NEW DELHI -- The debate in the aftermath of the WTO meeting in Seattle continues with the assumption that globalization fundamentally benefits the world's people. It is forgotten that globalization also implies that wages will become equalized on a global scale. If this occurs, an abundant supply of labor in the developing world means global wages would move closer to the level of those in poor countries. As a result, standards of living in the industrial countries would decline while those of the developing countries would increase only a little. Only through protectionism can industrialized countries provide higher wages to their workers. Since most industrial countries embrace democracy, they will find it increasingly difficult to persuade their voters to accept free trade (and accompanying lower wages). Either globalization will survive or democracy. The two are not compatible.
Free trade will lead to enhanced demand for products that reflect each country's comparative advantage. Increased demand and investment will boost labor productivity and lead to increased demand for labor which, in turn, will lead to increased wages. This last step is where the problem lies. Wages are determined not by demand alone, but by supply as well. If the supply is elastic, an increase in demand will not result in an increase in wages. The number of jobs may increase, but not wages. The beneficial impact of globalization can be entirely nullified by an inexhaustible supply of labor.
Perhaps an historical example would make the point. In ancient Greece, labor productivity increased many times following the introduction of iron tools. Such technological developments were no less exciting than those surrounding the Internet today. It was also an era of globalization, with Alexander the Great's empire stretching across Asia. But did these developments lead to an increase in wages? No, writes J.D. Bernal in his seminal work, "Science in History": "The beauties of the Greek cities, temples, statues and vases blind us to the fact that the way of life for most people in civilized countries at the fall of the Roman Empire was much what it had been 2,000 years before when the old bronze age civilization had collapsed."