OVERSUPPLY OF LABOR CASTS A DARK SHADOW

OVERSUPPLY OF LABOR CASTS A DARK SHADOW

History books will record that the last important international event of the second millennium was a World Trade Organization meeting disrupted by an unlikely alliance of U.S. trade unions and various environmental groups.

This was symbolic, for the issue of globalization, a dirty word for the Seattle street protesters, will dominate the international economic debate in the 21st century.Since the meeting, the economics profession has brought out some of its heaviest artillery to defend international trade and global economic order.

In one oped article after another, world-renowned economists, business and political leaders have been explaining how the protesters got it wrong.

With impressive unanimity, they have pointed out how restrictions on trade and tighter labor standards harm those poor nations that the rallies in Seattle purported to defend.

They argue that rank-and-file members of U.S. trade unions, along with other American consumers, are the prime beneficiaries of world trade. They explain that the best way to protect the environment is through economic development.

These arguments are solidly grounded in economic theory.

Indeed, you don't need to be a Nobel Prize-winning economist to know that international trade raises economic efficiency and benefits both trading partners, or that foreign investment is the only way for developing nations to improve their economies and move up the technology curve.

Moreover, the United States, the world's most efficient economy, by definition stands to gain the most from global commerce. It is no coincidence American workers, whether union members or not, are enjoying the lowest unemployment rate in 30 years.

Finally, since rich countries have the world's cleanest environments, it stands to reason that the way to preserve the environment globally is to make poor countries less so.

But these arguments have one crucial flaw.

The world has a massive oversupply of labor. Sometime during 1999, world population surpassed 6 billion. Based on projections from the United Nations, it could reach 10 billion by 2050.

All that growth will take place in poor countries. Meanwhile, rich economies have stable or even declining populations.

India, which reached a population milestone of its own in 1999, hitting the 1 billion mark, has 40 percent of the people in the world who live on less than a dollar a day.

According to the International Confederation of Free Trade Unions, a labor group that supported the Seattle protests, some 750 million adults around the world are unemployed.

Technology makes it easier and cheaper to move production to any point on the globe - wherever it makes economic sense to produce - while cheap, efficient transportation makes global distribution a reality.

At the same time, technological advances further reduce the need for labor, just as more and more workers throughout the world join the borderless global labor pool.

Rising supply and falling demand is a deadly combination for wages. Economic theory, far from invariably validating the advantages of globalization, suggests a bleak future for world labor markets.

Based on a simple supply-demand relationship, equilibrium wages around the world should be going progressively lower.

Labor leaders are right. As labor markets become internationalized, it becomes harder and harder to justify union wages of $20 an hour or more, when comparable products could be produced by workers who make less than $5 a day and receive no pensions, medical insurance or other benefits.

While raising the educational standards and skill levels of the work forces in developed countries could stave off disaster, it's at best a temporary solution.

Witness the success of the Indian software industry, which relies on programmers earning a fraction of the wages earned by their U.S. colleagues.

New outsourcing centers for information technology are emerging in other parts of the world, including the Far East, Eastern Europe, Central America and Russia.

Economists say the most efficient way of dealing with the overpopulation problem is, again, high levels of economic development. Italy and Ireland, after all, saw average family size plummet in recent decades even while their populations became more educated, wealthy and urban.

This may work in theory, but in practice even today's supply of labor probably can't be absorbed into the global economic system without destroying living standards in the developed world.

Blue-collar trade unionists and the other protesters who showed up in Seattle may not fully understand the economic impact of globalization, but they can be trusted to know when their way of life is being threatened.

Economists would do well to leave their ivory tower and to pay more heed to the message other Americans are trying to send.