Neoclassical Logic

Michael McIntyre mmcintyr at wppost.depaul.edu
Thu Mar 15 06:49:26 PST 2001


What if we stopped posing the neoliberal/anti-neoliberal debate in terms of those who favor and those who oppose free movement of goods and capital and remarked on the oddity that the neoliberal camp is tolerably well satisfied with a regime that permits free movement of capital while seriously restricting the movement of labor, and the anti-neoliberal camp generally dislikes the free movement of capital but would be quite happy to see fewer restrictions on the movement of labor. Since in the simplest case it doesn't matter whether capital moves to hire labor or labor moves to hire itself out to capital, the acridity of the debate is a bit odd. (Some, like Bhagwati, would like to see both capital and labor move freely).

Now aside from the macabre delight one can take in contemplating a "neoliberalism" in which labor can move across borders without let or hindrance but in which investment bankers die of thirst in the Sonoran desert smuggling capital into Mexico, there's a question here that I think is worth following up. Doesn't it seem plausible that a neoliberal regime that makes capital far more mobile than labor favors capital and hurts labor? (And not just in capital-rich countries a la Stolper-Samuelson). I've been trying to think through this problem along two separate paths, neither with a great deal of success.

First, there's Arthur Lewis's open economy model at the end of "Economic Development with Unlimited Supplies of Labor". There, because of oversupply of (fixed) labor combined with mobile capital and commodities, productivity gains in the tradeable goods sector in low-wage economies are captured by lower prices for those goods by consumers in high-wage economies. The model, though, doesn't seem very robust - while it may work for two countries, it doesn't seemto work at all for n countries.

The other way I've tried to think of this is as a low-level efficiency wage trap. A low prevailing wage depresses productivity by fostering malnutrition, chronic illness, etc. In this kind of trap, individual firms can't raise productivity (much) by offering higher wages, since the effects of hunger and illness and so on are cumulative and kick in before people enter the labor market. This would help explain why increased flows of capital and commodities have not reduced the wage gap. On the other hand, if labor can simply move to a high-wage economy, the gap starts to narrow. Problem - once you incorporate human capital into the equation, free movement of labor starts to look like a recipe for capital export by already capital-poor countries.

So, can anyone plant their feet firmly and tug hard enough to dislodge my head from the place where it's currently stuck?

Michael McIntyre

Brad DeLong wrote (in part):
> It's no secret which way I come down--I am a card-carrying
> neoliberal, after all. Let free trade and investment rip, watch
> wealth accumulate, hope that sweet commerce creates softer forms of
> rule, and get ready for the next turn of the political wheel which
> will make movement toward social democracy possible in a generation
> or so. That seems much better to me than, say, telling Malaysians
> that they cannot have steelworker jobs because that would raise
> pollution levels in their rivers, or telling Ecuadorians they cannot
> have electricity because coal-burning power plants raise SO2 levels,
> or telling Mexicans they cannot build automobiles because autoworker
> jobs belong in Michigan.



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