Globalization has been a major force in depressing the wages of less-educated workers in the United States. This is largely undisputed. But it also was not inevitable. Globalization unfolded this way as a result of policy decisions — which could be reversed — to structure globalization in ways that exacerbated income inequality.
Manufacturing used to be a source of relatively good-paying jobs for American workers, especially men without college degrees. But as the United States entered new trade deals and lowered tariffs, manufacturers here — and therefore their workers — were thrust into competition with much lower-paid workers in countries such as Mexico and China.
As imports of these manufactured goods soared, millions of U.S. workers lost their jobs. After staying nearly constant in the three decades from 1970 to 2000, manufacturing employment fell by more than a third — almost 6 million jobs — over the next decade. (The recovery since 2010 has brought back a bit more than one tenth of these lost jobs.) Those displaced workers sought jobs in retail and the service sector, putting downward pressure on the wages of non-college educated workers in those areas as well. For this reason, most economists see global trade as a major force leading to the stagnation of wages, the widening income gap, and the shrinking middle class over the last four decades.
There is nothing natural or inevitable about the process of globalization as we’ve experienced it for 40 years.
Globalization did not have to put a target on the backs of factory workers. It could’ve just as easily applied its competitive pressures to a different group: highly compensated professionals such as doctors and lawyers.
Just as there are hundreds of millions of people in poorer countries who will work at manufacturing jobs for a fraction of the pay of American workers, tens of millions of smart and ambitious people in those same countries would be happy to get advanced degrees and certifications to work as doctors, lawyers and other highly paid professionals in the United States. They, too, would be content with salaries far lower than what U.S. professionals receive.
The reason our autoworkers have to compete with workers in Mexico — and our doctors don’t — is that that the trade deals were explicitly designed to give U.S. corporations access to lower-cost labor. A major goal of the North American Free Trade Agreement was to make it as easy as possible for U.S. auto manufacturers to move production to Mexico and ship goods back to the United States. The treaty includes a lengthy chapter assuring U.S. corporations that Mexico’s government can’t seize its factories, restrict them from repatriating profits, or take other steps that would harm their investment in Mexico.
By contrast, NAFTA did nothing to make it easier for bright Mexican students to train to U.S. standards and work as professionals in the United States. In fact, we have instead left in place strongly protectionist measures for many professions, most importantly doctors. Foreign-trained doctors are largely prohibited from practicing medicine in the United States unless they complete a U.S. residency program. The slots in these programs are strictly limited to begin with, and only a fraction are open to doctors from overseas medical schools.
It would be difficult to envision a more obviously protectionist measure. No one can believe that the only way a person becomes proficient in practicing medicine is by completing a U.S. residency program. There are plenty of competent doctors elsewhere in the world. As a result of this protectionism, however, U.S. doctors earn on average more than $250,000 a year — twice as much as their counterparts in Germany, Canada and other wealthy countries.
Protecting doctors from foreign-trained competition costs the United States close to $100 billion a year (around $700 per family) in higher medical costs. There are similar, if less rigid, protectionist barriers in place for other professions. For example, all dentists used to have to get a degree from a U.S. dental school; degrees from Canadian schools just became accepted as of 2011.
The key point is that there is nothing natural or inevitable about the process of globalization as we’ve experienced it for 40 years. We could instead have a process of globalization in which several hundred thousand people from the developing world come to the United States to work as doctors, lawyers, dentists and other professionals — much as they have in less-protected fields such as nursing and engineering.
This would boost economic growth and benefit consumers in the same way increased trade in manufactured goods has. The difference is that this pattern of globalization would lead to greater income equality because it would apply downward pressure on the wages of the most highly paid professionals, not blue-collar factory workers.
This does raise a reasonable concern: a brain drain from the developing world. That, however, could be addressed with a tax system for foreign-trained professionals, whereby the United States would rebate a portion of the professionals’ earnings to their home countries so that two or three professionals can be trained for each one that emigrates to the United States.
This is the sort of “taxing winners to improve the lot of losers” that economists always talk about when pushing trade deals, even if there is little follow-up in practice. As a practical matter, an international compensation system would be far easier to implement since we’d know where foreign professionals were trained and, therefore, what countries should be compensated.
This is a perfectly feasible route for globalization, but one we haven’t pursued because our most highly-paid workers insist on protectionism. Anyone who defends the current limits on foreign-trained doctors is not a free trader — and such selective protectionism means globalization will continue to redistribute income upward.
Dean Baker is the co-director of the Center for Economic and Policy Research and the author of “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.”