Friday, October 5, 2007

Globalization's Effect On America's Middle Class

The world we live in today is one of global proportions. Gone are the days where retail stores were filled with products that were “made in America”. Today we are more likely to find products made in China, Taiwan, Bangladesh, or Mexico. But what does this mean to Americans? How does this shift in our nation’s economy affect the average American? How does this shift affect our Middle Class?

The answers to these questions are not simple. Advances in technology have quickly brought our nation into a fast-moving, worldwide market. While many would agree that these technological advances are good for humanity as a whole, there are those that would argue that this rapid advancement to globalizing societies comes with some very steep costs.

In “The World is Flat” by Thomas L. Friedman, a New York Times Columnist, Friedman goes through the timeline of technological development, mainly in the communications arena, and the effects this rapid advancement has had on America, in particular. What Friedman comes to realize, is that the technology that has rapidly catapulted our nation into the global market (which is a good thing) has also had a negative impact on our society.

What does he mean by this? The same advances that allow us to communicate and access the rest of the world, also makes our markets open to them, in Friedman’s words, “leveling the playing field” for less-developed nations, like India, for example. The fact that these lines of communication are now open allows these other nations to get in the game, so to speak, providing direct competition to American workers. This easy access to cheap labor has had a direct impact on American jobs, due to corporate outsourcing, which, prior to globalization was never a concern. In effect, globalization has made America vulnerable to the competition.
So how does this affect us?

There are various opinions which place all the blame on outsourcing for our “Disappearing Middle Class”. In “Global Outsourcing and the Disappearing Middle Class” by William Raynor of the State University of New York, Raynor specifically discusses the impact outsourcing has had on our economy, and the middle class here in the U.S.

While Raynor acknowledges that not all of the job losses here in America can be attributed to outsourcing, he does feel that it has had a significant, negative impact on our economy. Like Friedman, Raynor also recognizes that advances in technology also play a part in the loss of jobs, as advanced technology often translates into higher productivity with fewer workers. Ready access to cheap, educated workers in addition to these technological advances, essentially puts many American jobs on the line.

So is it true that the hardest hit is the middle class in this loss of jobs? Raynor sites some of the ways domestic employment levels have been affected. He sites the drop in the number of workers hired by American employers as well as the quality of those jobs. Quoting Dr. Paul Craig Roberts, Raynor adds “Only a few of the 116,000 private sector jobs created in October provide good incomes…the remainder…consist of temps, retail trade, telephone marketing…” (Roberts, 11/12/03) It is important to note that a decline such as this in the quality of these jobs has a huge impact on employees’ ability to survive financially. This in turn, impacts our entire economy.

Interestingly enough, there are many who believe the “middle class” that we have accepted as the norm for generations, really is an anomaly. In Paul Krugman’s Article, “For Richer; How the permissive capitalism of the boom destroyed American equality” he demonstrates how historically, there were really just two economic classes; the very rich and the poor or struggling. While it’s true that there has been a shift in wealth over the last three or four decades, the gap between rich and poor is growing and the formerly middle class appears to be losing ground.

But Krugman questions this middle class ‘reality’. He points out that in America, prior to the Depression, there was no economic equality. Prior to the Depression there was the rich and the poor or struggling. So the question of whether or not a middle class is actually sustainable in our economy is valid. But Krugman looks further at this issue and seeks to find out why this is so. His answer; as the rich get richer, they attain more power. Those with power make public policy (or influence those that do). Therefore, those policies that are created will be created with the most powerful (wealthiest) in mind. In effect, the cycle builds upon itself, creating its own cocoon of self-protection.

Of course, policies that are designed to protect one segment of society must come with a cost to those it is not designed to protect. In this case, policies that are designed to favor the wealthiest American taxpayers, in effect, hurt the rest of the taxpayers by passing along higher tax rates, broader tax policies, making less funding available for service providers, etc. As there is a limit to the ‘pie’, if one large piece goes to one segment of society, the rest must get smaller pieces.

But Krugman isn’t the only one weighing in on this idea. In “Globalism: Enemy of the Middle Class-February 2007 Phyllis Schafly Report”, the author also cites the fact that “the majority of countries in the world (e.g., Mexico) have two classes: the ruler who are very, very rich and the rest of the people who are very, very poor.” But the author points out that America is different, because we built our society with the belief that anyone can live the ‘American Dream’ and prosper if one works hard. (Disclaimer; this report may not be unbiased, but I still felt it had information worth mentioning)

But this report also goes on to point out that globalization is hurting the U.S. by providing cheap products and labor from other nations who “don’t play by the rules”. The overall sentiment is that “the effects of globalization are not equal.” While globalization is a boon to Asia and India, wages for many American workers are down substantially or have remained the same over the last five years. This direct competition with substantially cheaper labor and goods has had a direct negative impact on working Americans’ ability to provide for their families.

According to this report, the United States has lost more than three million jobs since the Bush Administration took office. The fact is America cannot compete with cheap labor from Asia and India. The fact that these workers do not have access to the same benefits as American workers makes the cost even less for companies looking to outsource. And this is an alarming trend.

Janny Scott of the New York Times and Blaine Harden of the Washington Post both make reference to the loss of middle class neighborhoods in America. Why is this significant? The loss of these neighborhoods is a clear indication of this economic class as a whole. According to Harden “middle-class neighborhoods…are shrinking at more than twice the rate of the middle class itself”…”in their place, poor and rich neighborhoods are both on the rise.” Blaine blames the decline on widening income inequality in our nation.

This brings us back to Krugman’s analysis that this economic inequality is perpetuated by policy-makers who seek to protect their wealth and power. And as mentioned earlier, much of our nation’s wealth is held now by young CEO’s who earn their wealth by taking advantage of cheap goods and labor; namely Globalization. So, while we cannot necessarily draw a direct line of cause and effect between Globalization and the Decline of America’s Middle Class, there are clear connections that need examining.

According to Evette Treewater, University of Florida International Review, just fifty years ago, India had a self-contained economic system, isolating itself from the rest of the world. Deregulation in the ‘70’s and ‘80’s opened up a whole new global market. It was just a matter of time before corporations around the world, American companies included, began to take advantage of this cheap labor market.

Treewater gives an example of computer programmer wages. In the U.S. the average wage for a computer programmer is up to $80,000 per year. In India, a programmer can expect to average just $11,000 per year. With wage differentials like this, it’s easy to see why corporations find it hard to resist outsourcing. But the instant savings for corporations are not generally passed on to the consumer. Instead, corporate profits explode, and top-heavy administrations receive excessive salaries and benefits. Ultimately, it is the average worker that suffers.

One needs only to look around to see the downturn in the U.S. economy. Rising interest rates, layoffs, cutbacks, reductions in or elimination of pensions, lost jobs, rising consumer debt, reduced housing starts, the rising cost of education…the average “middle-class” American is finding it increasingly difficult to make ends meet. These economic factors impact families negatively, despite working hard, many families are finding their standard of living has dropped. And it’s unlikely to improve any time soon.

So, is Globalization really to blame for the Disappearance of America’s Middle Class? Or is it an unsustainable state of being, as Klugman suggests? In the scope of mankind, historically, I would conclude that the true nature of any economy is that there are the haves and the have-nots. Those who are able to keep a balance by remaining safely in the “middle-class” are in a temporary, if precarious position.

And globalization’s impact on our economy and our standard of living cannot be ignored. There is a saying, “There but for the Grace of God go I”. What this means is that our situation is always precarious, and external forces can have a direct impact on our personal situations. And in this day and age, we live in a Global world, and what happens in India and Asia does indeed, have an impact our lives as individuals.

Those living currently in the “middle class” are usually just one illness, layoff, or divorce away from poverty. Yet presented with these same crises, the rich do not suffer the same devastation as the middle class. But globalization has made layoffs and outsourcing more common for average Americans, and our policy-makers need to take a long, hard look at the real long-term ‘costs’ to America associated with these short-term savings.

What are your thoughts on outsourcing and the policies that are affecting American workers today?

Reference Sources:
“Global Outsourcing and the Disappearing Middle Class” by William Raynor
The State University of New York

“The World is Flat” by Thomas L. Friedman (NY Times Columnist)

“For Richer-How the permissive capitalism of the boom destroyed American
Equality” by Paul Krugman, New York Times Magazine, October 20, 2002

“Globalism: Enemy of the Middle Class” The Phyllic Schafly Report, February
2007, vol. 40, no. 8

“U.S. Losing Its Middle-Class Neighborhoods” by Blaine Harden,, 6/22/06

“Cities Shed Middle Class, and Are Richer and Poorer for It” by Janny Scott,
The New York Times,

“The Invisible Man: Evaluating the Outsourcing of American Jobs to India” by
Evette Treewater, University of Florida International Review

No comments: