Must-Read: Thomas Palley: The New Economics of Trade
Must-Read: A couple of decades ago Paul Krugman wrote a very nice little book about why one reason that exchange rates swung so much and yet industrial locations were so persistent was because of the huge costs to any really existing multinational of actually moving production from one continent to another. Now Thomas Palley points out that this is not nearly as true as it used to be for production (although not for design, marketing, etc.). So what are the implications for equitable growth?
: The New Economics of Trade: “Jack Welch… talked of ideally having ‘every plant you own on a barge”… [to] float between countries to take advantage of lowest costs…
…be they due to under-valued exchange rates, low taxes, subsidies, or a surfeit of cheap labor. Globalization has made Welch’s barge a reality… made capital mobility rather than country comparative advantage the engine of trade…. The U.S. and European response to Welch’s barge has been competitiveness policy that advocates measures such as increased education spending to improve skills; lower corporate tax rates; and investment and R&D incentives. The thinking is increased competitiveness can make Europe and the US more attractive to businesses. Unfortunately, competitiveness policy is not up to the task of anchoring the barge, and it can even be counter-productive….
The emergence of barge-like corporations has reduced the scope for effective competitiveness policy… and created a wedge between corporate and national interests…. Addressing globalization’s challenges poses enormous analytical difficulties. Unfair competition must be prevented and companies re-anchored. But this must be done without losing the benefits of real trade based on comparative advantage or ending investment that fosters development. These economic challenges are compounded by political difficulties… elite policy thinking… funded and lobbied for by corporations…. Fifty years ago what was good for GM may really have been good for the US. With Jack Welch’s barge, that may no longer hold.