Saturday, December 29, 2007

Populism without Borders

I'm often dismayed at the "populist" opposition to openness to trade, migration and FDI flows. The Free Exchange Blog that I linked to in Thursday's post hits on the point of what exactly is populism. It defines populism as a ideological movement "of" or "for the 'people'." Usually "the people" represent some under-enfranchised group (the middle class or poor) whose interests are often framed to be in opposition to those of the "elite." It cites James Madison economist Barkley Rosser's charge that Lou Dobbs' brand of populism is, essentially, "economic nationalism for the poor." This is the point that I want to touch on, because it raises two important questions about the tide of protectionism that has ebbed in recent US politics.

First, who are "the people" of the populist thought? The Free Exchange authors note that in the origins of the populist movement, there was debate whether the populist movement would be inclusive of blacks, or if "the people" were exclusively white. Today the debate extends to immigrants, both legal and illegal, both present and future. Many "populists" today would like to slam the "Golden Door" of immigration shut, arguing out of concern for the working poor here. But, in effect, the working poor they are most concerned about are only the native citizens. Many economic free-traders are criticized from the left for pandering to US corporate interests to the demise of the American "middle class," or at the exploitation of the poor abroad. Yet, it is precisely out of concern for these two groups that free-traders are out there fighting the good fight.

This brings us to the second issue, which is one that I have discussed several times: Who gains from open-door policies. Abroad, the preponderance of the empirical studies suggest that trade and foreign investment benefit the poor, especially when a country's labor force is free to move internally. China has been criticized as a case where openness has failed to benefit the poor, but the primary reason it has not reached the rural poor in China has to do with how the Chinese government allocates spending on public education, where it authorized foreign investors to build production facilities, and its tight restrictions on the internal migration of labor. So, we free traders fight the free trade fight, in part, for the poor living in less-developed countries.

On this side of the border, the main groups that can be shown to be harmed by either free trade or by immigration are those without a high school education or its equivalent, not quite the lower two quintiles (40%) of the labor force. I would not suggest for a moment that we should not be concerned for these Americans. However, those truly in the "middle-class" quintile (40th-60th percentile) gain, as well as the upper and upper-middle class. In addition, the gains to these groups far outweigh the losses to the poor. Some have suggested that programs could be set up in cooperation with local community colleges to help these adversely-affected Americans acquire skills in export-oriented or non-traded sectors. They have even proposed that the programs could be entirely paid for from the gains accumulated by high value-added sectors and firms, with a wage replacement stipend toboot.

The main point I've tried to make the last couple of days is this: One can be both populist and in favor of borders that are open to trade in goods, sevices and factors. This is one point that has been made by Columbia economist Jagdish Bhagwati. In addition, even if we do oppose immigration, and especially illegal immigration, we have to come to terms with the plain fact that they are here, deserve to be treated with decency, and (along with the poor still living in the countries they come from) deserve to have some inclusion in our populist agenda.

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