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

the end, since all end up losing the tax revenues and regulations needed to manage the economy. The biggest loser ends up being internationally immobile labor, which is likely to face higher taxation to compensate for the loss of taxation on capital.
    Income Inequality and the New Globalization
    In principle, the new globalization can ultimately be beneficial for the entire world. The rising productivity of China, India, and other emerging markets, and the falling transportation and communications costs worldwide, can raise incomes around the world. 11 Clearly, the emerging economies can win in a big way, as they are able to boost productivity through technology inflows, attract internationally mobile capital, and raise real wages as workers are hired in new export industries. This success has been borne out in practice. Globalization has permitted China, India, and some other emerging economies to achieve the fastest economic growth rates in history.
    The high-income countries, including the United States, Europe, and Japan, can also be winners. The newly emerging economies produce a wide variety of low-cost goods and services that we desire, and in turn we can export a wide variety of goods and services to the emerging economies. Sectors that have strong economies of scale will benefit from the expanded reach of the global market. This includes high-tech companies engaged in cutting-edge innovation (such as pharmaceutical companies and information technology companies) that make profits by creating and marketing information-based products and services. Google, Microsoft, Apple, Amazon.com , and others fit this mold. Trade can therefore allow for more specialization, increased innovation, and an expanded overall array of goods available to consumers in high-income countries.
    Yet the gains are likely to be distributed unevenly within the high-income economies. High-skilled (and therefore high-income)workers are likely to benefit straightaway, while low-skilled (and therefore low-income) workers are likely to feel the pressure of tougher competition from abroad. For all broad segments of society to benefit from globalization, therefore, the winners have to help compensate the losers. High-income earners who enjoy a surge in income and wealth resulting from globalization should pay more in taxes to finance increased income transfers and public investments (for example, for job retraining) for those who are the losers.
    It is even possible that the whole world will end up losing from globalization if the surging income in the emerging economies leads to global environmental calamity—if China’s growth, for example, results in such a large increase in carbon dioxide emissions from coal use that global climate change accelerates catastrophically. Achieving the benefits of globalization therefore requires active international cooperation as well as internal cooperation.
    Notice that internationally mobile capital (for example, a U.S. hedge fund that invests in China or a U.S. apparel company that may relocate abroad) gains in three ways from the rise of China. First, with the sudden, sharp boost of productivity in China arising from the inflow of technology (the convergence effect), major new investment opportunities in China that offer high rates of return are created. Second, with the surge in the global labor supply (the labor effect), wage levels around the world are bid down, leaving more corporate revenues as profits. Third, with governments around the world cutting corporate taxes and easing regulations to compete for internationally mobile capital, companies are enjoying a sharp fall in taxation.
    All three effects favor U.S. corporate investors, but all three jeopardize U.S. workers. As U.S. business investments have shifted to the emerging economies, U.S. wage and employment growth has slowed. Similarly, the massive expansion of the global labor pool due to the inclusion of workers from China and India has put downward