Globalization and the Middle Class

Does free trade hurt the developed world's middle class?

David Dollar: Well in some of my recent writings,  argued that global trade does seem to be driving down wages for unskilled or semiskilled workers in countries like the United States and Western Europe. And I think this is an important political issue. There's no question that inequality has risen in the United States. Wages for ordinary workers have been fairly stagnant or have only risen a small amount, while incomes at the high end of the salary scale have gone up a lot. And at the very top of the income distribution, incomes have gone up spectacularly. So I do think that's a very important issue. I would argue that trying to address that by restricting trade is not likely to succeed. It makes the whole country poor. It's a bad way to treat the developing world. The developing world is benefiting a lot from this regime. So if you look around at the whole world, do you want to try to pursue a solution in the United States that gonna make the poor countries poorer? That doesn't appeal to me. I don't  accept the notion that restricting trade can be any part of a progressive agenda. I like to think of myself as a pragmatic progressive. So I think when you worry about wages for ordinary workers in the U.S., which I do worry about, I think you have to look at the tax system in the United States. I think you have to look at public expenditure on education and key services that actually each ordinary people. So I think what Larry Summers is arguing is that there are fiscal measures and policy measures that would really make life better for the working class. I don't  think Larry Summers is arguing against the free trade regime, but I think he's smart enough to realize that if you don't do something for ordinary workers in the United States, you may lose the political support for free trade. And that really is an important engine for the whole global growth.
Recorded on: 7/3/07
 
 

David Dollar: Well in some of my recent writings,  argued that global trade does seem to be driving down wages for unskilled or semiskilled workers in countries like the United States and Western Europe. And I think this is an important political issue. There's no question that inequality has risen in the United States. Wages for ordinary workers have been fairly stagnant or have only risen a small amount, while incomes at the high end of the salary scale have gone up a lot. And at the very top of the income distribution, incomes have gone up spectacularly. So I do think that's a very important issue. I would argue that trying to address that by restricting trade is not likely to succeed. It makes the whole country poor. It's a bad way to treat the developing world. The developing world is benefiting a lot from this regime. So if you look around at the whole world, do you want to try to pursue a solution in the United States that gonna make the poor countries poorer? That doesn't appeal to me. I don't  accept the notion that restricting trade can be any part of a progressive agenda. I like to think of myself as a pragmatic progressive. So I think when you worry about wages for ordinary workers in the U.S., which I do worry about, I think you have to look at the tax system in the United States. I think you have to look at public expenditure on education and key services that actually each ordinary people. So I think what Larry Summers is arguing is that there are fiscal measures and policy measures that would really make life better for the working class. I don't  think Larry Summers is arguing against the free trade regime, but I think he's smart enough to realize that if you don't do something for ordinary workers in the United States, you may lose the political support for free trade. And that really is an important engine for the whole global growth.
Recorded on: 7/3/07