USA Today pulled out all the stops in a news story today that argued the case for Clinton-Bush trade policies. The article begins by decrying the fact that �globalization� is losing support around the world and that countries are embracing �long-discredited economic strategies.� Let�s start at the beginning. What are the �long-discredited economic strategies� to which the article refers? It specifically notes nationalization and credit controls. Well, there is certainly a mixed record for both strategies, but many countries have effectively managed government enterprises and the list of successful developing countries is full of countries that use capital controls, such as China, India, Vietnam, Malaysia, and Chile. (Maybe USA Today can find a reporter who has heard of these countries for its next piece on the topic.) The policies that the article considers consistent with globalization might better be described as �long-discredited economic strategies.� Latin America embraced this path with enthusiasm and had a quarter century of stagnation. Russia followed the globalization path and saw its economy shrink by more than 40 percent. Interestingly, Russia broke with this path in the summer of 1998 when the �Committee to Save the World (a.k.a. Alan Greenspan, Robert Rubin, and Larry Summers)� gave up on their efforts to reform Russia. Since then, Russia has experienced eight and a half years of solid growth during which it has recouped nearly all of the lost output from its globalizing days. Similarly, Argentina broke with the IMF in December of 2001. After a severe but brief downturn, its economy has experienced four and a half years of very strong economic growth. The article also notes the concerns expressed by many people in the United States that trade (wrongly described as �free-trade�) has cost jobs for many workers. Of course, this is the intention of recent trade agreements � that is how the theory predicts gains from trade. Putting manufacturing workers in the United States in direct competition with low paid workers in the developing world drives down their wages and makes their products cheaper. Of course, we could have adopted trade policies that put highly educated workers in the United States (e.g. doctors, lawyers, economists, and reporters) in direct competition with highly educated workers in the developing world. This would drive down their wages and make the goods and services they produce cheaper for consumers. But, highly educated workers are more powerful than manufacturing workers, so they enjoy protectionist rules that maintain their high living standards. And, since the media never discuss these protectionist rules � they get to call themselves �free-traders� and to make fun of manufacturing workers for not having the skills needed to compete in a global economy.
--Dean Baker
