Rodrik – The Globalization Paradox

The question raised by Dani Rodrik in The Globalization Paradox,(Norton, 2011) is whether the world is facing a global economic breakdown similar to the end of the gold standard era following 1914. His analysis focuses on the imbalance between the global nature of markets and the national scope of governments to address the issues which arise. “Give too much power to governments, and you have protectionism and autarchy. Give markets too much freedom, and you have an unstable world economy with little social and political support for those it is supposed to help (xvi).”

He then argues, “Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy, it is the latter that should give way (xix).” The world in 2011 is witnessing the struggle by governments to reach a balance which will not cause a global breakdown. It is almost certain that there will be a prolonged recession and below average growth rates relative to most of the post WW2 period.

The whole book is strongly recommended as a lucid analysis of the current global economic situation. It includes Chapter 12 entitled “A Sane Globalization,” which contains Rodrik’s four areas of policy recommendations – Reforming the International Trade Regime, Regulating Global Finance, Reaping the Benefits of Global Labor Flows, and Accommodating China in the World Economy. Below I look at the third proposal regarding labo(u)r flows which highlight for me the difficulties of balancing national policies with global pressures.

Labour mobility

Labour force issues arise because the 7bn global population includes at least 3bn who are very poor, with 1 bn these being malnourished, while perhaps 1bn others live in developed countries which act as a magnet for immigrants. With the world geographically divided between over 190 countries, there exist strong pressures for the poor to migrate to the richer countries by people seeking out legitimate and illegitimate opportunities to move. The illegitimate ones arise because of the right social democracies claim to “protect their social arrangements” in the face of global pressures.

Rodrik argues that in the same way there are economic and social benefits from free trade and capital movements, so there are huge benefits from opening up the world’s labor markets as witnessed by the differentials in labour rates between workers in the US and in say Jamaica, Bolivia and Nigeria. His colleague at Harvard, Lant Pritchett argues the same case in Let Their People Come as does Jagdish Bhagwati and other economists.

A metaphor here is a dam behind which are stored the mass of poor people who would like to flow through the sluice gates to enter the stream which carries them to fertile lands. National immigration policies and the issuance of visas allowing the visits of a limited number of foreigners to a country act as filtering mechanisms. Some cross borders this way and some manage to bypass the system and become illegal immigrants in particular countries. The US has an estimated 12 million illegals and Canada 500,000.

Recognizing this problem, Rodrik proposes that rich countries permit an annual number of temporary foreign workers to enter for a period of five years, up to a total of workers who would expand the labour force by no more than 3%. The program would be ongoing so that as workers returned home they could be replaced by others for subsequent periods of five years. Difficulties with enforcing this program are recognized such as the foreign workers not wanting to return, and so the author proposes that part of their earnings might be withheld in blocked accounts for repatriation at such time the person actually returns home. Other difficulties are discussed by Rodrik and should be consulted by those interested in the proposal.

A Canadian focus on this issue includes the following background information. In a typical recent year, Canada has admitted about 30.5 million people. Roughly, thirty million are tourists or short term visitors, 250,000 are temporary foreign workers and students and the remaining 250,000 approved permanent residents. These totals do not include those who have entered illegally, but there is a catch here in that some of those who entered legally may have stayed beyond their permitted entry time and thus become illegal immigrants.

A further complication is that although Canada may announce an annual quota of 250,000 permanent residents in various subcategories of economic migrants, family members, business migrants and refugees, it also has a policy that makes it easier for those who entered as temporary foreign workers and foreign students to apply for permanent residency status from inside Canada. If you are an outsider looking in, there are two legal routes to consider, one is applying for permanent residency from abroad and the other is applying for temporary entry as a worker or student and then applying for permanent residency.

Not surprisingly, where demand exceeds the supply of spaces, opportunities arise to bribe those who review applications, and employers in Canada assist by hiring illegals at lower wage rates, thereby depressing rates in Canada. As Rodrik notes, pp.270-1, this a hotly debated issue and most research seems to suggest that immigration in other countries has had a negligible effect on wage rates.

While each country has its own peculiar immigration system, I do not see this proposal working easily in Canada where there are already active diasporas of persons from different countries who exercise political clout, and who would assist in making further holes in the dam which is holding back the global flood of those who would like to enter the country. With the existing system, there is already a backlog of one million applicants, which is growing each year, as only 250,000 persons are accepted annually as permanent residents (that is those who will later be able to apply for citizenship).

Another thought prompted by the Globalization Paradox, but not part of its coverage, is that there are an estimated 500,000 illegals in Canada and the unemployment rate of 7% equates to 1.4 million people unemployed. A reduction of unemployment to 5%, which is considered a workable level providing there is not long term unemployment, would require an additional 400,000 jobs. These jobs roughly match the number of illegals in the country. I have not worked out the figures for the US which has 12 million illegals, a labour force of 154 million and over 9% unemployment, but it seems to lead to roughly the same conclusion.

A comparison of the number of unemployed in each country with the estimated number of illegals at least raises questions about why the illegals have jobs and not the unemployed. We know that the illegals undertake unpleasant jobs in agriculture, construction and some service industries, but there are ways, such as paying higher wages, to attract people to certain jobs. To quote George Orwell, “To see what is in front of one’s nose is a constant struggle.” This is one of those cases.

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