The United States government must address the country's growing income inequality to stem the dangerously rising tide of economic protectionism, Tuck School of Business professor Matthew Slaughter told a crowd of more than 300 community members gathered in Spaulding Auditorium on Wednesday. Slaughter's lecture, "A New Deal for Globalization," was the fifth in the Institute of Lifelong Education at Dartmouth's summer series, "Positive Solutions."
Most economists agree that free trade promotes economic growth, Slaughter said. Economists estimate that the United States is $1 trillion richer due to trade liberalization in recent decades. The United States' productivity growth rate has doubled from 1.35 percent to 2.7 percent since 1995, largely due to globalization and the revolution in information technology, he added.
IT is the only industry for which all World Trade Organization member nations have removed all tariffs and barriers to trade, Slaughter said. The industry has grown explosively as a result, as rising quality has accompanied substantial decreases in the price of computers and computer-related products.
"When you compare this to the price of milk and clothes, no other industry has been able to deliver the quality-driven price declines that IT has delivered," Slaughter said.
Computer parts are now produced and assembled globally, with different countries, such as China and Singapore, specializing in various types of computer hardware.
While the United States imports more IT products than it exports, Slaughter said, American-based IT companies like Microsoft and Apple continue to flourish by specializing in lucrative research and development. These companies also market their products well, he said.
Despite these benefits, Americans increasingly oppose free trade, Slaughter said. Protectionists, such as Lou Dobbs, have developed large followings through the media, and a recent Wall Street Journal poll found that the percentage of Americans who view globalization positively has decreased from 50 percent in 1997 to 28 percent in 2007, according to Slaughter. For the first time, multilateral trade talks failed last week after several countries could not agree about how to move forward with the WTO's Doha Development Agenda, he said.
Slaughter attributed most of the hostility towards free trade to rising inequality in the United States. While free trade has helped the country as a whole, he said, it has benefitted the wealthy and well-educated far more than the poor. Despite recent economic growth, the median income in 2006 was $1,000 lower than the all-time high in 1999, he added. The income of workers with professional degrees grew by 10.6 percent from 2000 to 2006, he added, while the income of those with an undergraduate education or below has declined.
"People will say, 'Boy, that Lou Dobbs, isn't he just a crank? This protectionist drift is just special interest groups and cranks like him,'" Slaughter said. "My response is that I wish it was that simple, but it's not."
The current trade adjustment assistance program does not adequately compensate workers hurt by globalization, he said, adding that the program only affects workers in the manufacturing sector.
"Right now, the most compelling narrative, unfortunately, comes from Lou Dobbs," Slaughter said. "He acknowledges the problem and offers a solution. I personally disagree with the solution, but he offers a compelling narrative."
Slaughter recently co-authored a report released by the Financial Services Forum, a non-partisan policy think tank, that called for a dramatic expansion in the United States' unemployment insurance system by offering wage-loss insurance and a more progressive unemployment insurance tax system.
