Today's globalization must-read comes to us courtesy of a link from the New Economist, from Morgan Stanley's chief economist, Stephen Roach. Already dubbed by one Salon reader as her favorite "gloomy economist," Roach has been making dire predictions about the U.S. economy for some time. But his latest missive is one of the most on-the-money dissections of the impact globalization is having on worker wages in the developed world that I've seen yet.
"In the big industrialized economies of the developed world, the squeeze on labor could well be the singular macro development of our lifetime."
"In the U.S., for example, inflation-adjusted worker compensation in the private sector -- which includes wages, salaries, and benefits and is, by far, the biggest piece of overall personal income in the U.S. -- has risen only 12 percent in the 49-month time span of the current expansion. By our calculations, this falls about $365 billion short (in real terms) of the 20 percent increase that occurred, on average, over comparable intervals of the past four expansions."
"In an increasingly integrated global economy, a failure to rationalize the excesses of bloated cost structures in the high-wage developed economies is tantamount to capitulation of market share."
"The political implications of the global labor arbitrage could well be the most vexing of all. The immediate risks are heightened trade frictions, with an outside chance of protectionism. Why else would Washington-led China bashing continue to get traction as the U.S. unemployment rate slips below 5 percent? Once jobless, now wageless, the current economic recovery is not going well for beleaguered middle-class workers in the United States."
Roach paints a dark picture, certainly one far grimmer than most economists employed by major Wall Street financial firms are wont to do. But he's not really saying anything that left-wing critics of globalization haven't been declaring for years. So the real question is, as always, what does he think should be done about this?
And on that point, Roach and How the World Works converge. Protectionism, says Roach, is not the answer. Globalization must be treated as a competitive challenge. "This puts the onus on educational reform, the training of more engineers and scientists, research and development incentives, and innovation. The problem with these proposals is that they offer no instant gratification for a body politic that is used to the quick fix. But that takes us to the biggest challenge of all posed by the global labor arbitrage -- it has only just begun."