Joseph Schumpeter's description of capitalism as an economic system that operates through an ongoing process of "creative destruction" provides a useful framework for examining some of the defining features of an increasingly integrated world economy. Indeed, much of the debate surrounding "globalization" centers around whether technological advancements which have reduced cross-country barriers to the commercial, cultural, and political exchange, have thus far produced a net of benefits or losses. Are we better off because of globalization or not? The answer seems clear. While competiting to meet the wants, needs, and desires of consumers, by nature,it produces both winners and losers, its aggregate effects have meant higher average standards of living for millions of people throughout the world.
Critics of globalization make a number of claims concerning its negative effects. One of these is that multinational corporations operating in third world countries exploit workers by forcing them into "sweatshops" and to accept inadequate and unfair wages.
Evidence suggests these claims are false or misleading. It is true that workers in undeveloped countries earn significantly less than Americans making the same product. At the same time, their productivity is much less because they lack the skills, training, education, infrastructure, and institutions available to Americans, and because wages are based on marginal productivity, it follows that their compensation will be less. Still, research shows that multinational corporations, on average, pay "wage premiums" ranging anywhere from 30-800% above local employers. Similarly, the working conditions of those employed by multinationals tend to be superior.
What about American citizens? Don't they suffer from the "outsourcing" of jobs? Americans suffer from "outsourcing" in the same way that they suffer at home when competition or technology displaces workers. Likewise, it also benefits them in the same way. To see how these two effects are comparable, consider the...