Old idea, new math


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Forget about trade liberalization says Lant Pritchett suggesting a far more beneficial trade off:

If rich countries were to permit a mere 3 percent increase in the size of their labor force by easing restrictions on labor mobility, the benefits to citizens of poor countries would be $305 billion a year—almost twice the combined annual benefits of full trade liberalization ($86 billion); foreign aid ($70 billion) and debt relief (about $3 billion in annual debt service savings).

Some say there's nothing more permanent than temporary workers. How will this belief square with the growing need for a young, tax-paying labor force?

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Lars Uldall-Jessen
April 30, 2007


A few unorganized comments..

Pritchett's new numbers which you report are larger than those Alan Winters and others reached some years ago, I believe. But with the current standoffs in the world trading order, even mentioning the possibility of such a radical liberalization of the movement of "natural persons" seems almost utopian.

It's somewhat ironic that so many factories are closing everywhere in the more wealthy OECD countries and huge sums are spent moving capital equipment to, and organizing new supply bases in, low wage countries, when - in principal - one might as well have invited workers from those same low wage countries to come to the OECD (or from those low wage countries which are without any sort of even remotely competitive industrial base, and which can therefore be expected to be left out of "globalization" for generations to come).

The problem is not taxes, but that huge wage differences by legal decree (i.e. due to nationality) WITHIN the geographical borders of the nation state, is unmanageable or unacceptable. We (in the OECD) need some space in between us and the low wage workers we desperately need.

It's comparable to some of the problems firms experience when trying to outsource various parts of productions to suppliers close to (or even inside the same factory) in order to take advantage of non-union labour. Sometimes the union will protest, at other times the workers at suppliers will become much more militant when they know there are other workers right next door doing more or less the exact time type of work, on the same product, but for a 50% higher wage. The automotive industry is one obvious example of this kind of thing.

Please note that I'm not advocating some sort of "working camp" or slave -type import of labor to the OECD, just observing how somewhat irrational forces, and not only plain old mercantilism, is shaping our world.

Best wishes,

Lars, Copenhagen