House of Paine

emerging asia croaks free world wagery world wide

here is an eel among eels 


  my comments will be interspersed 
as i get around to making em

come back in a week:


my  crock pot 
  cooketh slow

but steady  


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"The global economic community
 and economic policymakers in
governments and global institutions alike
 has yet to fully
understand the most fundamental economic development in this
era of globalization - the doubling of the global labor
force"


"I estimate that the entry of China, India and the former
Soviet bloc into the global economy cut the global
capital/labor ratio by just 55% to 60% what it otherwise
would have been"

"The doubling I am referring to is the increased number of
persons in the global economy that results from China, India
and the ex-Soviet Union embracing market capitalism"

In 1980,

 the global workforce consisted of workers in the
advanced countries, parts of Africa and most of Latin
America. 

Approximately 960 million persons 
worked in these
economies.

Population growth - largely in poorer countries - 
increased
the number employed in these economies
 to about 

1.46 billion

workers by 2000.

New players enter the scene

But in the 1980s and 1990s, workers from China, India and the
former Soviet bloc entered the global labor pool.


In 2000, those countries contributed


 1.47 billion workers 


to
the global labor pool 

 effectively doubling the size of the
world's now connected workforce.


These new entrants to the global economy brought little
capital with them. Either because they were poor or because
the capital they had was of little economic value.A decline
in the global capital/labor ratio shifts the balance of power
in markets away from wages paid to workers and toward
capital, as more workers compete for working with that
capital. Using figures from the Penn World Tables, I estimate
that the entry of China, India and the former Soviet bloc
into the global economy cut the global capital/labor ratio by
just 55% to 60% what it otherwise would have been.

The capital/labor ratio is a critical determinant of the
wages paid to workers and of the rewards to capital. The more
capital each worker has, the higher will be their
productivity and pay. A decline in the global capital/labor
ratio shifts the balance of power in markets toward capital,
as more workers compete for working with that capital.

Even considering the high savings rate in the new entrants -
the World Bank estimates that China has a savings rate of 40%
of GDP - 

it will take 30 or so years 
for the world to re-
attain the capital/labor ratio
 among the countries that had
previously made up the global economy



Having twice as many workers 
and nearly the same amount of
capital places great pressure 
on labor markets 
throughout the
world. 

This pressure will affect workers
 in the developing
countries who had traditionally
 participated in the global
economy, as well as workers 
in advanced countries.

Countries that had hoped to grow through exports of low-wage
goods must look for new sectors in which to advance - if they
are to make it in the global economy.


 Mexico, Columbia 
 South
Africa
cannot compete with China
 in manufacturing

 as long as
Chinese wages are one-quarter 
or so of theirs
- especially
since Chinese labor 
is roughly as productive 
as theirs.



The traditional trade story has
been that most workers in advanced countries benefit from
trade with developing countries because advanced country
workers are skilled, while developing country workers are
unskilled.

But this analysis has become increasingly obsolete due to the
massive investments that the large populous developing
countries are making in human capital. China and India are
producing millions of college graduates capable of doing the
same work as the college graduates of the United States,
Japan or Europe - at much lower pay.


By 2010, China will graduate 
more PhDs in science and
engineering 
than the United States

 The huge number of highly
educated workers in India and China
 threatens to undo 
the traditional pattern 
of trade between advanced 
and less
developed countries



Historically, advanced countries have innovated high-tech
products that require high-wage educated workers and
extensive R&D, while developing countries specialize in old
manufacturing products. The reason for this was that the
advanced countries had a near monopoly on scientists and
engineers and other highly educated workers.

Job migration

As China, India and other developing countries have increased
their number of university graduates, this monopoly on high-
tech innovative capacity has diminished. Today, most major
multinationals have R&D centers in China or India, so that
the locus of technological advance may shift


The world needs
to abandon the Washington Consensus model
 of globalization
that was designed
 not all that successfully
 for an utterly
different global economy.

Certainly, the rate 
of technological catch-up will grow
reducing the lead of advanced countries
 over the lower wage
developing countries.

Business experts report 
that if the work is digital
- which
covers perhaps 10% of employment
 in the United States 
 it can and eventually will
 be off-shored 
to low-wage 
highly educated workers 
in developing countries.






"In advanced countries
 real wages and/or employment
 are
likely to grow more slowly
 than in years past "

" In developing
countries 
that have traditionally been part
 of the global
economy
 manufacturing jobs are at risk"

"They are likely to see
 a shift in labor 
to the informal sector
 with rising poverty
 as indeed has occurred
 in many countries already

 



The IMF, in particular, has sought to protect capital,
particularly foreign capital 

 with a doubled workforce
 capital should be quite capable 
of taking care of itself


instead of seeking to protect capital
 the World Bank 
and the IMF 
need to help countries 
develop policies to minimize 
the costs of adjustment
 to workers 

during what is likely to be 
a long transition.

The global community needs to make sure 
that the gains of globalization
 are spread widely
 to avoid backlashes 
and
instability.  

the world needs to increase savings as
rapidly as possible 
to build up the global capital stock

 , 

the United States has to shift
 from being the world's greatest debtor
 to becoming a giant creditor 
to the global economy.





The world needs a new model
 of globalization 
and new policies
that put upfront 
the well-being of workers 
around the world

They will be on the short end
 of the stick 
for a long time to come 

[Richard Freeman 
is a Harvard University economist
 and co-
chair of the Harvard Trade Union Program]