at lower resource cost. When a coun-
try opens its borders to free movement
in and out of goods and services, the
market then provides the incentive to
move the country’s resources into their
highest-value uses, thereby facilitating
economic growth.
One of the great benefits of globalization is the manner in
which it increases wage rates and purchasing power in
previously low-income countries.
Globalization has created the environ-
ment in which export-led economic
growth can reduce poverty by bidding
up wages in low-income countries. As
poor people’s incomes rise, they gain
purchasing power and become better
markets for the products that others
produce more efficiently. This has hap-
pened over and over again, particularly
in Asia.
At the end of World War II, Japan, Korea,
Taiwan, and most other East Asian coun-
tries were very poor and their wage rates
were very low. Japan’s early post-war
manufacturing exports were cheap in
both price and quality; however, Japan’s
manufacturing industries developed
and matured over time. Japan’s wage
rates were bid up by this export-led
growth to the point that it could no
longer compete in the production of
the low-end labor-intensive products,
and their manufacture moved to South
Korea and Taiwan to take advantage of
cheaper labor there. As South Korea’s
and Taiwan’s wage rates were bid up, the
jobs moved to Southeast Asia and, more
recently, the coastal provinces of China.
Now we are reading press reports of
labor shortages in coastal China, which
mean that employers in labor-intensive
industries there are having to pay higher
wages to get labor. Jobs in labor-intensive
industries are starting to move into the
interior of China and on to India, where
wage rates are lower. As each place loses
competitiveness in labor-intensive indus-
tries, it moves up to more sophisticated
and higher quality manufactured prod-
ucts. As the labor-intensive sectors move
to take advantage of cheaper labor else-
where, they leave behind a significant
reduction in poverty in each country
they depart.
As wages and incomes have risen in each
country in succession, that country has
become a better market for products
in which the United States is competi-
tive. For example, Japan, South Korea,
and Taiwan became the best markets
for midwestern corn and soybean prod-
ucts as people there gained the pur-
chasing power to include more animal
protein in their diets. Globalization
made it possible for them to experience
the broad-based, export-led economic
growth that increased their purchasing
power. While Asia has a huge population,
parts of which are still growing rapidly,
high numbers of people alone do not
create market opportunities. It takes
purchasing power along with large pop-
ulations to translate need into effective
market demand.
The current Doha Round of the World
Trade Organization’s (WTO) negotia-
tions is putting special emphasis on using
trade to accelerate economic develop-
ment in presently low-income countries.
Out of the world’s 6.5 billion inhabitants,
about half live on less than $2 per day,
and 1.25 billion live on less than $1 per
day. People with so little purchasing pow-
er do not represent market opportuni-
ties. The objective of the Doha Round
is to create a trading environment in
which broad-based economic growth
can occur in the presently low-income
countries. Those countries confront the
highest barriers to their exports in the
very products for which they have a
comparative advantage. These products
include those made by labor-intensive
manufacturers, such as textiles, apparel,
and footwear, as well as crops that do
well in the tropics, such as sugar, rice,
and cotton.
Opponents of globalization often assert
that opening up international trade will
drag our standard of living down to that
of low-wage developing countries. They
have it exactly backwards. The objective
is to accelerate broad-based economic
development that brings wage rates in
low-income countries up closer to ours.
In the process, this will provide people
in those developing countries with the
purchasing power that will create better
markets for products we produce more
efficiently, and the development of bet-
ter markets will, in turn, create more jobs
here in the sectors in which we have a
comparative advantage.
Dynamic change in competitiveness
Countries’ competitive positions change
all the time. No economy stands still.
New mineral deposits are found, and
others are depleted. Some countries’
populations grow, while those of others
decline. Research may find new tech-
nologies that provide a greater advan-
tage to one country than another. New
technologies can completely wipe out
previous industries. How many buggy
whip manufacturers can you find in the
U.S. today?
It is normal for a new, high-tech product,
e.g., the silicon chip or the personal
computer, to go through a life cycle.
When first introduced, production of a
new product takes a lot of skilled labor.
However, once the product’s launch has
been successful and a large market devel-
ops, its production can be mechanized
and carried out by much less skilled labor
than was required at the outset. It is not
unusual for manufacturing to move at
this stage to another country with abun-
dant supplies of less skilled, and there-
fore lower-wage, labor. This can happen
in a relatively short span of time. As such
“commoditization” occurs, whoever can
produce the product at lowest cost, while
meeting the quality standards and delivery
schedule of the buyer, will get the sale.
Today, industries rise and fall and rise
again in other countries at a very rapid
rate. What is clear, however, is that one
of the great benefits of globalization is
the manner in which it increases wage
rates and purchasing power in previously