Globalization and Trilateral Labor Markets

Growth of domestic economies and internationalization went hand in hand and came to be regarded as mutually reinforcing. Internationalization was therefore not regarded as controversial. This was true even in the early postwar period when large discrepancies in income and cost levels might have been regarded as upsetting and unfair; wages in Germany and Japan in the late 1940s were no higher as a fraction of U.S. wages than are the relative wages of many developing countries today compared to wages in the OECD countries. To its great credit the United States did not then insist on the prior establishment of a “level playing field” before giving the low-cost producers access to the U.S. market. Quite apart from the political benefits from vigorous trade and investment flows, growth was for a long time so rapid in Europe and Japan that the United States also benefitted.

The growth of trade between industrial countries has occasionally become a source of conflict when import penetration in exposed sectors became particularly rapid, or if trade imbalances appeared difficult to contain. Examples of such conflicts have been observed not least in trade between Japan and other industrial countries. But on the whole, concern in the public debate over these trade issues has been limited and the net benefit of a liberal trading regime among the industrial countries has not been fundamentally questioned. Within regions, integration of goods markets has deepened in the European Union and between Canada and the United States as a result of advances over the past decade in setting up the EU Single Market and a free trade area between Canada and the United States.

In the course of the 1980s, new countries, particularly in East Asia, joined in the internationalization process. Trade and investment flows with them grew at a faster pace than anything experienced within the OECD area and at times import penetration became so rapid that trade conflicts arose. But the aggregate effects were limited since trade volumes were still small—and the perception among consumers in the industrial countries that these major new suppliers (with highly favorable price/quality characteristics) provided clear benefits limited an incipient backlash towards trade with these Asian economies or direct investment flows from industrial countries to them.

A. The Challenge of a Truly Globalized Economy
Recently, the expansion of trade with the non-OECD area has become increasingly controversial. It proved just possible, nevertheless, to conclude the Uruguay Round in 1994 (hence continuing the trend towards lower tariffs of several earlier rounds of global trade negotiations) and to set up a World Trade Organization (with stronger powers than its predecessor, the GATT, to monitor infringements of agreed practices). Steps were also taken to phase out some quantitative restrictions the growth of which had, in the view of many observers, tended to largely offset over the 1970s and 1980s the effects of gradual cuts in tariffs (see Bhagwati [1990]). But the political will to pursue global trade liberalization has met with stronger resistance than have the efforts to deepen regional integration and facilitate the growth of trade among the industrial countries in general.

The reasons for this difference in attitude are not difficult to identify. Over the past few years large and populous states have entered the world economy in a way that was impossible to foresee even a decade ago. China, India, the countries of Central and Eastern Europe and of the former Soviet Union, and a number of others (e.g., Bangladesh, Vietnam, and several Latin American countries)—representing collectively more than 4 billion people—are in a process of rapid and far-reaching reform of their economic and political systems which may enable them to become major participants in a truly globalized economy. This is a far more dramatic challenge to the industrial countries than anything experienced in recent decades. The impressive performance of the so-called Dynamic Asian Economies (DAEs)—Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Thailand, with a combined population of less than 150 million—has become very visible in trade with the industrial countries. Not only is the next wave of participants potentially very much more significant, but the initial discrepancy in cost levels is greater, prompting widespread fears of a levelling down of wages globally towards a world average way below the standards to which even the poorest presently industrialized countries have become accustomed.

Global Equalization of Wages?
Both dimensions of the apparent challenge are captured in Figure I-1 which shows average wages and population size for a number of countries. It is no surprise that many in the public debate in the Trilateral countries now see trade with the new, low-cost producers as both quantitatively important and potentially highly destructive of employment prospects at home at anything like the wages to which industrial country workers have become accustomed. These alarmist views argue that with today's high capital mobility the destructive features could manifest themselves quickly.

There are a number of reasons why the ominously suggestive nature of this challenge of global equalization of wages should not be taken at face value. Industrial country wages are not about to be determined in Beijing, to give a first answer to the question put in a recent article on globalization (see Freeman [1995]). The tendency for factor prices, in particular wages, to become equalized internationally is subject to a number of qualifications.

First, labor is not homogenous; better qualifications command a return to the human capital accumulated which protects many workers in traditional industrial countries from a levelling down of their pay. Second, protection against this trend is also offered by the way in which capital is used within the firm and in the society in which it operates. Better physical infrastructure, including communications and easy access to R&D, can keep up higher rewards to other factors of production. Third, to the extent that traditional industrial countries and their new trading partners have specialized fully in the production of different goods there is no further pressure for reducing wages in the former. Fourth, when the new economies enter the global trading system, wages in their internationally active sectors are likely to be bid up rapidly, as experience with the DAEs who have become major traders has shown. Fifth, trade flows with new, low-cost producers are likely to remain both modest for a long time relative to the size of the Trilateral economies and balanced, since the newcomers are likely to use all their export earnings to purchase goods and services in the OECD area.

Comparative Advantage Drives Mutually Beneficial Trade Flows
These qualifications may not greatly impress those who hold alarmist views of the issue. Some of these critics seem to stick to an older view of what determines trade, viz. that firms in countries with high wages can be outcompeted in all areas of production by low-cost newcomers. If the hourly wage is, say, US$15 in an OECD country and US$1 in China or Vietnam, no one would, according to this popular view, want to produce anything in the former. But starting with Ricardo’s analysis of comparative advantage nearly two centuries ago, it has been recognized that trade flows are determined by the relative costs of producing different goods inside each trading country. The opening of trade permits each trading partner to shift resources into the sectors in which it has a comparative, or relative, advantage vis-à-vis its trading partners, hence specializing in ways that are not possible under autarky. A country with high costs in all sectors of its economy would still be able to export to lower-cost trading partners those goods in which it was relatively least inefficient, hence leaving scope for increasing living standards for workers and others engaged in domestic production.

A more sophisticated attack on comparative advantage as the main factor shaping trade flows starts from the observation that today's rapid dissemination of technological advances and, in particular, the vastly increased scope for shifting production processes to low-cost areas—usually labelled “delocalization”—have eroded whatever comparative advantage the industrial countries have historically enjoyed, with the exception of advantages linked to the availability of natural resources. When production processes can be shifted fairly rapidly, using the most advanced technology available, comparative advantage, even when accumulated steadily over long periods of time, can not be regarded as having been acquired once and for all, but is subject to a risk of sudden disappearance. The central idea in this modern version of the “pauperization hypothesis” is that workers in a low-cost country can almost overnight approach the levels of output-per-hour-worked observed in a high-cost country. Capital mobility, particularly when it takes the form of large-scale foreign direct investment, can make comparative advantage shift so rapidly that the notion becomes almost meaningless.

It is true—as one of the most vigorous proponents of this view, Sir James Goldsmith (1995), has noted—that traditional trade theory based on comparative advantage did not envisage the degree of capital mobility which has recently been observed. Having written about factors which tend to keep capital at home—primarily uncertainty and unfamiliarity with a foreign environment—Ricardo (1817) concluded (p. 155) that such factors induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.

This perspective on international corporate behavior does indeed appear outdated in today’s world where corporate managers have largely overcome earlier unfamiliarity with foreign environments and have become capable of comparing direct production costs in many different locations. In these circumstances the availability of local capital is no longer a constraint on the exploitation of comparative advantage by a new trading partner.

If one thinks of the process of globalization as one in which countries compete internationally by attracting mobile factors of production in order to combine them with their more or less immobile domestic factors in the most profitable way, the much wider scope for delocalization of production processes which liberalizing economic reforms in a number of new economies have made possible over the past decade marks a qualitative change. But this correct observation does not invalidate the general applicability of the principle of comparative advantage. The Trilateral countries are not about to be outcompeted in all or most traditional manufacturing activities because they have lost earlier and long-standing locational advantages on a massive scale. They have no doubt lost such advantages in an important degree in some sectors—textiles and toys are examples of industries where foreign direct investment has combined with particular ease with a local, low-cost labor force—but not in others, where new opportunities for exploiting comparative advantage have arisen because of wider markets in the new economies, for example for machinery or other relatively sophisticated products in the production of which the new economies typically find themselves at a competitive disadvantage.

The crucial point is that delocalization does not invalidate the traditional view, based on comparative advantage, of international trade as mutually beneficial for the parties involved, as long as differences between the trading partners persist. We already referred to human capital embodied in the labor force and to infrastructure (including communications) in our earlier dismissal of the belief in absolute advantage as the basis for trade. More broadly, one could speak not only of human capital, but also of social capital as immobile factors which form an important part of the comparative advantage which the Trilateral countries will continue to enjoy after their technological lead, more narrowly defined, has been eroded. These factors are only to a very limited extent mobile, although they can obviously be acquired—at a slow pace—by the new trading partners. We are left with a reformulated, but basically intact principle of comparative advantage as a basis for mutually advantageous trade.

There is a simpler way of expressing this point. If it were true that the diffusion of technology, mainly through foreign direct investment, is in itself sufficient to bring the productivity of labor in the new economies nearly to the level observed in the industrial countries while wages remain only a fraction of those in the latter, production in the new economies would provide massive returns to other factors of production and the catch-up in average income would be much faster than even the present impressive rate. But with some rare exceptions, the productivity of labor in the low-cost countries is not yet—for the reasons outlined above—anywhere near parity with productivity in the industrial countries, so the rewards to other factors of production (to be met out of the margin between the price of a product and the unit labor cost of producing it) are only moderately in excess of similar rewards in the industrial countries.

Relative Wages of Less-Skilled Workers
The conclusion of classical trade theory that the opening of trade is in the aggregate beneficial to both parties does not, however, imply that all categories of incomes will rise as trade expands. In a celebrated article Stolper and Samuelson (1941) showed that the opening of trade will benefit the factors of production used relatively intensively in the production of goods which find new outlets in foreign markets, but that it will lower the income of the factors of production used relatively intensively in the production of imported goods. If we think, as appears realistic, of the main imports from the new economies into the Trilateral countries as produced with relatively intensive use of unskilled labor (with which the former countries are amply endowed), then the growth of trade may reduce wages for unskilled workers in the Trilateral countries in the process of some levelling of wages between the two groups of countries. The precise nature of this levelling process is determined by some of the caveats mentioned above which prevent any full equalization of wages. Full equalization presupposes, in addition to the homogeneity of factors of production across frontiers, perfectly competitive markets. If one allows for the more realistic assumption that markets are less than perfectly competitive and that some firms or sectors earn rents because they are or have been particularly innovative, or simply are concentrated enough to exercise market power, there can be major departures from the tendency towards the factor price equalization predicted by pure theory. Strongly organized labor in some industries or centralized national wage bargaining may also be able to extract significant rents for their members over extended periods in otherwise increasingly exposed firms. A priori one would therefore expect industries characterized by a high degree of concentration and strong labor unions to exhibit the largest and the most long-lived escapes from factor price equalization.

Such sectoral privileges will obviously be eroded faster once trade with low-cost competitors expands in a major way, accelerated by foreign direct investments in new plants in their countries. So the factors that can account for major and long-lived departures from factor price equalization are themselves subject to gradual erosion, because the expansion of trade brings markets closer to the competitive pattern on which the theoretical paradigm is built. In the following chapters we therefore look both at the operation of competitive factor and product markets and at the erosion of rents in less competitive sectors.

Trade Inside and Outside the OECD Area: Intra-Industry and Inter-Industry Trade
To some extent all international trade flows—those among industrial countries and those between industrial countries and new trading partners—give rise to similar effects: increasing competitive pressures and more rapid erosion of privileged positions in traditionally well-sheltered industries. One should therefore expect similar attitudes politically and economically to the larger trade flows that have developed over a long period inside the OECD area and, with greater intensity, within regional trading arrangements (of which the European Union is the prime example). Yet the expansion of intra-OECD trade meets with much less opposition from management and labor, and the general verdict that the process is welfare-enhancing and should be pursued further is rarely openly questioned by policymakers. In contrast, the rapid expansion of trade—from a very low starting point—with competitors outside the OECD area gives rise to concern and frequent efforts to slow down the process through the imposition of non-tariff barriers (such as so-called Voluntary Export Restraints [VERs]), lengthy transition periods for the implementation of trade agreements, etc.

From a purely economic point of view there is a puzzle. Trade theory expects any expansion of trade to improve aggregate welfare, even—with some less significant exceptions—in situations where liberalization is unilateral. The more different are the factor endowments of the trading partners, the greater the potential gains. This is particularly easy to see when trade with new partners opens up new consumption possibilities, because some of the goods imported could not be produced at all, or only at exorbitant cost, in the home country. But the overall net benefit of new trade should also be evident when some goods hitherto produced at home can be imported at significantly lower prices, hence raising the real income of domestic consumers, while the fall in output in the industries which meet new competitors is compensated by enlarged export possiblities for other industries. This latter effect is based on the observation that on the whole new trading partners will need to let their imports rise in step with, or even faster than, their own rapidly rising exports, rather than allow themselves to build up international reserves through large trade surpluses. The recent experience of the OECD countries has been that the rapid growth of the economies outside the OECD area, in combination with balanced trade, helped them to recover earlier from the recession of the early 1990s than they could have done strictly by their own efforts. This experience, with the degree of integration which already exists, should have helped to drive home the point that it would be harmful to the welfare of the industrial countries themselves to slow down trade expansion with the new economies.

The puzzle why this conclusion is not more generally recognized (despite being fairly robust to changes in particular circumstances as long as one looks at the OECD countries as a whole, because it is for this group that the prediction of balanced trade expansion with the non-OECD area can be most confidently asserted) is partly resolved when it is recognized that trade expansion produces both losers and winners and that redistribution to compensate the former can not be assumed to take care of itself without some form of government intervention in the individual industrial country. (We briefly discuss some possible interventions in Chapter V.) The perception that trade expansion brings national benefits in excess of the costs would also be fostered if competitive conditions within the group of industrial countries were sufficiently stable and balanced to assure a fair distribution of the net total benefits within the OECD area. If that is not the case (either because some industrial countries have achieved a major, though possibly temporary, improvement in competitiveness due to large depreciations of their currency, or because some industrial countries are for geographical, political or cultural reasons—maybe simply because of their size—clearly better placed to take advantage of expanding trade opportunities with new partners), trade liberalization is bound to be resisted by those countries which see themselves as least well-placed.

For each industrial country there is the problem of making it clear to its domestic electorate not only that the many who benefit from trade expansion (mainly through the lower prices to consumers of a range of imported goods) could compensate the relatively few who lose (because at a minimum their earnings are squeezed by the entry of low-cost competitors or, ultimately, because their jobs simply disappear), but also that steps have actually been taken to soften the impact imposed on the losers—without impeding the adjustment to the increasing trade flows.

Efforts at domestic redistribution are unquestionably more difficult in the case of trade expansion with new low-cost producers than in the more familiar case of deepening specialization among the industrial countries or within regional groupings of such countries. The greater difficulty is explained by the difference between the expansion of trade in basically similar products and of trade based on major differences in factor endowments and cost levels and entirely new producers taking advantage of large cost differences. The growth of trade among the industrial countries, and particularly within the European Union and the two industrial economies of North America, can be shown to be primarily of the former kind, so-called intra-industry trade. Here the gains come from increasing specialization within each industry, which makes possible the realization of economies of scale in the firms which survive. The crucial point is that most countries retain some part of the action within each industry through their most successful firms, hence facilitating the reallocation of the labor force and other factors of production and avoiding full deindustrialization within sectors.

There is an important qualitative difference between this process (and the limited resistance with which it is met) and the adjustment required if an entire industry (or the main production processes which it has traditionally sustained) is threatened with domestic extinction through a transfer of resources to new low-cost producers. In this so-called inter-industry trade the absorption of the work force which has become superfluous is more difficult than if certain production processes are simply being concentrated in fewer firms within a domestic industry. Trade with the new economies is often seen as dominated by inter-industry trade which accentuates adjustment problems. Hence it prompts much more easily demands from the sectors concerned and their employees that these problems be dealt with at the source—i.e., by impeding the rapid growth of trade—rather than corrected by subsequent redistributive measures.

As we shall see in the following chapters, the perceived difference in the two types of trade is greater than the available facts can sustain; an increasing share of trade with the new economies is beginning to look like the intra-industry trade among industrial countries. Furthermore, the new trading partners challenge not only industries in the OECD area which use unskilled labor relatively intensively, but also some industries which use either skilled labor or capital (or both) relatively intensively. This may take some of the perceived social inequity out of the challenge, but without modifying the perception that the industrial countries are faced with a threat to their industrial future which is qualitatively new and more ominous than anything experienced in the past. This perception is heightened by the awareness that new producers are often not subject to a number of the regulations with respect to the environment, labor conditions, workers rights, taxation, etc. which operate in broadly similar ways in most industrial countries—although the residual differences are sufficiently important to have prompted concerns in, e.g., some EU member states and in Canada over free trade with other industrial countries which maintain a laxer regime in these respects.

B. Growing Tensions in Trilateral Labor Markets
Finally, and most important in recent years, the surge in trade with and foreign direct investment in new partners has coincided with growing tensions in labor markets in nearly all the Trilateral countries. These tensions manifest themselves in different ways in these countries, though in all of them employment in manufacturing has fallen, partly as a result of faster productivity increases in manufacturing and partly because of a shift in demand towards services. Figures I-2 and I-3 summarize the recent cumulative experience with respect to relative wage and employment trends for the lowest paid or less-skilled in a number of industrial countries.

In the United States the fall in manufacturing employment has been more than offset by job creation elsewhere in the economy, though typically at lower wages, hence giving rise to a category of “working poor.” While real wages in the U.S. economy have been approximately stagnant for more than two decades, the lower-paid have experienced an absolute decline. This has heightened public sensitivity to trade developments which appear to threaten employment, whether they have arisen from the inclusion of a low-cost country (Mexico) in NAFTA or from globally freer trade.

In Japan the unemployment rate is still the lowest among the Trilateral countries, though higher than in the past, while there is no evidence of a widening of the differential between wages paid to skilled workers and the pay of the less-skilled. As discussed in more detail in the chapter on Japan, this seems to be due, in part at least, to pressures on the pay of white-collar employees (some of them indirectly related to globalization) which have prevented differentials over the less-skilled from widening. But the system of life-time employment has recently been called into question, as the large firms using the system appear to have used up the flexibility of reallocating their permanent labor force between activities.

In the European Union, a number of factors (of which the most important are minimum wages, the design of unemployment benefits and national wage bargaining systems with a pronounced element of solidarity towards the lower paid) have prevented wage differentials from widening -- with the exception of the United Kingdom which has come to resemble the United States more than Continental Europe in its degree of flexibility in the structure of wages. Hence any tendency for the relative demand for less-skilled workers to weaken manifests itself in higher relative unemployment rather than in widening wage differentials (Figures I-2 and I-3).

C. The Linkage Between Globalization and Growing Market Tensions
The main task of this report—which we take up in Chapters II-IV below —is to discuss the evidence of a link from the growth of trade with the non-OECD area (and foreign direct investment there by the industrial countries) to the growing tensions in Trilateral labor markets. As we have already argued, an important branch of trade theory relies on assumptions of competitive markets that lead directly to the conclusion that a link exists between the opening of trade and a relative decline in wages for the factor used relatively intensively in the production of imported goods, in this case unskilled labor. Other, less specific theories point to the same conclusion under conditions of initially imperfect competition, because trade flows erode privileged positions and the associated rents. The general public evidently tends to take the thrust of such analyses very literally, and it has found in the process of delocalization a wealth of anecdotal evidence which brings to life the vision of an inexorable process of job displacement in the direction of the low-cost producers. The very perception that a link exists could put the continuing evolution of trade and investment flows at risk.

Measuring the Linkage
Whether the link is primarily an interesting theoretical possibility or also a major element in explaining the unsatisfactory features of recent developments in Trilateral labor markets is, however, an empirical question. At first glance trade and investment flows with the new economies do not appear so far to have reached a size which could explain any major part of the deterioration over the recent past in relative wages and/or job opportunities of less-skilled workers in the Trilateral countries. Nor does it seem likely that even the more severe competitive pressures that are bound to arise in the future will lead to radically different conclusions, keeping in mind that even then the overwhelming part of the jobs in the Trilateral countries will be in the sectors serving the domestic economy on which globalization will have only a limited and indirect impact. The main method which economists use to assess the link empirically is the so-called net factor content approach. This method calculates the input of unskilled labor into the output displaced by imported goods and into the additional exports to new trading partners, assuming balanced trade. Such calculations suggest that the net loss of unskilled jobs in the OECD countries is modest, and probably declining over time as trade flows take on an increasingly intra-industry nature. While this method is a useful first approximation, we discuss some reasons for thinking that it contains an optimistic bias due to its reliance on average factor inputs for industries rather than the input of unskilled labor in the parts of an industry most vulnerable to new, low-cost competition (i.e., firms likely to use above average inputs of unskilled labor). Data limitations unfortunately preclude a more systematic investigation of the size of this bias.

We limit our study of the linkage in various ways to make our study manageable. We focus on manufacturing, which is where the issue has primarily arisen, paying little attention to services. We concentrate on trade flows, since the problem has to show up there, paying less attention to foreign direct investment (“outsourcing”) for which information is less readily available and comparable between countries. The evidence we can offer for Europe is necessarily less complete and systematic than for North America and Japan where the greater homogeneity of the Trilateral area and better data facilitate the analyses.

Furthermore, we do not look at the impact on the other side—the new exporters and/or host countries for foreign direct investment—although a careful study of factor inputs in non-OECD exports and shifts in the relative factor incomes in these countries would no doubt have yielded additional and potentially useful evidence in evaluating the new challenges with which the Trilateral countries are likely to be faced. Some of the non-OECD countries that have undertaken major economic reforms in recent years have experienced a sharp rise in income inequalities inside their own frontiers as some sectors or even regions begin to participate effectively in the international division of labor while the rest of the economy lags behind.

Alternative Explanations for the Deteriorating Relative Position of the Less-Skilled
The most important limitation of our study may be, however, that we do not explore in any detail alternative explanations of why the relative position of the less-skilled part of the Trilateral countries’ work force has deteriorated in the recent period, if, as we argue, increasing trade flows can not be held primarily or even significantly responsible for the observed deterioration. We do refer to the general trend, observable in most Trilateral countries, for production techniques in manufacturing to move towards more intensive use of better-educated white-collar employees and away from less-skilled blue-collar workers. This bias in technological progress provides in our views the main explanation of the relative decline in the position of less-skilled workers. This leaves open, however, the interaction between this technological bias and globalization (in the sense used in this report) and in particular whether the latter (even though it is not in itself demonstrably a major explanatory factor) may have contributed more powerfully indirectly by accelerating the pace of technological change in manufacturing and by influencing its direction. We do not find this indirect linkage very plausible, since the present rate of technological change and its bias against the less-skilled parts of the workforce were established before globalization became a major phenomenon over the past decade.

Another explanatory factor advanced by some is immigration of less-skilled workers into Trilateral countries, increasing the supply of the less-skilled in the work force. We do not here treat labor migration in response to economic incentives and the special efforts in Trilateral countries to develop constructive immigration policies and to monitor illegal immigration. (Some of these issues were dealt with in an earlier report to the Trilateral Commission. See Meissner, Hormats, Garrigues Walker and Ogata [1993].)

Small GDP Shares of Trade with Non-OECD, Non-OPEC Countries
Finally, we want to remind readers of the overwhelming size of the domestic economies in the three Trilateral regions relative to trade flows among them or with the non-OECD area. Furthermore, in absolute terms trade among the industrial countries remains more important than trade with new trading partners outside the Trilateral countries, even though trade flows between these two groups have grown considerably faster than intra-OECD trade. (For practical purposes it is useful to define these two groups as the OECD countries and the rest of the world, or non-OECD countries.) For each of the three Trilateral regions—North America, the European Union and Japan—exports and imports of goods each currently constitute between 6 and 9 percent of total income or GDP—if one does not include the large trade flows inside North America and particularly inside the European Union (Tables I-1 and I-2). A similar geographical breakdown of trade in services is unfortunately not available. Although trade in services has developed faster than trade in goods, these flows are still much smaller than trade in goods.

As a first approximation one may conclude that, taken as regions, the three Trilateral regions show only a modest degree of openness to trade with each other and with the non-OECD area. Within the latter it is useful to distinguish between the oil-exporters and the rest of the non-OECD area, since trade with the oil exporters in both directions has been subject to violent gyrations following the two large jumps in energy prices in 1973-74 and 1979-80. Total trade in goods between each of the Trilateral areas and the still very heterogeneous rest of the non-OECD area currently amounts to somewhere between 2 and 4 percent of regional GDP in each direction. These modest starting points should be kept in mind when discussing the future growth of trade. They provide a strong reminder that the “backlash against globalization”—as some observers have aptly labelled the current mood in many segments of public opinion in the Trilateral countries—is hard to justify on the basis of both past experience and the likely prospects for a continuing rapid rise in economic interaction with the non-OECD area.

* * *

Even against this background, some readers may find our report deficient since it does not enter into any detailed discussion as to how growing inequalities in wages or in job opportunities in the Trilateral countries should be addressed. We have regarded this subject—and, more broadly, the capacity of our societies to respond to the process of globalization and to the greater underlying challenge of technological developments in ways that constrain inequalities without harming the sources of long-run progress in living standards—as beyond the scope of the present report. We make no apologies for this lack of ambition since we have been asked to evaluate only the narrower problem of the impact of economic interaction with new trading partners. Having concluded that this interaction is a relatively minor factor in explaining the growing tensions in our labor markets (in the rather different form in which these tensions manifest themselves in the three Trilateral regions), we have not felt the analysis of remedies to improve the functioning of labor markets as a natural extension of our mandate.

© 1996 Niels Thygesen, Yutaka Kosai and Robert Z. Lawrence | from Trilateral Commission Task Force Report #49