The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [40]
Yet the gains are likely to be distributed unevenly within the high-income economies. High-skilled (and therefore high-income) workers are likely to benefit straightaway, while low-skilled (and therefore low-income) workers are likely to feel the pressure of tougher competition from abroad. For all broad segments of society to benefit from globalization, therefore, the winners have to help compensate the losers. High-income earners who enjoy a surge in income and wealth resulting from globalization should pay more in taxes to finance increased income transfers and public investments (for example, for job retraining) for those who are the losers.
It is even possible that the whole world will end up losing from globalization if the surging income in the emerging economies leads to global environmental calamity—if China’s growth, for example, results in such a large increase in carbon dioxide emissions from coal use that global climate change accelerates catastrophically. Achieving the benefits of globalization therefore requires active international cooperation as well as internal cooperation.
Notice that internationally mobile capital (for example, a U.S. hedge fund that invests in China or a U.S. apparel company that may relocate abroad) gains in three ways from the rise of China. First, with the sudden, sharp boost of productivity in China arising from the inflow of technology (the convergence effect), major new investment opportunities in China that offer high rates of return are created. Second, with the surge in the global labor supply (the labor effect), wage levels around the world are bid down, leaving more corporate revenues as profits. Third, with governments around the world cutting corporate taxes and easing regulations to compete for internationally mobile capital, companies are enjoying a sharp fall in taxation.
All three effects favor U.S. corporate investors, but all three jeopardize U.S. workers. As U.S. business investments have shifted to the emerging economies, U.S. wage and employment growth has slowed. Similarly, the massive expansion of the global labor pool due to the inclusion of workers from China and India has put downward pressure on U.S. wages. And the race to the bottom in corporate taxation and regulation has led the U.S. government to cut corporate tax payments while cutting government programs that benefit workers (e.g., job training).
The winners include not only the owners of physical capital (who can shift operations abroad) and financial capital (who can invest funds abroad) but also owners of human capital, who can export skill-intensive services to the emerging economies. This includes Wall Street bankers, corporate lawyers, high-tech engineers, designers, architects, senior managers, and others with advanced degrees and who work in high-tech fields. Finally, athletes, performing artists, and brand-name products are all given a boost by an expanded global market. Many U.S. and European brands are now enjoying booms by expanding into the emerging economies, where hundreds of millions of consumers with rapidly rising incomes are eager to follow in the path of their Western counterparts.
Among American workers, the biggest losers by far are those with a low level of education. This is because most of the new entrants to the global labor market in China and India also have a high school diploma or less. These emerging-economy workers enter labor-intensive export sectors such as apparel cutting and stitching, shoemaking, furniture making, electronic appliance assembly, and standardized manufacturing processes such as plastic injection. As the prices of these globally traded labor-intensive products are pushed down, the wages of low-skilled workers in the United States are also pushed