Internationalization: implications for workers.

• Author: Marshall, Ray
• Position: Contemporary Issues in World Trade

Two interacting imperatives -- technology and internationalization -- have caused fundamental structural shifts in the American economy. These changes, in turn, have had dramatic effects on the wages and working conditions of American workers. Their main impact has been to improve the incomes of more highly educated and skilled workers and to worsen the conditions and prospects for those without education beyond high school. The fundamental structural shifts created by the synergistic relationships between technological change and internationalization have eroded the effectiveness of the economic and social policies that contributed to the long period of equitably shared prosperity in the United States and other developed countries between the early 1940s and the early 1970s.(1) The reduced effectiveness of these policies has caused considerable disagreement over the policies needed for the 1990s and beyond. Policy disagreements occur because macroeconomic, microeconomic and industrial relations policies have become less effective and no consensus has developed on new paradigms.

A major objective of this paper is to contribute to the development of a new paradigm based on high-wage, high-productivity economic strategies that include safety nets to prevent low-income people from bearing a disproportionate share of the costs of change. This paper examines these changes and their implications for workers. The nature of the processes created by internationalization and technological change will be explored first. The impact of these processes will be illustrated by an examination of their role in eroding the effectiveness of international economic policies, national macroeconomic and microeconomic policies and institutions and industrial relations systems. The paper then explores the impact of these changes for workers as illustrated by the conflict over the North American Free Trade Agreement (NAFTA) and concludes with an outline of the economic policies needed to restore equitably shared economic growth.

Technology and internationalization form highly interactive relationships. Technological change has reduced the importance of physical and geographic constraints and therefore has contributed greatly to the globalization of economic activity. However, internationalization has not increased the importance of international trade in final products and services alone.(2) As I use the term, internationalization means that information and transportation technologies have increased competition in what were formerly more isolated national domestic markets. Internationalization increases the options for buyers and sellers and therefore makes it more difficult for domestic monopolies and oligopolies to continue to fix prices and restrict output. It also becomes more difficult to take wages and working conditions out of competition through traditional domestic regulations and collective bargaining procedures. Similarly, individual workers with limited levels of formal education no longer can earn high incomes doing the same work on the same machines used by equally qualified workers in the developing countries. In other words, individuals and companies now must pay more attention to competitiveness, though competitiveness is not an issue only in international or foreign trade; it applies to domestic as well as international transactions. It also has intensified competition in domestic markets, making it much more difficult to maintain labor and product market regulatory and governance mechanisms created to support the mass-production and natural resource-oriented economy that developed in the United States during the first half of this century. Globalization of economic activity has combined with technology to change the nature of international transactions. Increasingly, these transactions are in financial markets, technologies, services and whole businesses, not just final products.

These changes in the nature of international transactions alter the conceptual underpinnings for economic policy, requiring the development of more relevant concepts. For example, discussions of international economic agreements are based largely on the theory of comparative advantage, which considers international transactions mainly in terms of the sale of final goods and services. However, comparative advantage is a static short-run concept based on voluntary exchanges of goods and services. Such transactions are naturally positive-sum processes, since all parties gain or the transactions would not take place. Since the principle of comparative advantage assumes technology and other factors of production to be relatively immobile, it is inadequate in assessing the impact of international transactions. As discussed later, the principle of competitive advantage -- a more dynamic, long-run concept -- is more appropriate for this purpose.

Technology, one of the most basic factors increasing competition in domestic and international markets, is best defined as how things are done. Technological innovation can improve productivity by substituting ideas, skills and knowledge embodied in machines for human and physical resources. Transportation and information technologies strengthen competition by reducing the constraints of time and geography, as well as by accelerating production and marketing processes. They also make available more information about products, resources, technologies and organizational structures to producers and consumers, who then can compare and choose among alternatives on a global basis. In addition, the amount, quality and speed of information this technology provides can accelerate the process of innovation -- or the substitution of better ideas, skills and knowledge for physical and human resources.

THE NEW ECONOMY: GLOBAL COMPETITION AND HIGH-PERFORMANCE WORK ORGANIZATIONS

U.S. economic policies and work organizations during the first half of this century produced the world's strongest economy and highest standard of living. This section traces the emergence of a very different economy requiring very different skills. While the United States had huge advantages in a mass-production economy, and still has the world's wealthiest economy, it has serious disadvantages in the more competitive, global, knowledge-intensive economy of the 1990s and beyond.

By the end of the 1960s, there were growing signs that America's traditional economic system was in trouble. The main forces for change were technology and increased international competition, which combined to weaken the traditional mass-production system and its supporting institutions. These changes also dramatically altered the conditions for economic viability. In this more competitive world dominated by knowledge-intensive technology, the keys to economic success became human resources and more effective production systems, not natural resources and traditional economies of scale. Economies of scale are still very important but now must be considered in a global context and are needed to recoup much more extensive research and development costs. Although no consensus has formed for a new economic policy paradigm, two things are reasonably clear: The policies that supported the old economy are obsolete, and human capital must be the centerpiece for economic success in the new economy.

Technology makes new production systems, such as the high-performance organizations discussed below, possible, but competition makes them essential in maintaining and increasing incomes.(3) Technological change and increased global competition have brought about changes significant for public policy purposes; national governments have less control of their economies, national companies have less control of markets and unions and traditional industrial relations systems have less control of working conditions. A country no longer can maintain high wages and full employment through traditional combinations of monetary-fiscal and international trade policies, administered wages and prices and fixed exchange rates. Keynesian policies, which had contributed significantly to prosperity in the industrialized countries, were particularly inadequate for dealing with the inflationary pressures induced by external supply shocks during the 1970s and had almost nothing to say about productivity, the main determinant of economic success in a more competitive global economy. In the 1970s and 1980s, moreover, internationalization weakened the linkages between domestic consumption, investment and output that formed the basic structure of the traditional Keynesian macroeconomic policies to counteract the business cycle by increasing or reducing demand through monetary and fiscal policies. In a global economy, a firm's success depends on global, not domestic, demand. The weakening of these Keynesian linkages became very clear when U.S. tax cuts in the early 1980s increased consumption, but -- in marked contrast to the 1960s tax cut that seemed to justify Keynesian policies -- also greatly stimulated imports and therefore produced much smaller increases in domestic investment than had resulted from earlier tax cuts in less globalized markets. Indeed, imports accounted for a large share of consumer goods and almost all of the increased demand for capital goods following the 1981 tax cuts.(4)

The requirements of a more competitive, knowledge-intensive economy thus create new employment policy dilemmas. Competing at high wages requires sufficient growth to prevent rising productivity from increasing unemployment. At the same time, countries are less able to stimulate their economies through demand-management policies. Indeed, Harold Wilensky presents evidence that demographic, structural and social trends had more influence on employment growth during the 1970s and 1980s than national economic policies did.(5) Employment problems are further exacerbated by the absence of a global "engine of...