Blog Spotlight: Economist’s View

For the next edition of our series, Blog Spotlight, we travel West to Mark Thoma at the University of Oregon for his  Economist’s View.

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987. His research involves the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables, and he has conducted research in other areas, such as the relationship between the political party in power and macroeconomic outcomes. Mark blogs daily at Economist’s View.

This is part of our ongoing short list of excellent but somewhat overlooked
blogs that deserves a greater audience. Expect to see a post from a
different featured blogger here every Tuesday and Thursday evening,
around 7pm.

Today’s focus commentary looks at:  Worker Security, Social Insurance, and Protectionism

More on the decline in worker security:

US faces globalisation without safety net, by Alan Beattie, Commentary,
Financial Times: If Americans are feeling ever more insecure about
inequality, jobs and globalisation, they are not alone. The concerns of the
"anxious middle" income earners are echoed across the Atlantic. But …
Americans have tended to display a much greater tolerance for the type of
economic dislocation that can accompany globalisation…

Statistically, the European Union and the US show the same level of
enthusiasm for foreign trade and globalisation. Trade also accounts for a
similar percentage of both economies. But Europeans demand a larger social
safety net … to shield them from the vagaries of competition, judging by
studies of trade, taxes and welfare payments. …

Meanwhile, differences in inequality between the US and Europe owe as
much or
more to redistribution as to unequal wages. …[W]hile wage disparities are
similar, in the US government cash benefits reduce the proportion of
households
in poverty by less than one-quarter, while elsewhere in the OECD welfare
systems
reduce that proportion by more than half. Among rich countries, the US is
thus
left with the largest proportion of households living in poverty.

European workers are also much more cushioned if they become unemployed.
…
On top of this the European workforce receives a higher "social wage" –
public
education, healthcare and housing provided free or heavily subsidised by the

state – whether employed or not. …

Who’s responsible for the decline in worker security in Europe and the
U.S.? According to this, you are:

Consumers
Are Killing the Welfare State, by Gabor Steingart, Spiegel: Consumers
just
want a good deal — they don’t care where a product has been made or whether

there is any social safety net in that country. … We … expect legally
mandated vacations, protection from being fired and sick days. If everything

goes wrong in life, we fall back on welfare…

And therein lies the rub: With its surcharges to fund the social safety
net,
…[this] significantly increases the labor costs of each employee… [O]ne
of the
primary reasons for price differences between new and old members of the
world
labor market is the welfare state. …

[O]pponents of the welfare state warmly welcome the worldwide glut of
workers, which has already proven to be the most-effective method for
dismantling the social safety net. One no longer has to clamor for, or
instigate, its destruction — it seems to take place all on its own. One can

simply ignore the welfare state by ordering goods from countries in Asia
that
have no social safety net. But that choice is tantamount to a plea for lower

salaries and against the protections our welfare state provide us. …

The attackers are no strangers: In the free markets with free consumers,
the
decisive twist of the knife is delivered by friends. Whether a consumer’s
political heart beats on the left or right, the moment he sets foot in the
supermarket or shopping center, he refuses to pay a welfare
contribution…

It is only outside of business hours that he occasionally entertains
idealistic doubts. And only then does he start to ask himself how it can be
that
he can obtain such large carpets so cheaply or why the prices on computers
and
mobile phones these days are so low…

But before we berate company managers and bargain hunters, we should
pause
and reflect. It would be wrong to reproach them for selfishness. It was a
two-fold political will that linked the Asian and eastern European countries
to
the international division of labor — their will, and ours. They wanted to
become part of the Western production network and to tie their own to it. We

have encouraged them, supported them and often enough also cheered them on.

The question here is not about what’s wrong or right. What is important
at
this juncture is simply the realization that the … demand for labor now
moves from one land to another, and
naturally prefers those states with the lowest possible supplementary social

costs.

Many who considered the social market economy to be the final stage of
history are now being forced to admit they made a colossal error. Capitalism

has, thanks to a global labor and finance market, increased its range, while
the
social safety net has lost ground. The market has gained power, speed and
apparently also inevitability. But the social triumph of yesteryear has
faded.
Indeed, capitalism is going back to its roots.

At first, I thought the author was going to blame consumers for the
demise of
the welfare state, and end with a buy at home message. But it doesn’t.
Individuals acting alone, or firms acting in isolation, cannot solve the
problem. People won’t pay more for goods rather than less when doing so has
no
influence on globalization trends, nor should we expect an individual firm
to
earn less profit by, say, not offshoring if all other firms are taking
advantage
of low-cost foreign labor. However government, unlike individuals, can help.
But I hope government is smarter than this:

Protectionist Stance Is Gaining Clout, by Greg Hitt, WSJ: Bidding for a
congressional seat held by a free-trade Republican for nearly two decades,
Democrat Bruce Braley has gained an edge by taking the opposite view:
bashing
globalization.

In one of the most closely watched congressional races, Mr. Braley has
made
opposition to the Bush administration’s free-trade agenda a centerpiece of
his
campaign. He has run ads blaming the state’s job losses on President Bush’s
"unfair trade deals." He has urged more focus on labor rights in
national trade policy and talked of using economic sanctions to keep America
competitive. "Our workers aren’t on a level playing field," he
says.

Mr. Braley’s stance has helped propel …[him] into position to …
secure a
Democratic win in Iowa’s First District. His strong showing not only
underscores
how trade concerns have emerged as a central issue in many of this year’s
races
but also suggests a more-protectionist U.S. trade policy if Democrats take
Congress.

Even if Democrats don’t win control, the campaign rhetoric may have a
lasting
effect, because some Republicans are finding it more painful politically to
defend free trade. …

In western New York, Tom Reynolds, head of the Republican House campaign
committee, is fighting a protectionist businessman and may lose. Richard
Pombo,
a California Republican who cruised to victory two years ago, is facing an
eleventh-hour challenge from a Democrat pledging to "change our trade
policy" so American farmers can better compete against foreign
producers. In the Senate, which approves many trade treaties, Democrat
Sherrod Brown is poised to unseat Ohio Republican Mike DeWine by
capitalizing on worker resentment over
globalization.

Pew Research data show the sense of vulnerability among workers. A recent

poll shows low-skilled U.S. workers are over 40% more likely to believe
their
jobs could be sent offshore. …

Trade policy may be the biggest issue in which a Democratic majority in
the
House could make headway against the president in the next Congress. That is

because President Bush’s ability to send trade deals to Congress for a vote
without amendments will expire in July. Congress will decide whether to
renew
his authority, with action beginning in the House.

That would give Democrats leverage to seek Bush commitments to help U.S.
workers, such as putting labor rights and environmental protection alongside

corporate concerns like patent protections in negotiations with other
countries.
Democrats might seek an overhaul of programs to help workers who lose jobs
to
foreign competition. …

I won’t be able to agree with Democrats who call for protectionism. The
answer is for government to protect workers, not business. Protectionism
will
help business, but it won’t guarantee workers health care, it won’t provide
retirement security, and it won’t provide any of the other social services
people need. If workers should become unemployed, and more will with
protectionism, trade sanctions do nothing to provide for workers and their
families until they are able to find new employment. But trade restrictions
do
ensure profit for some business owners.

The answer is not for government to protect business, though business
will
try very hard to convince you that it is. The answer is for government to
begin taking worker security seriously. Government should not undermine the
flexibility firms need to adjust their labor needs and compete in the global
marketplace, but it should do much more than it has to ensure that workers,
who are innocent bystanders in the globalization process, are insulated from
the costs of those adjustments.