Globalization and Labor Mobility: Is more than POS,EBL Possible?

Lant PritchettUtah Council for Citizen Diplomacy’s

Ambassador John Price and Marcia Price World Affairs Lecture Series

At Westminster CollegeMarch 24, 2008

What is driving me?

• Global poverty and the gap between the haves and have nots is the issue that most concerns me

• Allowing increased mobility of unskilled labor may be the single best opportunity for poverty reduction

• What prevents labor mobility are borders, enforced at the will of rich country voters.

The Western boat, with my wife, my son

The Indian boat on the same river…wives, sons

Outline of the lecture

• How is the Pax Americana globalization different from previous? Proliferation of Sovereigns, Everything but Labor—the POSEBL

• What to do about the massive inequalities in human well-being across countries that have resulted? Mobility of labor dwarfs everything else on the agenda.

• What was, was, what can be, could be--the future of globalization is in our hands.

Keynes’s Description of Pax Britannica Globalization: Goods

What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914!

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep;

Keynes’s Description of Pax Britannica Globalization:

Investments

he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world… or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.

Keynes’s Description of Pax Britannica: Mobility

He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality...and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.

Keynes’s Description of Pax Britannica Globalization:

The water we swim in

But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion…appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.

Globalization of the Pax Romana—Not a single Roman emperor after 100 A.D.

was born in Italy

The Pax Britannica Globalization Ended Badly, with 30 years of death, destruction

and economic chaos

World War I

Hyper-inflation in Germany, Austria

Rise of Fascism (N in Nazi is National)

Lenin/Stalin in USSR

Rise of trade protectionism, limits on imports

Great Depression—almost world wide

World War II

The current globalization is the post World War II Pax Americana

International cooperation to avoid the consequences of “losing the peace”:

• Agreement to limit trade restrictions on goods (GATT—now WTO)

• Agreement to manage exchange rates (IMF)

• Agreement to rebuild Europe (IBRD—now World Bank)

• Agreement at UN to meditate disputes

For America, the Pax Americana has worked brilliantly

• Restoration of the global economy, with the US continually at the lead—trade, foreign investment

• Uninterrupted economic prosperity in the US—enormous increases in material well-being in every dimension

• The Cold War stayed Cold—and we won

• No major wars (lots of minor ones)

What was fundamentally different about the Pax Americana

Globalization?

• Proliferation of Sovereigns (POS)—the end of the previous empires (ours and theirs) meant many more countries—and many more “nations” and many more borders

• Everything But Labor (EBL)—While mobility of capital and labor was restored—the mobility of people was increasingly restricted

Pax Americana: the Proliferation of Sovereigns—number of new countries each year since WW II—

from 50 to 200 countries

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ssa mena

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While flows of every kind between countries have increased—trade, capital, ideas, information—until recently, not people

Percentage of Foreign-Born Population in the Labor Force

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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Year

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rce

nta

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France

Germany

Italy

Japan

United Kingdom

United States

Steady growth of the economic leaders has left the follower countries far behind…comparing the historical path to

today’s countries—China is in the 19th century, India pre-Civil War, and Ethiopia in the middle ages.

$0

$10,000

$20,000

$30,000

$40,000

1700 2000

GD

P P

PP

pe

r C

ap

ita

UK USA

India, $2990

1851

China, $5332

1898

Ethiopia, $688 ~ Year 12501929

Mexico, $8165

On every indicator of material well-being there are massive gaps--between our poor and their rich

• Our “poor” (the 10th percentile) have an income of about $10,000 per person, on the same scale India’s “rich” (the 90th percentile) have an income of about $5,000

• The comparisons of food consumption per person

• Infant mortality of African Americans in Detroit is about 17 per thousand, of the richest 20 percent in Uganda is around 100

• Not to mention schooling, safety, infrastructure, housing, etc.

Weekly food for a family in Bargteheide, Germany, $525 per

person/month

Source: Hungry Planet

Food for a family in Chad, 86 cents per person per month

Source: Hungry Planet

Weekly food for a family in Tingo Ecuador, $14.72 per person per

month

Source: Hungry Planet

Weekly food for a family Shingkey Bhutan, $1.76 per person per

month

Source: Hungry Planet

Weekly food for a family in Cairo, $23.99 per person/month

Source: Hungry Planet

Most reliable way to make a poor person much richer—let them cross the border,

some simple math• US worker, 9th grade=$8.87/hr

• Worker from Guatemala in USA, 9th grade, $8.70/hr

• Worker from Guatemala, in Guatemala, 9th grade, $2.95/hr

• Annual gains to the worker from moving:(52 weeks*40

hours/week)*(8.70/hr-2.95/hr)=$11,960 /year

Differences in annual wages of equivalent workers—same nationality, education, age, gender--on different sides of the USA border

0

5000

10000

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25000

Haiti

Ghana

Indo

nesia

Bangl

ades

h

Guate

mala

An

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al e

an

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gs

(in

PP

P)

In home

In USA

Source: Montenegro, Clemens, Pritchett, forthcoming

Haiti: What are the approaches to poverty reduction?

• About 8.5 million Haitians—7.9 mn in Haiti, 600,000 in US.

• Of those in Haiti only 20 percent are not poor (at 2$/day) while 96 percent of those in US are not poor—26 percent of Haitian non-poor are in the US

• At a global poverty line (10$/day) only 1.4 percent of Haitians in Haiti are not poor, while 81 percent of Haitians in US are not poor, so 82 percent of all non-poor Haitians are in the US.

Why not something else?…anything else besides moving

people• More help to individuals

– Micro-credit– Schooling– Protecting workers (e.g. anti-sweatshop movement)

• More and Better aid• Fairer Trade • Debt Relief• Policy Reform for faster growth

The total present value of access to a lifetime of micro-credit is the wage difference of 8 weeks work of the same worker in USA

versus in Bangladesh

Source: Gains estimated from Pitt and Khandker for micro-credit (annual gain of 14 percent of per capita HH consumption, CMP (forthcoming) for wages

0.0

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Net presentValue, lifetimeof micro-credit

Annual gain,migration

PP

P $

Anti-sweatshop movement to improve conditions of workers

producing for export

• Estimates were that workers in the affected industries gained 8 cents an hour from the movement in Indonesia

• The annual gain to a worker benefiting from the anti-sweatshop movement is equal to three days of the wage differential between Indonesia and the USA

Rally for debt relief for Africa

• Lead by Bono and others a huge activist cause to give broader, deeper debt relief to African countries

• Annual gain in foregone interest and principal repayments in Africa—around 3 billion

• Annual remittances to Africa: 7.3 billion.• Unskilled workers to work in OECD to produce 3

billion in gains to Africans is about 150,000 (OECD labor force is about 300 million)

Debt Relief? How about more aid? Fairer/freer trade? Total gains versus a

small increase in labor mobility

3

79.5 86

305

Bil

lio

ns

Debt Relief to Africa

Doubling net ODA

Net gains to developingcountries fromliberalization in Doharound

Value of welfare gains tocurrent developing countryresidents (including gainsto movers)from 3% ofOECD labor force increase

Column 6

Why not?

• Where is the Muhammad Yunus of labor mobility?

• Where is the Bono of more migration?

• Where are the students chanting “hey ho, borders have got to go?

• Where is the Millennium Moving Goal?

• Where are the agencies pushing for freer labor mobility?

What stops labor mobility?

• In the first instance, coercion plain and simple.

• That coercion is under the complete control of voters.

• It is the ideas of rich country voters that prevent labor mobility

Why is greater mobility not on the table as one of the options to help

poor people?• The net impact on the US economy are

positive—we get cheaper, better services

• Is it “bad for our workers”?

• Are the costs to the taxpayer too high?

Stagnating wages of low-skill workers in the USA is a huge problem—but is

migration the issue?

Is the face of the problem with stagnating wages in the US…

This face?Or this face?

Who is “taking jobs”? Technology and me

Displacing labor and capital and our labor

Annual wages of a Haitian in Haiti:

$1825

What about the tax costs? Won’t “they” use our schools? Two

distinct questions

• Who do we (as voters of rich countries) want to gain access to citizenship?

• What are the terms and conditions on which we (as voters of rich countries) will allow non-nationals access to our labor markets?– Generous terms, but few workers (Germany)– Clear, but limiting terms, but many more workers

(Singapore)

Voters in rich countries can choose capital or people: are the nurses of

the future Robots or Rosalie?

Singapore

• Seven percent of the labor force are foreign workers working as “domestics”

• Very limited access to public benefits, strictly temporary, cannot have children, marry Singaporeans

• Increases female labor force participation of skilled women

• Increases taxes (as more skilled women enter labor force with high wages)

• Doesn’t displace labor market work (few Singaporeans would do this) displaces home production—positive distributional effects

• Welfare gain to Singapore of 1.2 percent of GDP (Kremer and Watt).

Estimates of the wage differentials of equivalent workers across the US border—

and the wage impact of slavery

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Slavery in Virginia,1840-1860, ratio rentalto subsistence: 3.8

When Europe, USA, Japan flip to be like Singapore or the Gulf? Who knows, if ever, John

Brown was a lunatic, right up until he was a hero…