As Romer notes, we know from the history of our own country that an increase in knowledge workers does not necessarily lead to a decrease in their pay the way it does with low-skilled workers. From the 1960s to the 1980s, the supply of college-educated workers grew dramatically, and yet their wages grew even faster. Because as the pie grew in size and complexity, so too did people's wants, and this increased the demand for people able to do complex work and specialized tasks.
Romer explains this in part by the fact that “there is a difference between idea-based goods and physical goods.” If you are a knowledge worker making and selling some kind of idea-based product-consulting or financial services or music or software or marketing or design or new drugs-the bigger the market is, the more people there are out there to whom you can sell your product. And the bigger the market, the more new specialties and niches it will create. If you come up with the next Windows or Viagra, you can potentially sell one to everyone in the world. So idea-based workers do well in globalization, and fortunately America as a whole has more idea-driven workers than any country in the world.
But if you are selling manual labor-or a piece of lumber or a slab of steel-the value of what you have to sell does not necessarily increase when the market expands, and it may decrease, argues Romer. There are only so many factories that will buy your manual labor, and there are many more people selling it. What the manual laborer has to sell can be bought by only one factory or one consumer at a time, explains Romer, while what the software writer or drug inventor has to sell—idea-based products-can be sold to everyone in the global market at once.
That is why America, as a whole, will do fine in a flat world with free trade-provided it continues to churn out knowledge workers who are able to produce idea-based goods that can be sold globally and who are able to fill the knowledge jobs that will be created as we not only expand the global economy but connect all the knowledge pools in the world. There may be a limit to the number of good factory jobs in the world, but there is no limit to the number of idea-generated jobs in the world.
If we go from a world in which there were fifteen drug companies and fifteen software companies in America (thirty in all) and two drug companies and two software companies in China (four in all) to a world in which there are thirty drug and software companies in America and thirty drug and software companies in China, it is going to mean more innovation, more cures, more new products, more niches to specialize in, and many more people with higher incomes to buy those products.
“The pie keeps growing because things that look like wants today are needs tomorrow,” argued Marc Andreessen, the Netscape cofounder, who helped to ignite a whole new industry, e-commerce, that now employs millions of specialists around the world, specialists whose jobs weren't even imagined when Bill Clinton became president. I like going to coffee shops occasionally, but now that Starbucks is here, I need my coffee, and that new need has spawned a whole new industry. I always wanted to be able to search for things, but once Google was created, I must have my search engine. So a whole new industry has been built up around search, and Google is hiring math Ph.D.'s by the bushel-before Yahoo! or Microsoft hires them. People are always assuming that everything that is going to be invented must have been invented already. But it hasn't
“If you believe human wants and needs are infinite,” said Andreeseen, “then there are infinite industries to be created, infinite businesses to be started, and infinite jobs to be done, and the only limiting factor is human imagination. The world is flattening and rising at the same time. And I think the evidence is overwhelmingly clear: If you look over the sweep of history, every time we had more trade, more communications, we had a big upswing in economic activity and standard of living.”
America integrated a broken Europe and Japan into the global economy after World War II, with both Europe and Japan every year upgrading their manufacturing, knowledge, and service skills, often importing and sometimes stealing ideas and equipment from the United States, just as America did from Britain in the late 1770s. Yet in the sixty years since World War II, our standard of living has increased every decade, and our unemployment rate-even with all the outcry about outsourcing– stands at only a little above 5 percent, roughly half that of the most developed countries in Western Europe.