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

pressure on U.S. wages. And the race to the bottom in corporatetaxation and regulation has led the U.S. government to cut corporate tax payments while cutting government programs that benefit workers (e.g., job training).
    The winners include not only the owners of physical capital (who can shift operations abroad) and financial capital (who can invest funds abroad) but also owners of human capital, who can export skill-intensive services to the emerging economies. This includes Wall Street bankers, corporate lawyers, high-tech engineers, designers, architects, senior managers, and others with advanced degrees and who work in high-tech fields. Finally, athletes, performing artists, and brand-name products are all given a boost by an expanded global market. Many U.S. and European brands are now enjoying booms by expanding into the emerging economies, where hundreds of millions of consumers with rapidly rising incomes are eager to follow in the path of their Western counterparts.
    Among American workers, the biggest losers by far are those with a low level of education. This is because most of the new entrants to the global labor market in China and India also have a high school diploma or less. These emerging-economy workers enter labor-intensive export sectors such as apparel cutting and stitching, shoemaking, furniture making, electronic appliance assembly, and standardized manufacturing processes such as plastic injection. As the prices of these globally traded labor-intensive products are pushed down, the wages of low-skilled workers in the United States are also pushed down. U.S. firms in those sectors also shift their operations to China, leaving their own workers unemployed or having to accept sharp cuts in wages to remain employed.
    One of the key realities of the new globalization is the ever-expanding range of competition between U.S. and emerging-economy workers. Half a century ago, American workers did not have to fear much competition from abroad, least of all from low-wage countries. Transport and logistics costs were simply too high for American firms to source in Asian low-income countries. Moreover, most ofthose countries were closed to investment from the United States. Yet as transport, communications, and logistics costs began to fall, and as those economies opened to trade and investment, some low-tech industries could relocate factories abroad. As costs fell further, it became possible for even high-tech industries, such as computer and other advanced machinery manufacturing, to relocate just parts of the value chain—for example, final assembly operations—abroad. As costs fell still further, due mainly to the Internet, it became possible to shift back-office jobs, such as accounting and human resources operations, from the United States to India (favored over China because of its English-speaking workers), all enabled by the Internet. Now American workers compete directly with their counterparts in the emerging economies without companies’ needing to shift physical capital, only to have online connectivity.
    A key result of the new globalization has therefore been a huge change in income distribution in the United States. Capital owners have been the big winners, enjoying a rise in pretax returns and a cut in the tax rates levied on them. Workers with low educational attainments have tended to lose, as they are directly in the line of competition from the emerging economies. And the federal government has exacerbated these trends. First market forces raised the incomes of the rich, and then the government, caught up in a race to the bottom with counterparts, cut both personal and corporate income taxes, thereby giving an added boost to the rich, while turning around to slash public spending for the poor.
    Throughout the high-income economies, governments have cut the effective average tax rate (EATR) on corporate income, and the spread in effective tax rates across countries narrowed as well. Both