http://www.latimes.com/news/opinion/la- ... util-op-ed

NIALL FERGUSON
Globalization's second death?
U.S. protectionist measures helped wreck the world economy in the '30s. We can't let that happen again.
Niall Ferguson

April 10, 2006

ARE WE WITNESSING the beginning of the end of globalization? And should we be cheering or chafing at the prospect of its demise?

It's one thing for the French to block cross-border takeovers and riot at the prospect of increased labor market flexibility. From the arch-charlatan Jacques Chirac down to the silliest Sorbonne student reenacting the demonstrations of 1968, globalization to the French will always be "Anglobalization." But when Americans start to question the wisdom of international economic integration, something serious is afoot.

For years, Lou Dobbs of CNN has used his prime-time show to lambaste the Bush administration for its failure to stem the flow of illegal immigrants — most of them Mexicans — into the United States. But only in the last few weeks has the bee in his bonnet turned into a full-scale political swarm.

U.S. senators are at loggerheads over a bill to create a new system of guest workers that would also amount to an amnesty for current illegal immigrants. Meanwhile, legislators in the House are calling for the construction of an impenetrable fence along the U.S.-Mexican border — a kind of cortina de acero (iron curtain).

This backlash against porous borders is not confined to the issue of immigration, however. Simultaneously, Congress has been busy trying to tighten the rules governing foreign investment in the United States, ever since the story broke that a company based in the United Arab Emirates might gain ownership of facilities in American ports. Then there are the protectionists, who generally represent states with big manufacturing centers. They'd like nothing better than to slap a whopping tariff on Chinese imports.

So global flows of labor, capital and goods are all under attack — and this in a country that has been enjoying robust growth for the better part of five years. I shudder to think what would be coming out of Congress if the country was in recession. Presumably a bill for total autarky, mandating the construction of a vast, impermeable dome from sea to shining sea.

The last time globalization died, some historians say, it was an American backlash that killed it. A century ago, the world economy was in many ways just as integrated as it is today. Migration rates were comparably high, as was trade in relation to output. Capital flows today are bigger in relative terms, but a century ago they were more evenly distributed between rich and poor countries. After 1914, however, globalization fell apart, and by the 1930s the world economy had fragmented — with disastrous consequences for growth and employment.

The great disruption caused by World War I certainly did a large part of the damage, sinking thousands of tons of merchant shipping and severing international telegraph cables. Even before war came, however, globalization was already dying the death of a thousand legislative cuts. As early as 1882, the United States had introduced the Chinese Exclusion Act, the first of a series of measures designed to restrict immigration to white Europeans. Quotas for other ethnic groups were introduced between the wars so that by the mid1930s, the flow of new immigrants to the U.S. had all but dried up.

The same was true of trade. Never wholly committed to free trade in the 19th century, the United States sharply raised tariffs between the wars. The protectionist Smoot-Hawley trade bill that was enacted in June 1930 dealt a lethal blow to business confidence, compounding the damage done by the Wall Street crash.

Proponents of a new generation of anti-global measures claim to want to protect vulnerable native groups from the ravages of competition. They point to studies that show the biggest losers from immigration to be high school dropouts. Other evidence shows that it's unskilled blue-collar workers who are most likely to lose out from free trade with China.

Yet it would be an error to blame the widening inequalities of American societies on globalization and to seek to rectify matters with the old, failed policies of nativism and protectionism. American inequality has much more to do with not-very-progressive taxation and patchy welfare provisions than with immigration and free trade, much less free capital movement (without which, let's not forget, American consumption would have to be quite drastically reduced, given the vast size of the U.S. current account deficit).

The aggregate economic benefits of attracting the economically ambitious from around the world are real. In a flexible labor market like that of the United States, immigrants play a key role. In aging societies like those of Western Europe, immigrants are especially needed. True, it's not clear if Europe's over-regulated labor markets can successfully absorb and exploit their youthful energies. But that doesn't change the basic economic logic. An even more liberalized global labor market would boost economic growth all round. Restrictions on migration would cut it.

It makes no sense to jeopardize the benefits of globalization to protect the employment prospects of high school dropouts. So here's a modest counter-proposal for the House of Representatives.

Instead of building an expensive, hideous and probably ineffective new Iron Curtain, why not use the money to get this simple message across to the kids in American high schools: If you flunk, you're sunk. Yes, boys and girls, academic achievement is the only route to decent employment in an economy at the top of the technological food chain. Drop out of education without qualifications, and you'll be lucky to get a job alongside the Mexicans picking fruit or stacking shelves.

Sounds kind of harsh, I know. But a second Great Depression sounds a lot harsher.