Comparative Advantage was supposed to create efficiency by not wasting resources. It was also supposed to gaurantee optimal terms of trade and erase trade imbalances through the shifting exchange rates via the price mechanism. Countries with large trade deficits would eventually experience inflation and a currency devaluation reversing the trade imbalance by making foreign goods expensive and their own goods cheaper in terms of the international exchange rate. Thus, the imbalance would ultimately be replaced by equilibrium in trade.

This theory, based on the notions of Adam Smith and David Ricardo, no longer hold in the modern world. As we have seen since the mid-19th century, geo-political hegemony has often determined the value of currencies and the international position of a country rather than the market. The British Empire is a good example with the British Pound remaining the world's strongest currency even to this day despite the fact that the UK has long since declined as an economic power more than 100 years ago. It was Britain's colonies and the centrality of London and the Pound Sterling in international trade that gave the UK the edge in world trade despite the overall decline in Britain's actual merchandise trade position.

Similarly, terms of trade between low value added primary goods exporters and developed high value added manufactured goods exporters often deteriorate in favor of the richer manufactured goods exporter. Structuralists like Raul Prebisch and Celso Furtado have noted that primary commodities exporters will always be subject to wild swings in the global market while high value added finished goods exporting economies had greater price stability and hence stronger national currencies. They also had more vertically integrated economies with backward linkages to the core of the economy from the export sector which poorer countries lacked. It was dependency theorists that pointed out the condition of permanent underdevelopment of the third world due to this and other conditions. Thus, capital would accumulate through trade imbalances in the developed countries, which international price and exchange rate mechanisms would never even out. Poor countries would ultimately come to depend on the rich countries for loans. Such dependency would, through high interest rates, always lead to net capital outflows from poor to rich countries much as exists today.

Even the policies of import substitution industrialization in the third world didn't reverse the condition of dependency but actually worsened it by creating domestic industrial overcapacity due to a lack of export markets in the first world. This led to high third world corporate debt forcing companies into merger and acquisition activity, usually through the sale of assets to first world TNCs. Thus, global concentration of productive assets resulted ultimately worsening global income inequality.

Despite what advocates of global neo-liberal capitalism say about economic growth lifting all boats and bringing billions of people out of poverty, the opposite often occurs. This is because the goal of capital is not to expand trade and growth globally but to increase profits through cheapening labor and reducing competition from the third world through foreign control of their manufacturing sector and exports by integrating these countries into a global division of labor that favors the core countries rather than those of the periphery to borrow some phraseology from dependency theory designed to stress the essentially unequal nature of global economic relations under late capitalism.

It is in this context that the workers in the industrialized world are ultimately effected as Palley suggests. The hyper-mobility of capital has finally created a global class war as it has moved from nation-state based inequality to that of social class.

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Jack Welch's barge is presumably powered by a fossil fuel, probably some sort of bunker fuel. My point is that "globalization" at least in the product sector as opposed to the service sector has depended mightily on cheap oil. Cheap oil enables JIT delivery of (final and intermediate) goods by air and delivery truck, especially but also by the more efficient (from an energy standpoint) rail and sea transport (i.e. the "barge") mode. As we rapidly approach the "peak oil" point at which practically extractable petroleum meets ever rising demand, we are going to see (in the next decade, by the way), a huge spike in oil prices that will simply kill the JIT form of globalization. This won't push us back into the old Ricardian land and capital comparative advantage mode completely because there's services, some of which, mediated by the Web, will continue, insouciantly, creating a whole new virtual world.

Nevertheless, in the "real virtual" world, the collapse of the cheap oil era (or rather steadily less cheap as we hopelessly compete with more efficient energy users) combined with disruptions from climate change and more and more regional conflicts are going to cause continual interruptions and turmoil which will really screw the previously cozy view of the globalists. (And I am one who truly wanted globalization to empower the least developed countries - still could happen but not likely). My point is simply that the collapse of the cheap oil economy will occur a lot faster than any replacement. More specifically, the extent to which globalization of goods is utterly dependent upon international (or even regional) transport, it is a dead end. Sorry. It's a matter of physics.

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