas — or they can import cheap labor using liberal immigration policies. New factories might go up in China, Mexico and Vietnam, but this doesn’t help laid off factory workers in the United States. “Being out of a job due to trade — or being forced to find a low-paying service job after displacement — is a painful experience,” Prasad says. “Lives have been hurt and Washington, in some sense, has been tone deaf to that.”
- No. Technology is the real culprit.While globalization causes some displacement, many more jobs get swallowed up by technology. Prasad saw some of this at his first teaching job at Florida State University, where computers replaced an entire pool of secretaries. Those jobs won’t come back even when improved mechanization makes it more efficient to produce things in the United States. “We’re seeing reshoring now,” Prasad says. “But the manufacturing is coming back without all those jobs that have been lost.”
- Yes. Retraining doesn’t work.When displacement occurs — either through globalism or technology — policymakers suggest retraining as a solution. “The problem is, there’s not a whole lot of evidence to show that these programs actually work,” Prasad says. “Do you retrain a coal miner to be a nurse? It’s not that easy.” For one thing, switching careers often requires relocation. And moving from Detroit to Seattle might not be feasible for a person with family commitments. “People are not so easily mobile to leave a community and networks and ties and historical associations to a place,” Prasad says. Retraining also takes time, which creates gaps in resumes and hurts job prospects.
- No. Prices come down for everyone.Tightened borders might preserve some jobs, but the tradeoff is higher costs when policymakers protect companies from global market forces. “If you add up the amount by which you’re paying less for all these goods, that amount is much greater than the cost of all the displaced jobs,” Prasad says. Protectionism also props up obsolete jobs, enticing young workers into unsustainable career tracks. “You give people the wrong information when they see wages and living standards protected by tariffs,” Prasad says.
Overall, he says, global trade and immigration have had a positive net effect in Europe and the United States. But individuals still suffer. “Globalism has been good for much of our history and even now,” he says. “But it’s been good on the aggregate, not necessarily for everybody.”
Prasad says policymakers need to be careful not to dismiss the pain that many individuals feel. “Where there does seem to be a legitimate gripe is that the policymaking elite has not done much about — perhaps not even acknowledged — the extent to which many people are hurting,” he says. “When people are aggrieved, foreigners make an easy target, and people are receptive to a populist message accompanied by no realistic solutions.”
Even when globalism prevails, Prasad says ample room remains for debate on trade and immigration policy. “As a society we haven’t tackled the issue of stagnant wages in blue collar jobs with creative solutions,” he says. “As a consequence, we’re paying for it in our politics.”