Stephen Roach knows how to liven up a panel. After the morning sessions of the Wilson Center's one-day seminar on Global Competition and Comparative Advantage sometimes verged on the economically abstruse, the arrival of the articulate Roach, Morgan-Stanley's chief economist, got everyone's blood flowing. You know the party is beginning to get good when Paul Samuelson starts taking shots at Alan Greenspan.
Morgan got right down to business. The dilemma posed by "IT-enabled globalization" is that despite 10 years of productivity growth in the U.S., wage growth has been "relatively stagnant." Theory tells us that eventually workers will be rewarded for increased productivity, but that hasn't happened yet, and "10 years are a long time to wait. People are getting impatient."
That impatience has led to political drama, said Roach, who noted that he frequently testifies before congressional committeees. But he was less than hopeful about his prospects for influencing policy. Politicians, said Roach, are focusing on one issue -- trade with China -- without grasping the bigger picture.
"I get really very frustrated hearing politicians talk about trade in isolation. Context is very key here. Washington is running a policy right now which has left America in the worst position a major leading nation has ever been with respect to national saving."
The national net savings rate in the United States, a figure that combines personal savings, business savings and goverment savings, adjusted for depreciation, is, said Roach: "Zero."
This results in current account and trade deficits that mean the U.S., in Samuelson's words, "is borrowing money from poorer countries" to pay for its consumption binge.
"This is really a problem that has to be laid at Washington's doorstep," said Roach. "The enemy is them."
In other words, don't blame Chinese cheap labor for American ills.
"China-bashing really disturbs me right now, that's the sport du jour. What are there now, 23 bills to make China pay for this huge bilateral trade imbalance? That's just ridiculous. China needs to negotiate on a number of trade issues, especially intellectual property rights, but we're playing a familiar scapegoat game. In a zero national savings climate, if you close down trade with China completely, it's like a water balloon, the trade deficit has to go somewhere else. Where's it going to go? Germany?"
Roach's lambasting of governmental policy seemed to loosen up all the economists on the panel as they contemplated the potential negative consequences of what Roach has labeled Washington's "misaligned macro policies." Samuelson started to warn about an inevitable "serious run on the dollar" that could lead to a financial panic. Gomory declined to make a prediction but noted that "we certainly can't go on doing what we are doing, and we are currently only making it worse." Baumol also demurred forecasting whether a future "avalanche" was inevitable, but said "the snow is piling up. That high pile of snow should give us concern."
Through it all, the original question posed at the outset -- is comparative advantage theory still viable in this new era of globalization? -- got a little lost. But maybe that's as it should be. The essence of comparative advantage is finding out what you do best and specializing in it. But if political leaders are making decisions whose negative economic implications for everyone dwarf the impact of a particular industry moving offshore, then maybe we're asking the wrong question.
As Roach has been emphasizing recently, he believes that China's leaders are concerned about their overdependence on exports and are looking for ways to boost domestic consumption. In other words, they have identified the main obstacle to future stable growth and they are intending to address it. But in the U.S. politicians are looking for an easy way out -- making China pay for U.S. mistakes. David Ricardo would likely be shaking his head. As long as, as a nation, we are not saving, we are not accumulating the capital necessary for investment in future productivity. And there is no advantage in that, comparative or otherwise.
Shares