The Sandwiched Middle
About a paradoxical collateral effect of Globalization
«Teching Up is the only viable
strategy for those in the middle»
Interview by Jorge
Nascimento Rodrigues, editor of Gurusonline.tv,
Al least 45% of the world - almost all of emergent
Latin America, Eastern and Central European former Soviet
bloc, as well as the Asian tigers and candidates, much
of the oil rich Middle East, a few countries in the
European Union - are "middle-income" in various
degrees, and got sandwiched between the developed world
and the big emergent countries of Asia. Globalization
was not fair to them. This consequence is particularly
evident today with the emergence of global strategies
from China (the "daguo xintai" paradigm) and
India (the "Bollystan"paradigm).
"As a result, the middle-income countries have
been forced into unwinnable battles with China for market
share in standardized manufacturing and increasingly
with India for low-wage service-sector exports",
wrote Geoffrey Garrett, vice Provost of the International
Institute at University of California at Los Angeles
(UCLA). Why this happened? "The failure of middle-income
countries to compete in global markets for either knowledge
or low-wage products", answers the director of
the Ronald W. Burkle Center for International Relations
at UCLA in an article at Foreign Affairs magazine November/December
And Professor Garrett underlines a geo-political consequence:
"Ignoring those in the middle pushed aside by globalization
will have immense implications - economically and politically".
The article is a summary of a forthcoming book to be
published by W.W. Norton in the end of 2005, and titled.
"Globalization's Missing Middle: Why the global
middle class is loosing from free trade and finance".
What kind of middle-income groups of countries you
studied in the book? Have you a particularly middle-income
case that impressed you more in your research?
There are really three basic types of middle-income
countries - those in the Middle East, those in East-Central
Europe and those in Latin America. I consider the Middle
East to be sui generis because of the security dimension.
The European countries are different because of the
European Union. I am concentrating on Latin America
because of the disconnect between the predictions and
promises of the Washington consensus and the realities
of globalization in the region.
After 20 years of globalization, the main victim
was the middle-income nations? Why was globalization
been disappointing for those countries got in the middle?
The venerable theory of comparative advantage says that
all countries should be able to find a winning niche
in the global economy. My research indicates, however,
that there are only two ways to compete successfully
- having the capacity to innovate in the knowledge economy
or having low enough costs to win in standardized manufactures.
The middle-income countries have trouble doing either.
On the one hand, they tend not to have educated enough
labor forces or sufficiently strong financial and legal
systems to compete in the knowledge economy. On the
other hand, labor costs tend to be too high to compete
in the low wage manufacturing economy.
They have not found a niche in
world markets. They have been unable to compete in high-value-added
markets dominated by wealthy economies. As a result,
they have had little choice but to try to compete with
China and other low-income economies in markets for
standardized products. But because of their higher wages,
the middle-income nations are bound to lose the battle.
So, what was the fate of the middle?
The answer seems to be that they have not found a niche
in world markets. They have been unable to compete in
high-value-added markets dominated by wealthy economies
because their work forces are not sufficiently skilled
and their legal and banking systems are not sophisticated
enough. As a result, they have had little choice but
to try to compete with China and other low-income economies
in markets for standardized products. But because of
their higher wages, the middle-income nations are bound
to lose the battle.
In this decade do you think the middle-income countries
can "catch up" the upper level, following
the examples of the Nordic States, Ireland, Singapore
and a few others in the last decade?
If any group of middle-income countries is to catch
up in the next decade, it will probably be those in
east-central Europe that have just joined the European
Union. In addition to fiscal transfers and access to
West European markets, the acquis communitaire gives
the new members the kind of institutional stability
that might encourage knowledge economy investors.
Education is clearly critical,
but it is not enough on its own. Middle-income countries
need to develop sophisticated financial systems so that
they can efficiently channel investment and cope with
the volatility of global markets.
What's the challenge for those in the middle?
To find ways to "tech up" and enter the global
knowledge economy, so as to escape the trap.
To "tech up", what is the main strategy
Education is clearly critical, but it is not enough
on its own. Middle-income countries need to develop
sophisticated financial systems so that they can efficiently
channel investment and cope with the volatility of global
markets. They also need strong legal systems that protect
property rights and create incentives for investors
to make the kind of long-term investments that are essential
to the knowledge economy.
Portugal and Greece in the European Union new members
wave of the 80's didn't perform so well as Spain or
Ireland. So, particularly Portugal with only 20% of
working people with high education, was "blocked"
in the. What do you suggest for a typical "sandwiched"
country like Portugal?
Portugal is not alone being sandwiched. I think Mexico,
for example, is in a very similar position in Latin
America. The way out cannot be to try to compete with
India and China because this is a losing battle due
to the differences in labor costs. Teching up is the
only viable strategy. But it is expensive. This is where
the EU's system of fiscal transfers is of potentially
great help to Portugal. But Mexico does not have anything
akin to the EU to help it move up the global skill chain.
How you see the Latin America situation, despite
eternal vaporware about "emergent" countries
like Brazil, Mexico, Chile or Argentina?
Latin America will continue to struggle until it can
improve its educational system, reduce corruption, and
build strong financial and legal systems. One consequence
will be that Latin American immigrants will continue
to try to enter the United States. At some point, this
may lead the US to provide more assistance to Latin
India has the chance to leap over
the manufacturing phase of development and become a
service oriented export economy. If this happens, knowledge
workers in the West will get squeezed.
Do you think the "junk" jobs in the developed
and upper middle-income countries will be the working
class majority? What could be the social and political
The interesting thing in the US is that job growth has
been about the same in professional/business services
as in the junk jobs. What is happening is that the manufacturing
middle class is disappearing. The problem with junk
jobs in the first world is that they are increasingly
done by migrants, or in the case of India, "off-shored.".
In the middle-income countries, manufacturing employment
is growing rapidly, but workers are not seeing the benefits
in terms of higher wages - because of downward pressures
from China in particular.
Due to the post-crash crisis in the New Economy,
the "tech slaves" situation is worsening in
developed and middle-income countries. The impoverishment
of large parts of the new middle class - even knowledge
workers and technologists - is becoming evident. What
could be the social and political consequences?
India has the chance to leap over the manufacturing
phase of development and become a service oriented export
economy. If this happens, knowledge workers in the west
will get squeezed because people in India will be willing
and able to do their jobs at much lower wages. This
would significantly increase the portion of the population
that is adversely affected by globalization in the West,
and could lead to a real backlash. But that is probably
But what Latin America needs is
the kind of deep integration that has characterized
the EU in the past two decades.
What global measures do you suggest to world institutions
to deal with this middle countries' paradox?
I think regional integration is the key. Though it took
a long time, the EU is doing the right thing by expanding
to the East. This is the best hope for the middle-income
countries in Europe. The US is trying to build similar
regional integration schemes in the Middle East, but
not much progress will be made until the security situation
stabilizes. In Latin America, the US wants a bare bones
FTAA that is free trade-only. But what Latin America
needs is the kind of deep integration that has characterized
the EU in the past two decades.
References in the Web:
- Article at Foreign Affairs magazine: "Globalization's
Missing Middle" (Volume 83, number 6)
- The Chinese "Daguo Xintai" (mentality of
global power) strategy
- The "Global India" strategy (Bollystan=culture
+ land in farsi language)
Professor Geoffrey Garrett can be contacted by email
You can visit his profile at www.international.ucla.edu/profile/ggarrett/index.html
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