As we go twirling into the future, angst grows regarding globalization and free trade. Many think that free trade moves perfectly good jobs from developed economies to developing economies. Others focus on the negative impact on nascent economies, sovereignty and the environment among other things (it usually depends on your political ideology). The answer for free trade opponents is to make importing goods more expensive and thereby protect local production.
In the past, in far more entertaining posts, Kalpi has written about the need to open up industry to competition in order to increase market efficiency. Generally, economists like trade. It allows for specialization, which creates more efficient production. Jobs lost from one arena will be replaced in another with the surplus capital created by trade and costs will be reduced for everyone. To answer fears of job loss stemming from free trade, economists may point out that those jobs may be lost anyways due to modernization.
For instance, jobs in Israeli industries that fail to meet OECD production levels such as metal work, manufacturing and anything having to do with customer service are at risk of computerization no matter whether our borders become open to free trade or not. The Taub Center explains that 39% of Israeli jobs are at high risk of computerization while 20% are at medium risk (ironically, economists are at medium risk). Safe occupations include doctors, artists and social workers, jobs that cannot be shipped overseas or done by a computer…yet. Similarly, manufacturing jobs are plummeting everywhere independent of trade. It simply doesn’t take as many people to do many tasks as it did in the 50s regardless of our trade policy.
With all this information it seems like we should just open the borders! However, a recent paper challenges traditional economic conceptions by saying that trade can negatively influence economies for far longer than trade advocates would like to admit. Some of the problems noted in the study are US specific. For instance, employment and wages are slower to return to previous levels after trade shocks in part because workers are not as quick to relocate to job centers as theory predicts. Nor are job creators as quick to adapt to the new situation. We can’t all pull a “Swift” by which one moves from the heartland to New York in search of more money despite a paucity of talent. In the much smaller Israel, this is less of a problem. However, other problems with trade such as low levels of wage growth for those who are less educated apply to both countries. In addition, it is likely that in Israel, as in the US, that vocational training and unemployment benefits for the newly unemployed do not do enough to encourage the relocation of workers. This means while some people will win from new trade deals, that victory will not be spread across the economy.
What does this mean for us? The best way to balance the benefits and dangers of trade is a better education system that prepares all sectors for the future job market. Adult vocational training can be improved as much of it tends to move workers from one at risk job to another. What I would really like to see though, is politicians, union heads and business leaders talk about trade honestly. And not reactively. Trade is currently either an all-encompassing solution or the demon spawn that kills children and lays cities to waste. Stop it.
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