Globalization has many facets, but one predominant aspect of globalization, which will be the sole focus here, is the international exchange of goods, services, and labor. When we refer to globalization in the United States, we are usually referring to the transfer of domestic capital to other nations, as well as the expanding global exchange of goods and services. Quite often, we’re referring to the loss of our jobs and much of our manufacturing base.
This process is said to have arisen, catalyzed by global communication and transportation networks, from natural market forces—especially comparative advantage, the concept that some nations are able to produce certain goods and services more cost-effectively than others. It’s presented in economics courses as a pure, free market force.
This explanation, when applied to history, is extremely duplicitous.
The flight of jobs from the United States to countries like China did not arise from free market forces any more than the cost-efficiency of Chinese manufacturing did.
Just given the fact alone that both economies are tightly controlled (though in different fashions and to different ends), this claim falls apart; how the control is applied and how it contributes to this capital flight makes it even clearer how unnatural this is. Comparing a nation with a long history of blatant currency devaluation (for a long time, the Yuan’s exchange rate with the dollar was 8.28 and has only modestly declined in recent years) to a currency that has continued to float on the open market is the proverbial apples and oranges comparison.
China is fundamentally a command-and-control nation socioeconomically; however, they allow their industry to operate relatively unbridled with respect to environmental limits (much to the detriment of their air, water, and land) in comparison with the United States and the West as a whole. This gives them a so-called “comparative advantage”.
Furthermore, China’s laws against child labor do not prevent it from being a widespread issue, with children working even in hazardous fields. Low wages and restrictions on labor unions make it even cheaper to operate there. This gives them a so-called “comparative advantage”.
In contrast, the United States tightly regulates all heavy industry to achieve environmental benchmarks and protect our air, water, and land. This gives us a so-called “comparative disadvantage”.
The United States has strict regulations on labor, including minimum wage standards, age limits, worker safety regulations, and increasingly strict requirements on employers to provide healthcare to employees. Child labor is totally prohibited, to the extent that the government has even started to encroach on informal family farm work by minors. Furthermore, the United States allows very powerful and influential labor unions to collectively bargain on behalf of workers at large cost to corporations. This gives us a “comparative disadvantage”.
The United States has the third highest corporate tax rate in the world, at nearly 40%—China’s is 25% and 15% for qualified enterprises encouraged by the government. This gives us a so-called “comparative disadvantage”.
These are the real reasons for the capital flight from the United States in recent decades, not the implied notion that China is simply better at making things. Next time someone, especially an economics professor or libertarian, tries to explain the mass exodus of America’s manufacturing base as a free market phenomenon, remind them that there’s little free about the economies in either of these countries; it’s a state-designed job vacuum with high pressure pushing capital West to East.
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