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Rodrik on Foreigners
Rodrik writes:
So the "us" and "them" characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.
Tyler responds ably here, I will add a few more comments. A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us. In reality, people are more upset by immigration than by trade and as a result we are much closer to free trade than to free immigration.
Rodrik has a very Ivory-tower view of what people care about. Rodrik may be upset that people in other countries have poor on-the-job safety but (for the most part) workers who lose their jobs to foreigners really don't give a damn. What U.S. workers are upset about is losing their job and if asked to name the problem the U.S. worker will almost certainly say it's the low wages of foreigners not their poor working conditions. Moreover, the worker's diagnosis of the problem (problem to him or her that is) is correct and Rodrik's diagnosis is wrong. Why? Because higher safety standards in foreign countries would cause foreign wages to fall and thus would not much reduce competition from abroad, which is what the worker cares about. I assume that Rodrik knows this even if the worker does not.
Rodrik's deeper argument is also peculiar, especially for a liberal economist. A liberal economist should understand that for the most part labor, environmental and consumer safety standards are chosen not imposed (not always, of course, but for the most part in the long run). In the United States we have a lot of job safety because we are wealthy and are willing to pay for job safety with a reduction in our (already high) wages. In other words, Americans buy a lot of on-the-job safety for the same reasons we buy a lot of smoke alarms and DVD players. (OSHA has very little effect on job safety.) Job-safety is thus a choice Americans make about what to consume - we use some of our wealth to buy safety both at home and at work and some of our wealth to buy DVD players. Thus, to argue that we shouldn't trade with foreigners because they don't have the same job safety as Americans makes about as much sense as arguing that we shouldn't trade with foreigners because foreigners don't buy as many DVD players as Americans.
Posted by Alex Tabarrok on June 11, 2008 at 06:15 AM in Economics | Permalink
Comments
There is one more subtle (or not to subtle angle to this issue). If you tell people in other countries that you are not trading with them because of safety issues, you come of sounding like "we are better than you" or "you better do things our way, or else", and that's not going to earn you any brownie points
Posted by: Deepak at Jun 10, 2008 11:14:56 PM
Alex,
In the United States we have a lot of job safety because we are wealthy and are willing to pay for job safety with a reduction in our (already high) wages.
Isn't this a little flawed? I always figured that increased wealth and living standards for the most part were what drove better working conditions through increased expectations and competition for labor...not to mention that as our economy shifted away from hard manual labor and long hours to lighter loads and shorter ours, conditions also improved.
Agreed OSHA is a crock. I remember the 20/20 when Stossel showed Arianna that graph on the D of L link. He said it's like the government gets in front of a parade and pretends it's leading it. Arianna could only make an appeal to emotion and ignore the graph.
Posted by: John V at Jun 10, 2008 11:22:49 PM
"Because higher safety standards in foreign countries would cause foreign wages to fall and thus would not much reduce competition from abroad"
This is also wrong. Higher safety standards would indeed reduce demand for labor, and with it wages. But if whole countries/the world would have increased costs for safety, etc., then it is unrealistic to assume a labor supply elasticity that would lead wages to fall exactly to compensate for those increased costs.
Posted by: liberalarts at Jun 11, 2008 7:23:24 AM
"A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us."
This is only implied if one makes the almost certainly false assumption that people care about immigration only to the extent that they believe it affects competition for jobs.
Posted by: jdm at Jun 11, 2008 7:43:59 AM
"the government gets in front of a parade and pretends it's leading it."
This is my model for all government initiatives. Maybe not always true, but a good place to start. Being a politician is one of the least capital intensive ways to "lead" an uncertain future. All you have to do is purge any compunction you have about reneging on your promises and proclamations. What do they lose by jumping from parade to parade?
I think that certain politicians want to protect jobs in their district and they use the "safety inequality" argument to get the sympathy of other lefties to build support. I think they think that requiring foreign safety parity will raise the cost of employment. I agree. I have one question. Are the "unsafe" jobs that foreigners are taking less safe or safer than the other jobs they'd be doing? We know other benefits must be greater. I have a feeling industrial jobs are just better at recording safety incidents.
My father, at the end of his career, held a safety job for a large corporation. I can attest that at least the one developing country he spent the last couple years had a culturally lower value of individual safety than the US or the company standards. So, my opinion is that globalization is also best for making safety inroads.
Posted by: Andrew at Jun 11, 2008 8:04:57 AM
"...globalization is also best for making safety inroads." Interesting sentence, Andrew.
Posted by: shawn at Jun 11, 2008 8:20:56 AM
'A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us. '
And yet, politically, one of the largest complaints about Hispanic immigrants (both legal and illegal) is how they don't obey the same rules - they wave Mexican flags, speak Spanish, etc. While some of that complaining is merely a cloak for racism, of course, certainly not all of it is.
So, using your testable implication, I'd say Rodrik wins the point.
Posted by: rent_to_own at Jun 11, 2008 8:53:22 AM
"In the United States we have a lot of job safety": do the numbers back that claim up? (I ask because of the stishie below about road safety.)
Posted by: dearieme at Jun 11, 2008 9:15:09 AM
Not sure how Tyler "responds ably" other than to recognize that human nature isn't going to disappear just because a few ivory tower libertarians want it to, but you're correct in that Rodrik is on the wrong track.
Americans don't care much at all about public safety in other countries.
Posted by: meter at Jun 11, 2008 9:42:12 AM
"A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us."
I'm not sure where you are getting the idea from that native citizens overwhelmingly feel that immigrants obey the same rules. A major part of the resistance to the idea of open borders and free immigration is the idea that immigrants do NOT obey the same rules. Just listen to conservative radio every once in a while and you are bound to hear somebody complain about immigrants not paying their due but getting the same services as a those who do, namely native citizens. Now, whether this is true or not is a question for another time.
Posted by: Joseph Weinberg at Jun 11, 2008 11:00:02 AM
"Because higher safety standards in foreign countries would cause foreign wages to fall and thus would not much reduce competition from abroad, which is what the worker cares about."
contra
"In the United States we have a lot of job safety because we are wealthy and are willing to pay for job safety with a reduction in our (already high) wages."
It's possible that those workers (I'm not sure why your ivory tower provides a better understanding than Rodrik's) know very well that safety costs money, and assume that foreign wages are already at a floor that can't be lowered. By demanding environmental, safety, and other regulations, they're simply imposing costs that can't be shifted to lower wages. People can't work for less than nothing, which is what a bowl of rice a day is.
And by "possible," I mean that's almost exactly what most union guys think when you talk to them. Why don't you try talking to them?
Posted by: L2P at Jun 11, 2008 12:19:39 PM
There's a further aspect to this problem.
The corporations who take advantage of loosened labor and environmental regulations (and let's be honest: all of the outsourcers/offshorers do this) are buying their way out of the system.
They use their investment and management capabilities to buy their way out of the domestic regulatory system, thus, through wage & regulatory arbitrage, obtaining increased profits, while evading rules that are still in effect "back home".
This is a big part of contemporary inequality. The corporate elites are financially rewarded (with an ever increasing portion of the pie) for skirting/shirking/evading the rules that we, "back home", still have to follow.
I think this is part of the collapse of confidence here at home. The law abiding workers of the USA are being screwed by their betters who are so rich and powerful that they don't need to be law abiding. This is, in effect, in terms of American laws, a massive and unprecedented surge in law breaking by elites.
It is generally the case, in my view, that poor & corrupt societies have low quality elites, prone to predatory and corrupt practices. There is low investment in social capital or the common good because it would threaten their relative position.
I think under globalization our elites have degenerated in quality in a spectacular fashion. That is part of the debt boom, the cultural part. The widespread decline of the middle class is yet another.
Posted by: lark at Jun 11, 2008 1:13:58 PM
Alex asserts:
"A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us."
So that's why the state of California has such a rock solid budget surplus! All the immigrants are paying taxes at the same rates as natives.
Posted by: Steve Sailer at Jun 11, 2008 4:22:59 PM
Regarding "choice" of safety, in truth most democratic poor countries have _voted_ for labor and safety restrictions which are often ignored for enforcement by the government (often due to bribery) or intentionally avoided by those working in the informal sectors.
For example, it is legally harder to fire someone in Mexico than the US. If you work in the informal sector in Mexico, or your boss pays someone off, the actual difference between Mexican and US results is probably not that much.
Regarding California, I suspect the immigrants would be making more money and paying more taxes if it were legal for them to work...
Posted by: Mr. Econotarian at Jun 11, 2008 5:21:06 PM
"A testable implication of Rodrik's hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us. "
People have criticised this above enough, but I'll join in the chorus -- there are a lot of other factors that go into objections to immigration, beyond effects on wages, labour standards, and so on. Almost none of these objections is in any way shape or form relevant to the problem of international trade. If people object to international trade because it creates a race to the bottom in terms of labour standards or whatever, only a tiny part of objections to immigration stem from the degree to which immigrants might undercut the bargaining power of whatever socioeconomic class they immigrate into (usually poor and destitute natives, at least in Western countries).
Other common objections are that (1) natives don't like them as neighbours (since they come from different cultures and you can run into awkward miscommunications all the time, even if the immigrants bother to learn to speak the natives' language), (2) that they don't have adequate dedication to whatever country they immigrated to (because mostly they just immigrated for the jobs, and would prefer, all else being equal, to be back home, rather than in some strange land of bizarre and savage native customs -- us/them), (3) that they bid up the price of housing and cause traffic congestion (because they increase the population, and may be willing to put up with more than the natives are, e.g. squeezing more people into a single home; alternately, in many countries, because they are so much richer than the natives are).
None of these has the slightest relevance to international trade. It is a complete apples and oranges comparison.
Posted by: Taeyoung at Jun 12, 2008 10:08:40 AM
lark: "The corporate elites are financially rewarded (with an ever increasing portion of the pie) for skirting/shirking/evading the rules that we, "back home", still have to follow."
That's an intereting assertion, lark. Do you have any evidence whatsoever to support your claim? You seem to be saying that CEO's of corporations which moved production offshore are receiving higher compensation than those who did not. Any proof of this at all?
I can see that the first CEO to reduce costs through offshoring may have been rewarded in the short term. But when all his competitors offshore as well, what is his advantage? His entire industry lowers prices, through competitive pressure, effectively passing on savings from offshoring to all their customers. That certainly seems to be the case with sneakers and T-shirts and personal computers. The biggest beneficiary of Wal-Mart's and Target's and Costco's imports have been the customers of those retailers.
Lowering production costs - whether through offshoring or through automation or through engineered efficiencies - rewards consumers.
Posted by: John Dewey at Jun 12, 2008 11:33:38 AM
Back to the gist of what Alex what saying, Rodrik is, in fact, singing from the ivory tower. Oddly enough, it was his fellow-traveler Krugman who provided the best refutation ever of his thinking:
http://www.slate.com/id/1918
It's hard to believe Krugman was ever that good.
Posted by: M. Hodak at Jun 12, 2008 1:14:47 PM
Lowering production costs - whether through offshoring or through automation or through engineered efficiencies - rewards consumers.
...until they discover that the resulting junk costs them more in time/money/travel than something done right. Then those from the United States clean up and do so quite profitably.
Horribly wrong, but demonstrated every time quality is spurned.
Posted by: sethstorm at Jun 12, 2008 5:26:33 PM
sethstorm: "...until they discover that the resulting junk costs them more in time/money/travel than something done right."
Right. American unions and their protectionist advocates have been arguing that Asia and Latin America produced inferior products for all of my lifetime - over 5 decades. The problem is, consumers eventually realized it was not true - and that paying more in order to "Buy American" was just lowering their standard of living in order to support outrageously overpaid blue collar workers.
Posted by: John Dewey at Jun 12, 2008 7:28:44 PM
and that paying more in order to "Buy American" was just lowering their standard of living in order to support outrageously overpaid blue collar workers.
That's what happens that choice is effectively crowded out. The workers being "overpaid" is disputable.
Posted by: sethstorm at Jun 14, 2008 2:55:07 AM
Why should US workers be paid any more than mexican workers or chinese workers or egyptian workers or bangladeshi workers? What makes US workers worth more is really the capital behind them. We can move the capital to where the cheap workers are, or move cheap workers to the capital. Americans who work for a living deserve no more than nigerians or haitians who can do the same work, supported by the same capital. If you don't like your standard of living dropping to that of nigeria, then you should figure out how to play the stock market or something and get rich. Vietnamese workers deserve your job just as much as you do.
This argument needs to be expressed clearly with great enthusiasm and vigor, preferably by McCain.
Posted by: J Thomas at Jun 14, 2008 10:58:36 PM
"Vietnamese workers deserve your job just as much as you do.
This argument needs to be expressed clearly with great enthusiasm and vigor, preferably by McCain."
I sure hope he does - would love to see an even bigger landslide.
Posted by: meter at Jun 16, 2008 12:21:09 PM
