July 22, 2011
Princeton economist Uwe Reinhardt gets his economics mixed up in his piece today. He follows Michael Spence and Sandile Hlatshwayo in touting the virtues of the non-tradable sector of the economy at the expense of the tradable sector. However, there is nothing that is inherently non-tradable, it depends on the institutional structure we put in place.
We can make it easy for people in the United States to get our health care from more efficient providers overseas. The same applies to legal work and accounting and all the other areas that supposedly have high value-added and high paying jobs. This is important because Reinhadt is 180 degrees wrong when he describes it as “a problem for the United States” that middle income countries like China, Brazil, and India appear posed to move up the value chain and provide competition for many of these high-paying jobs.
In fact, economists would recognize that the United States can have enormous gains from having these services provided by much lower-paid workers in developing countries, just as the United States as a whole gained by having manufactured goods supplied by lower paid manufacturing workers in the developing world. It is the exact same argument; the only difference is that the beneficiaries of the new path for globalization will be those at the middle and bottom of the wage distribution, not those at the top.
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