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October 23, 2003

On Productivity and Trade

I really like this article, The Mixed Bag of Productivity, by Hal Varian on why the debate on productivity and trade is so twisted.

The basic point that trade and productivity are in the abstract good things. The real conflict is over who benefits-- something good for the "average person" can suck for a lot of "non-average" people. It can actually suck for most people, actually, if most gains are going to a small number of people. It's a statistical reality that averages can increase even where most people are worse off.

Varian posits an alternative version of trade where instead of companies exporting jobs abroad, individual workers did it:

Suppose the programmer found his doppelgänger in India, and started exporting tasks on his own. "Dear Sanjay, please write a subroutine to sort these accounts and send it back to me by 5 p.m. (California time)." Each week the programmer could cash his $1,000 paycheck and send $100 to Sanjay.
Obviously, international trade would look damn good to such US programmers in that case. It just usually doesn't work that way.

Gains from technology advancement are similar-- most of the gains don't seem to go to the workers. Varian points to the West Coast longshoremen as an alternative, who long ago accepted technological change and bargained hard for their share of the gains:

It saw new technology coming for unloading ships and negotiated lifetime employment at high wages. The result was that by 2002 a full-time longshoreman earned $80,000 to $107,000, depending on whether you ask the union or management.

The crucial issue in last year's West Coast port strike was not whether technology for managing shipyards would be introduced — both sides were in favor — but whether the new information-processing jobs went to union workers.

The longshoremen's union has tried to ensure that a significant part of the gains from productivity increases accrued to its members.

This is something basic, yet the media discussing most contract negotiations just plain don't get it. It's not just negotiations over dividing up what exists; it's negotiations over dividing up what will be as new technologies and trade deals are cut.

If workers-- like the longshoremen -- bet on technology and do well, they are assaulted by the media as "overpayed"; when was the last time shareholders were labelled "overprofitted"?

"Who wins and who loses" from trade and technology changes is the wrong question. No one every has to lose from either; it's a question of designing social policies that assure that the gains from change are fairly distributed. If anyone is losing out, it's usually a fair assumption that it's the wrong deal, and probably a bad deal for most people.

Posted by Nathan at October 23, 2003 03:48 PM