Ms. Cavendish?

For 30 years, the wages of American workers rose as they became more productive. That era is over. Blue collar wages have stagnated since 2001, partly because jobs have been moved offshore. The rich have got richer but the middle class is working harder to stand still: in Europe, average real disposable incomes hardly rose between 1997 and 2007.

I´m always very wary indeed of people who mix and match their statistics. Why use wages once and disposable incomes the other?

Fact is that blue collar compensation has been rising in the US. For US workers get part of their total compensation in benefits…health care insurance for example. And disposable incomes are of course calcualted after tax. And I think we´d agree that taxes have been rising…in the UK, at least?

And so it´s possible (I don´t insist it is mind, just that it´s possible) that neither of these figures show anything at all about the impact of globalisation.

The theory of comparative advantage, which has underpinned trade for 200 years, is fraying. The argument was that everyone would gain because emerging economies would take over low-wage jobs and rich countries would gain new markets for high-end services. But India is already better at high-end technology than the West, and is filing an increasing number of patent applications. Western politicians make glib statements about the need to improve education. But the globalisation of innovation should shake them to the core. That\’s why many G20 countries talk up trade while implementing protectionism.

Do stop being silly. The theory of comparative advantage is not fraying. It´s a simple fact. Precisely what might be the comparative advantage might be changing, but the existence of them and the reality that the exploitation of them is what makes us richer is simply not in doubt.

A third slogan is that “growth is good”, and that more growth will help nations to bear the costs of eliminating pollution. But many ordinary people who read about the mass extinction of species, the unprecedented loss of forests and climate change, are starting to ask whether GDP growth always equals improvement.

This is just silly. No one at all says that growth necessarily improves the environment. What is indeed said, for it is true, is that growth increases our ability to improve the environment for that is what growth means: a rise in our ability to do things.

5 thoughts on “Ms. Cavendish?”

  1. But India is already better at high-end technology than the West

    I don’t wish to denigrate Indian IT in any way, but any objective measure of whom is at the top of the tree would still put the USA way ahead.

    A big chunk of what India does is low value work, where their cost advantage is a winner.

    The problem with much of what you read is that the writer has got caught up in some hyperbole or other.

  2. But India is already better at high-end technology than the West

    Guffaws loudly.

    In years of trying to make these global projects work, I have yet to see a single unmassaged cost/benefit, including productivity and quality measures, in favour of outsourcing to India (or any other low-cost location).

    Tim adds: Not entirely sure of that. I know of several projects that worked very well…..I was running them. Getting games ported from one platform to another using Russian programmers in the 90s.

  3. I think there is a skill – wage mismatch across countries. This is aggravated by pegged currency.

    This is worst for UK/US where high-end jobs will move out – and low end will not come back till exchange rate system breaks down.

  4. It’s not a one way street. The company I work for in the UK does some outsourced IT work for a US firm, and we’ve also sold software components to an Indian software company.

    I think there is a skill – wage mismatch across countries. This is aggravated by pegged currency.

    We also choose to make ourselves less competitive by wanting high (and rising) property prices, which increases the net salary required to work here, and by having extremely high taxes on income, which make that level of net salary even harder for companies to afford.

  5. Would it not be fair to say that all growth, given time, improves life expectancy and by extension, our environment?

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