[Congressional Record Volume 144, Number 118 (Wednesday, September 9, 1998)]
[Extensions of Remarks]
[Pages E1660-E1661]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                     A CLOSER LOOK AT GLOBALIZATION

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                      Wednesday, September 9, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, September 2, 1998, into the Congressional Record.

                     A Closer Look at Globalization

       Hoosiers are becoming more aware of the globalization of 
     the economy--the way that the U.S. economy is increasingly 
     linked to those of other countries through trade and 
     technology. They recognize some of the benefits of this 
     globalization--lower prices for consumer goods and expanded 
     markets for Indiana exports--but they are also concerned when 
     they see jobs eliminated in Indiana and created in Mexico and 
     see the Asian and Russian economic crises hurt our stock 
     market. All of us must more fully understand what effects in 
     our economy can and cannot be attributed to globalization, so 
     we can properly respond to these changes.


                              Main factors

       The principal factors involved in globalization are:
       Increased telecommunications and transportation networks. 
     Technological changes are the driving force of globalization. 
     These can be seen through telecommunications satellites, fax 
     machines, the internet and other electronic linkages, as well 
     as through expanded and improved land, sea, and air 
     transportation among countries. To take one example, in 1968 
     only 80 simultaneous phone calls could be made between the 
     U.S. and Europe. Today, satellites and undersea cables can 
     accommodate one million calls at a time.
       Increased trade. The volume of world merchandise trade 
     today is 16 times what it was in 1950. Increased trade allows 
     countries to specialize in what they make best, increasing 
     global economic efficiency. The World Bank expects consumers 
     to gain between $100 billion and $200 billion every year in 
     additional purchasing power as a result of reduced tariffs 
     and increased trade.
       Increased investment. International investment is perhaps 
     the most significant, but least understood, effect of 
     globalization. Since the 1980s, investment across national 
     borders has increased four times faster than international 
     trade. International investment helps a country use its 
     advantages and makes it more competitive.


                           Benefits and costs

       While globalization can have major benefits, it can also be 
     disruptive.
       Greater efficiency and falling prices. The development of 
     world markets means that the goods Americans produce the most 
     efficiently will become more profitable, as we are able to 
     sell them to wider markets. And that creates more jobs in 
     America. Consumer prices will also fall on items that we can 
     buy from cheaper producers overseas.
       Increased competition. At the same time, globalization 
     means that our less efficient industries will face 
     increasingly tough competition and some jobs could be lost. 
     Increased competition is a two-sided coin, with both winners 
     and losers. But most American firms are able to move into and 
     compete in foreign markets. Because the U.S. economy is 
     already so competitive, many do this exceptionally well.
       International investment. Americans can benefit from 
     investments made abroad. Many workers' pension plans are 
     enriched by overseas investments. In addition, America 
     attracts more foreign investment than any other country. When 
     foreign firms build plants in the U.S., jobs are created. 
     Americans also benefit from the innovations that foreign 
     firms bring to the U.S., which have included new technologies 
     and leaner production techniques, such as the ``just in 
     time'' delivery systems.
       The big risk of increased international investment is that 
     it can lead to instability in financial markets. As we have 
     seen in the Asian financial crisis, money that can move into 
     a country very quickly can move out just as fast.


                               Criticisms

       Many people have fears about globalization. The most common 
     concerns are three:
       First, globalization produces a ``race to the bottom'' on 
     labor standards. As the news stories on working conditions 
     abroad indicate, there can certainly be problems as good jobs 
     in this country are replaced by jobs in developing countries 
     in which workers have few labor protections. Yet a global 
     economy strengthens jobs in the most dynamic, highest paying 
     sectors of our economy, like exports. Within the U.S., jobs 
     in export-related industries pay, on average, 15% more than 
     other jobs.
       The experience of Latin America over the last forty years 
     is instructive: those countries that built tariff barriers to 
     protect local industries and workers began to suffer low 
     growth and falling wages. By contrast, countries elsewhere 
     that opened themselves up more are considered success stories 
     today in terms of labor standards.
       Second, globalization weakens environmental standards When 
     nations become wealthier, they begin to pay more attention to 
     environmental issues. As with labor standards, several 
     decades of experience demonstrate that those countries which 
     have

[[Page E1661]]

     been most open to the world economy have grown the most and 
     have improved their environments the most.
       In the short-term, however, there may be some truth to this 
     criticism. Globalization often shifts dirty industries from 
     wealthy nations to poorer ones. The maquiladora industries on 
     the U.S.-Mexican border are an example of this, having 
     attracted U.S. firms seeking weaker environmental standards.
       Third, globalization exposes American workers to unfair 
     competition from cheap wages overseas. Many people complain 
     about competition from countries which have poor labor 
     protections and low wages. However, most of the experts agree 
     that roughly 80% of the difference in wages between U.S. and 
     developing country workers can be attributed to differences 
     in productivity. Thus, while Guatemalan workers may have 
     wages that are one fifth what American workers earn, our 
     well-trained workers are typically more than five times as 
     productive, so there is less incentive to move production to 
     Guatemala than initially appears.


                               Conclusion

       The evidence on globalization is mixed, and it is difficult 
     to sort it all out. Yet one thing is clear--there is no 
     turning back on globalization. As President Clinton has said, 
     ``The technology revolution and globalization are not policy 
     choices, they are facts.'' Communications satellites, cell 
     phones, the internet, and global financial transactions are 
     here to stay. Succeeding in the 21st Century will mean that 
     Americans must learn to master the global economy. But we 
     will need to make policy changes to cushion the disruptions 
     of these new economic forces and find new ways to manage 
     them.
       Next week: Responding to Globalization.

       

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