Jun 06
24
Stephen Roach – On China, US, Internet, Globalization
Stephen Roach gave an address in Beijing this week that is one of the most insightful, scary pieces by a globally respected economist that I have read. Here is the full excerpt.
To give a sense of the full sweep of the transcript here are a couple of highlights:
US-China trade tensions are a microcosm of what’s wrong with globalization. Neither side is facing up to the global ramifications of its economic aspirations.
basic conclusion … that all economists
are taught to worship from birth holds that trade liberalization not
only brings poor workers from the developing world into the global
economic equation (win #1), but workers in the developed world then
benefit by buying low-cost, high-quality goods from the developing
world (win #2). The theory breaks down because
of a new disruptive technology — in this case, the Internet — that
dramatically accelerates both the speed and scope of worker
displacement in the developed world. It used to
be that such workers would eventually — with considerable
dislocational distress, to be sure — seek and secure refuge in the
non-tradable segment of their economies. The shocker is that the sense of security in services has effectively broken down.
In recent years, IT-enabled connectivity has quickly migrated up the
knowledge worker occupational hierarchy in once-nontradable services,
denying displaced workers in the developed world the comfort (i.e.,
sustainable labor income generation) of enjoying the benefits of the
second win of globalization.
record foreign trade deficit — 25% of the shortfall in 2005 — and
there are currently in excess of 20 anti-China bills pending in the US
Congress. If these two nations can get their
economic relation right and diffuse the cross-border tensions now
building between them, it will be an important example for the rest of
the world. If they can’t, globalization may well be in serious trouble.
Forget what you are reading on the front page of the newspaper. This is the real news. Globalization is in trouble. And while companies continue to outsource manufaturing to China, the US is trying to impose tariffs. Utter madness.