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Globalization Is Great—Except When It Isn't

12:00 AM, Oct 22, 2011 • By IRWIN M. STELZER
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Equally disadvantaged, but somewhat less entitled to our sympathy, are the unionized workers in the manufacturing sector who in a closed economy could extract high wages from employers willing and able to pass on the higher costs. The extent to which globalization put an end to that ride on the backs of consumers is shown by the recent settlement agreed to by the United Auto Workers union and the car makers. New hires are to receive about half the hourly wage of old timers, gradually bringing the costs of American manufacturers down to those of Japanese and other auto makers—and now lower-cost China is dipping its toe into the U.S. auto market.

The only group not directly affected by globalization is public sector workers. Policemen, firemen, clerks in the office that issues drivers’ licenses have no fear of foreign competition. Because their unions are also large contributors to the campaigns of the politicians who sit across the table from them in wage negotiations, they pretty much could get the wage and pension packages they sought.

But that party, too, is coming to an end, an indirect effect of globalization. Hard-pressed voters, their real incomes stuck at years-ago levels, are no longer willing to pay the taxes needed to support the life styles and large pensions of public sector workers. In Wisconsin, Republican governor Scott Walker faced down his Democratic opposition and massed demonstrations to reform the public sector bargaining process and start to get public sector compensation under control. Ohio Republican governor John Kasich did the same, and Democratic governors Andrew Cuomo (New York) and Jerry Brown (California) are moving in that direction. These moves will help relieve the burden on taxpayers, but they will also reduce the number of relatively high-paying jobs in America, and the compensation of those who survive the staffing cuts.

Nothing the president is proposing can do anything about these trends. He could, of course, reduce inequality by raising taxes on “the rich”: his Democratic colleagues in the Senate are proposing a 5 percent surtax on incomes in excess of $1 million, a move most voters favor. But that won’t pass a Republican House of Representatives, and anyhow might discourage job-creating entrepreneurs. Longer-term solutions such as massive retraining programs and growth-inducing tax reform would help. But those wouldn’t have much noticeable effect until after next year’s elections, and so at best receive only passing mention from politicians-on-the-make. Better to concentrate on attacking those evil bankers and greedy millionaires and billionaires. 

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