Globalization and labor

Globalization is the application of the free market on a global scale. There is the World Trade Organization and a growing assortment of multi-lateral free-trade pacts between countries. Recently, international trade agreements do not only focus on the trade of physical goods but also on things such as information, intellectual property and security.

Here I do not want to argue for or against globalization. In my opinion, it is too early yet to tell how international free trade will play out in the long run. However, I would like to draw attention to a problem which has been systematically overlooked in free trade agreements and which is maybe one of the toughest to face.

The biggest problem I see with current free trade agreements is that the free flow of labor is not permitted. This, in my opinion, is not socially responsible. As a result, richer nations get to reap the benefits of globalization while exploiting poorer nations.

The main selling point of free trade is the increase in the efficiency of economies. For example, if one country has good climate for palm oil production, it can focus on this. Another country could focus on petrol extraction. At the extreme, globalization would lead to narrow specialization of economies. This may be very efficient, however, the world is constantly changing and what is efficient now (or, alternatively, what is in demand now) may not be so in the future. For example, a country that is covered with palm trees for palm oil production now may discover that in the future the crops start to fail due to climate change. Similarly, a country that relies on petrol extraction now may see its fortunes turn in the future due to falling demand for petrol.

Globalization, of course, has an answer to such scenarios. With climate change, another country with a more suitable climate will pick up palm oil production. With solar energy being in demand rather than petrol, another country that focuses on solar panel production will start to benefit. What is left out of the picture is what happens to the workers who participated in the original specialization of the economy? As things stand, palm oil farmers would not be able to just relocate to the new country with suitable climate and continue their business there. Petrol worker would simply lose their jobs.

Richer countries are able to pick and choose with whom to do business to achieve highest efficiency. The interests of global companies dictate when business is relocated on the basis of profit. However, without opening also the international labor markets, the true price of goods is hidden. One-dollar T-shirts bear also a social cost. Imagine having no restrictions in the US to work migrants from Bangladesh. Local job security and wages will be severely compromised in the US—and in the process the labor markets in both countries will become more equal. This is how richer countries can share the social cost of goods.

International free trade can be socially just only when combined with free labor markets.

— London, ON, Nov 2014