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We may be taking some hits from free trade

Kai Ryssdal Apr 11, 2007

We may be taking some hits from free trade

Kai Ryssdal Apr 11, 2007

KAI RYSSDAL: Citigroup confirmed today it’s getting rid of 17,000 jobs. That’s about 5 percent of the workforce at the world’s biggest financial services company. Another 9,500 jobs are moving to quote “lower-cost locations” worldwide.

Word on the street is a good number of them will land in India. Which puts today’s news smack in the middle of two major trends that are forcing economists to rethink some of their assumptions about free trade.

ALAN BLINDER: Electronics and India.

That’s Alan Blinder. He’s an economist at Princeton University. For years, he was an avid free-trader. Still is, actually. But, he says, announcements like Citigroup’s highlight the costs that come with the benefits of globalization.

BLINDER: Electronic communications means that a whole range of services that we used to think of as not tradeable between countries now is becoming tradeable. And India is the . . . it’s not the only one, but it’s a major source now of skilled, English-speaking labor.

RYSSDAL: And are we losing more of those jobs than you ever thought?

BLINDER: So far, this is still a relatively small phenomenon — although for the people that are already impacted by it, it doesn’t seem very small at all. But I believe that as the electronic communications continue to improve, as they’ve been . . . and as countries like India, China, the Philippines and many others educate more and more people and get more and more businesses involved in this off-shoring process, it’s gonna be a very big deal indeed.

RYSSDAL: You know, if you go to an economists’ convention and you survey a room full of ’em, they’re probably gonna say, most of them anyway, that free trade is a good thing. And that it generally advances the economic well-being of most of the people in the world. Are they all wrong?

BLINDER: No, no, they’re all right — and I’ll be in that convention voting the same side. Absolutely. Let me give you a large-scale analogy: suppose you were privileged in the year 1802 to walk into President Jefferson’s office and say, “You know what, President Jefferson? Right now, 83 percent of Americans earn their living on farms. In 150 years, that’ll be about 3 percent.” You know, Jefferson might have asked you, “Well, what will the other 80 percent do?” And of course, you wouldn’t have known, and nobody would have known. But they found better things to do than working on farms. And so in the end, I think we’re gonna have huge gains from this process. What I’m worried about is getting from here to there.

RYSSDAL: Define that. What is the . . . what’s the progression?

BLINDER: Well, what has to happen is a whole lot of people, many millions of people, are gonna lose jobs to foreign competition. And a whole lot of other people — overlapping but not exactly the same people — are gonna gain jobs. And we in America don’t do a very good job of taking care of our job losers, the displaced workers — whether they lose it for trade or any other reason. It’s particularly hard for older people who can’t very well retrain for the new sorts of jobs. It may be . . . it has been historically, particularly hard for uneducated people. But I think it’s now going to start hitting educated people.

RYSSDAL: How long is this transition gonna last?

BLINDER: Hah, long time. I think we’re talking about a generation, probably.

RYSSDAL: Tricky then, because the people who are gonna benefit or be most harmed by it are, you know, 2 years old now.

BLINDER: That’s correct. Some of them are 2 years old, some of them are 20 years old, some of them are 40 year old. And if you go to a real person, as opposed to a theoretical person, and say “You know, it may be a rough 20 years, but then things will be fine” . . . that’s not much solace.

RYSSDAL: Well, what do we do to carry this forward? Is there a secret or a trick or a mindset to have as the U.S. and the government tries to keep prospering in an era of free trade?

BLINDER: Well, I don’t think there’s any one silver bullet. There are a few things. First, I would say don’t succumb to the allure of protectionism. It doesn’t work, and it certainly won’t work for electronic trade. I mean, how can we stop electrons? Secondly, as I was saying before, we just have to do a better job with the social safety net, so that job displacement doesn’t hold the ravages that it now holds to the typical American. Thirdly, I think we have to think, in terms of those kids you were talking about, about what we need to do with our educational system so that we’re training kids for the jobs that will actually be available in the United States when they leave the school system. Not the jobs that will have migrated overseas. And then finally, I think we have to get used to the idea that if we want to stay the richest country in the world — which I presume we do — we can’t try to hang on to sunset industries. We have to specialize in sunrise industries. That’s again, not a news story, it’s been the story of the United States for decades now. And we’re pretty good at it, frankly.

RYSSDAL: Alan Blinder, an economist at Princeton University. Professor, thanks a lot for your time.

BLINDER: Thank you, Kai.

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