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

Lant Pritchett Utah Council for Citizen Diplomacy’s Ambassador John Price and Marcia Price World Affairs Lecture Series At Westminster College March 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

4 2 0 10 8 6 20 Pax Americana: the Proliferation of Sovereigns — number of new countries each year since WW II — from 50 to 200 countries 18 ssa eca eap mena lac other 16 14 12

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

14 12 10 8 6 4 2 0 1989 1990 1991 1992 1993

Year

1994 1995 1996 1997 1998 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 19 th century, India pre Civil War, and Ethiopia in the middle ages.

$40,000 $30,000 $20,000 $10,000 $0 1700 UK 1851 USA 1898 1929

Mexico, $8165 China, $5332 India, $2990 Ethiopia, $688

2000

~ Year 1250

On every indicator of material well being there are massive gaps- between our poor and their rich • Our “poor” (the 10 $10,000 per person, on the same scale India’s “rich” (the 90 th th percentile) have an income of about 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, 9 th grade=$8.87/hr • Worker from Guatemala in USA, 9 th $8.70/hr grade, • Worker from Guatemala, in Guatemala, 9 th 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 25000 20000 15000 10000 5000 0 H ai ti G ha na In do ne si a Ba ng la de sh G ua te ma la Source: Montenegro, Clemens, Pritchett, forthcoming In home In USA

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 14000.0

12000.0

10000.0

8000.0

6000.0

4000.0

2000.0

0.0

Annual gain, micro-credit Monthly gain, migration Net present Value, lifetime of micro-credit Annual gain, migration Source: Gains estimated from Pitt and Khandker for micro-credit (annual gain of 14 percent of per capita HH consumption, CMP (forthcoming) for wages

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

Debt Relief to Africa 305 Doubling net ODA 3 79.5

86 Net gains to developing countries from liberalization in Doha round Value of welfare gains to current developing country residents (including gains to movers)from 3% of OECD 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 14 12 10 8 6 4 2 Slavery in Virginia, 1840-1860, ratio rental to subsistence: 3.8

0 C R I M E X G TM ZA F C Br H az L il, 1 87 8 EC U Ja m JO ai R ca , 1 81 0 LK A ID N H TI

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…