Thursday, September 29, 2016

Globalization, Automation and The Rise of Trumpism

This article describes the impacts of trade and automation on the labor market.  The results are predictable.  Domestic labor markets have become international labor markets; it is not surprising that jobs have moved from high wage countries to low wage countries and wages have fallen as the supply of labor has risen faster than the demand for labor.  Manufacturing has been the hardest hit by globalization because manufactured products account for the largest share of global trade.  One does not need to be an economist to see the results in the rust belt states.  In theory the process of deindustrialization would lead to a services economy that replaced low skilled manufacturing jobs with higher skilled, and higher paid, service sector jobs.  That would be the best of all possible worlds but it did not happen as it was imagined in theory.  The share of wages going to labor has dropped as profits have risen for many multinational firms.  We expect firms to do what they can to reduce costs and increase profits but we also expect governments to respond to problems that have arisen from globalization and automation.  Governments, especially in the US, have been happy to let market forces do their magic while they have largely ignored the economic and social consequences of rapid change.  We should not be surprised by the rise of populism in Europe and the US.  We have seen that before when governments have been unable or unwilling to respond to life changing events experienced by large segments of their population.  Populists like Donald Trump have been provided with an opportunity to seize control of governments which are believed to have created problems for which they have no solutions.  Trump does not understand the problems and he does not have any workable solutions.  That does not matter to many of his supporters.  He only has to amplify the problems that concern them and present himself as a change agent who understands their problems. 

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