Asia’s rise squeez­ing Amer­i­can pay­checks

De­vel­op­ing world dom­i­nates in 2060

The Washington Times Weekly - - Geopolitics - BY PA­TRICE HILL

Much has been made re­cently about stag­nat­ing wages for the mid­dle class and the grow­ing gap be­tween the rich and the rest in Amer­ica. But that’s only one small part of the story.

Tak­ing a step back and look­ing at the global pic­ture, most of the growth in in­comes since the turn of the cen­tury has gone not just to the world’s wealth­i­est cit­i­zens but to the rapidly ris­ing mid­dle classes in China, In­dia and other emerg­ing Asian economies, which have been the big­gest ben­e­fi­cia­ries of the his­toric glob­al­iza­tion of the econ­omy and ex­pan­sion in world trade of the last two decades.

The big­gest losers in the great global re­dis­tri­bu­tion of in­come and trade since the fall of the Berlin Wall in 1989 have been the mid­dle class and lower-in­come groups in the U.S., Ja­pan and other de­vel­oped coun­tries. That is the con­clu­sion of re­cent stud­ies by the World Bank doc­u­ment­ing the af­ter­math of the dra­matic open­ing up of bor­ders and trade since the col­lapse of com­mu­nism in East­ern Europe and Rus­sia, China’s en­try into the World Trade Or­ga­ni­za­tion and other sem­i­nal events that have trans­formed the world econ­omy in the last two decades.

World Bank re­searchers found that the av­er­age per­son in the mid­dle of the in­come spec­trum in China, for ex­am­ple, en­joyed a near-tripling of in­come be­tween 1988 and 2008. Mid­dle-in­come Thais and In­done­sians nearly dou­bled their in­comes, while In­dia’s mid­dle class saw in­come growth of about 50 per­cent in the same time pe­riod. The in­come of a typ­i­cal mid­dle-class worker in the U.S., by con­trast, rose by only 26 per­cent, while a mid­dle-class Ger­man’s wages grew by 7 per­cent and Ja­pan’s mid­dlein­come work­ers ac­tu­ally lost ground in the same time pe­riod.

“Nine out of 10 of the win­ners were from resur­gent Asia,” while “the losers were pre­dom­i­nantly the peo­ple [in the de­vel­oped world] who be­long to the lower halves of na­tional in­come distri­bu­tions,” said Christoph Lakner, co-au­thor of the stud­ies and con­sul­tant at the World Bank.

Add in the en­rich­ment of the wealth­i­est 5 per­cent of the world’s pop­u­la­tion from glob­al­iza­tion, and it’s been “the most pro­found reshuf­fle of in­di­vid­ual in­comes on the global scale since the In­dus­trial Revo­lu­tion,” he said. The huge global shift of in­come and eco­nomic ac­tiv­ity from the West to the East also raises “pro­found” po­lit­i­cal and so­cial ques­tions, he said.

“Does the growth of China and In­dia take place on the back of the mid­dle class in rich coun­tries?” he asked. Although it’s dif­fi­cult to prove that Asian work­ers are get­ting richer pri­mar­ily be­cause cor­po­ra­tions shifted mil­lions of jobs and bil­lions of dol­lars in in­come to Asia while clos­ing plants in the West in the last two decades, the trends almost cer­tainly are re­lated, he said.

A re­cent poll by Pew Re­search found that Americans are deeply skep­ti­cal about the ben­e­fits of for­eign trade as a re­sult of their ex­pe­ri­ences with job and in­come losses. More than half of those polled said that free trade de­stroyed jobs and low­ered wages. But Pew found that views on free trade were much more pos­i­tive in de­vel­op­ing coun­tries, which have ben­e­fited from the out-mi­gra­tion of jobs and in­comes.

West to East

The shift­ing of in­come gains to Asian economies has gone so far, ac­cord­ing to Mr. Lakner, that it has nearly en­abled Asia to re­claim the prom­i­nent place in the world econ­omy it en­joyed be­fore the In­dus­trial Revo­lu­tion of the 1800s vaulted the West to pre­dom­i­nance. Lead­ing the resur­gence of Asia has been China, whose rapid in­dus­tri­al­iza­tion has lifted more than 600 mil­lion peo­ple out of ab­ject poverty in the last two decades — an un­prece­dented feat in world his­tory.

But Mr. Lakner said it’s hard to know whether to cel­e­brate the suc­cess of Asia — for­merly one of the poor­est parts of the globe — or rue the slow hol­low­ing out of the in­dus­tri­al­ized West, where mid­dle-in­come cit­i­zens stand to keep los­ing more and more in­come in the com­pe­ti­tion with the emerg­ing world for jobs in com­ing decades. He wor­ries that the slow but steady de­cline of liv­ing stan­dards for the mid­dle class — even as the wealth­i­est 10 per­cent grows richer — poses a threat to democ­racy in the West.

Tyler Cowan, eco­nomics pro­fes­sor at George Ma­son Univer­sity, said the stud­ies by Mr. Lakner and co-au­thor Branko Mi­lanovic prove that freer trade, more open bor­ders, greater im­mi­gra­tion and other el­e­ments of glob­al­iza­tion since the 1980s have suc­ceeded at im­prov­ing the liv­ing stan­dards of large parts of the world’s pop­u­la­tion. To fo­cus only on the in­crease in in­come and wealth dis­par­i­ties in the U.S. is to miss the point, he said.

“From a nar­rowly na­tion­al­ist point of view, th­ese de­vel­op­ments may not be aus­pi­cious for the United States. But that nar­row view­point is the main prob­lem,” he said.

“The eco­nomic surges of China, In­dia and some other na­tions have been among the most egal­i­tar­ian de­vel­op­ments in his­tory,” he said. “In­ter­na­tional trade has dras­ti­cally re­duced poverty within de­vel­op­ing na­tions, as ev­i­denced by the ex­port-led growth of China.”

The mi­gra­tion of Latin Amer­i­can and Asian job seek­ers to the U.S. and East­ern Euro­pean and African job seek­ers to Western Europe also has helped build wealth in the de­vel­op­ing world, even as it has put “mod­est pres­sure” on the wages of low-skilled na­tive work­ers in the West who com­pete with the mi­grants, he said.

The avail­abil­ity of such plen­ti­ful, cheap la­bor clearly has ben­e­fited the own­ers of cor­po­ra­tions and other rich peo­ple, even as it has pre­sented com­pe­ti­tion for poorer Americans, he said. Still, the era of glob­al­iza­tion over­all has brought big ben­e­fits to the hu­man race, he said.

More­over, the rise of the mid­dle class in China and other emerg­ing coun­tries adds to the pool of global con­sumers and presents busi­nesses and work­ers in the West with op­por­tu­ni­ties for growth.

“Although sig­nif­i­cant eco­nomic prob­lems re­main, we have been liv­ing in equal­iz­ing times for the world — a change that has been largely for the good,” Mr. Cowan said. “Poli­cies on im­mi­gra­tion and free trade some­times in­crease in­equal­ity within a na­tion yet can make the world a bet­ter place and of­ten de­crease in­equal­ity on the planet as a whole.”

Shift in wealth will grow

The Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment, which rep­re­sents the world’s rich­est na­tions, re­cently pre­dicted that the shift of in­come and eco­nomic power from the West to the East would con­tinue and even in­ten­sify in com­ing decades.

By 2060 Asia and the rest of the emerg­ing world in Africa and Latin Amer­ica will con­sti­tute the largest part of the world econ­omy, turn­ing the cur­rent world or­der on its head, the group said.

As the emerg­ing world gets richer, fewer mi­grants will seek to en­ter the U.S. and other de­vel­oped na­tions look­ing for jobs. That will serve to fur­ther slow growth in the econ­omy and la­bor force in Western na­tions, mak­ing it harder for them to in­crease liv­ing stan­dards and ser­vice their large and grow­ing debts, the OECD pre­dicted.

The forces of glob­al­iza­tion will con­tinue to drive up in­come in­equal­ity within the U.S., as wealth­ier res­i­dents ben­e­fit more from in­creased ac­cess to cheap global la­bor and goods than less well-off res­i­dents, the OECD said.

World Bank Pres­i­dent Jim Yong Kim said the rise of Asia has been both awe-in­spir­ing and trou­ble­some in its im­pli­ca­tions.

“In 1990 East Asia, South Asia and Africa all had the same per­cent­age of peo­ple liv­ing in ex­treme poverty: 55 per­cent. Now East Asia is at 10 per­cent, and South Asia has gone down to 30 per­cent. In Africa it’s still 55 per­cent,” he said in a re­cent in­ter­view with For­eign Af­fairs mag­a­zine.

“The re­al­ity of global mar­ket cap­i­tal­ism is with us. The Chi­nese Com­mu­nist Party and the Viet­namese Com­mu­nist Party em­braced global mar­ket cap­i­tal­ism fully,” and the re­sults are now in: They’ve grown richer and more pow­er­ful, he said.

“The world has changed. Even very poor peo­ple are more em­pow­ered and de­mand­ing more. This is hap­pen­ing ev­ery­where,” he said, not­ing that the dra­matic growth in in­comes and liv­ing stan­dards in emerg­ing coun­tries in­creas­ingly is not enough to sat­isfy their grow­ing mid­dle class, which also wants po­lit­i­cal lib­er­ties and greater equal­ity.

“Even in places like Brazil, where the last two gov­ern­ments have been so com­mit­ted to re­duc­ing in­equal­ity, there were protests last sum­mer. It’s just a po­lit­i­cal re­al­ity for lead­ers that they’ve got to pay at­ten­tion to in­equal­ity,” Mr. Kim said.


While the global econ­omy has been a boon to Asia and lifted mil­lions there from ab­ject poverty, mid­dle-class and poor Americans are see­ing the ex­act re­verse as wages stag­nate and more work heads over­seas.

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