Free The Price of Civilization: Reawakening American Virtue and Prosperity by Jeffrey D. Sachs

recent boom-bust cycle in America, but its effects go even deeper. The integration of China, India, and other emerging economies into the global economy is causing a fundamental shift in income distribution, employment, investment, and trade. Even our domestic politics are being massively affected. I will focus on three overarching effects of the new globalization, each of which is globally transformative. These may be called the convergence effect, the labor effect, and the mobility effect.
    The convergence effect refers to the fact that the new globalization provides the conduit for today’s emerging economies to leapfrog technologies, and thereby to rapidly narrow the income gap with the rich countries, and notably with the United States. When production systems are globalized, the developing countries learn rapidly about cutting-edge technologies coming from Europe, Japan, and the United States. China has made massive efforts not only to upgrade its production systems based on the advanced technologies imported from abroad, but also to master the imported technologies through learning by doing. One key government strategy has been to insist that foreign investors desiring to enter the Chinese market do so in a joint-venture partnership with a Chinese counterpart. The Chinese partner quickly masters the imported technologies and then branches out on its own. This process of deliberate and targeted technology transfer (or absorption, as it might be better described) helps account for China’s remarkable record of economic growth and technological upgrading. China’s growth has averaged around 10 percent per annum since 1980, enough to raise GDP twentyfold between 1980 and 2009.
    The labor effect refers to the fact that China’s opening to global trade in 1978 was tantamount to bringing hundreds of millions of low-skilled workers into a globally integrated labor pool. The world’s total supply of relatively low-skilled workers thereby soared, pushing down the wages of low-skilled workers around the world. Of course, that didn’t happen all at once. At the start of China’s opening to global trade, most of China’s potential manufacturing workers were still peasants on farms in the rural areas of the country. They lacked the education, skills, complementary technologies, business capital, and physical proximity to ports to be much of a threat to apparel workers in North Carolina. Yet, over time, their skills were raised by a determined educational push led by the Chinese government and by the efforts of the ambitious and hardworking Chinese themselves.
    The technologies and capital to employ these new industrial workers were mostly imported from abroad, as foreign investors set up operations in China’s coastal cities that were designated “special economic zones.” The physical proximity to the new work was created as around 150 million Chinese workers left the countryside and migrated to the cities, where they could find better employment in the new manufacturing enterprises. 9 Thus education, skills, technology, capital, and physical proximity came together in places such as Shenzhen, China, the coastal city that lies just north of Hong Kong, which grew from a small fishing village of some 20,000 residents in 1975 to around 9 million residents in 2010. 10
    The mobility effect refers to a basic asymmetry of globalization: the difference between internationally mobile capital and immobile labor. When capital becomes internationally mobile, countries begin to compete for it. They do this by offering improved profitability compared with other countries, for example, by cutting corporate tax rates, easing regulations, tolerating pollution, or ignoring labor standards. In the ensuing competition among governments, capital benefits from a “race to the bottom,” in which governments engage in a downward spiral of taxation and regulation in order totry to keep one step ahead of other countries. All countries lose in