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Sunday 20 Aug 2017 | 00:48 | SYDNEY

The globalisation of our discontent

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COMMENTS

18 October 2016 08:45

Globalisation is currently everyone's whipping boy. Not only is everyone criticising it, but they also have ready answers on how to fix it. Unfortunately many of these glib solutions, if implemented, would diminish the very real benefits of globalisation.

Politicians on both the left and right are finding a remarkable measure of agreement here. Donald Trump and Bernie Sanders don't have much in common, but they both think that foreigners have stolen American workers' jobs and advocate trade restrictions to rectify this. The fact that US unemployment is much the same as it has been for decades and manufacturing output is at record levels carries no weight in this debate, nor does the evidence that technology was far more important than imports in reducing the number of manufacturing jobs. 

The evolution of anti-globalisation arguments reflects a changing environment. When Joe Stiglitz wrote 'Globalisation and its Discontents' in 2002, he still had the 1997-98 Asian crisis on his mind. His 'discontents' were largely in the emerging markets, disappointed with the way globalisation was working out for them (and how the IMF mishandled the Asian crisis).

In general, however, globalisation has been good for those emerging economies that have embraced it, with a billion people lifted out of extreme poverty over the past few decades. When Stiglitz resumed his criticism in 'Rewriting the Rules of the American Economy' in 2015 his main target was income inequality, largely a domestic issue:

American inequality is the result of misguided structural rules that actually constrict economic growth. We have stripped away worker protections and family support systems, created a tax system that rewards short-term gains over long-term investment, offered a de facto public safety net to too-big-to-fail financial institutions, and chosen monetary and fiscal policies that promote wealth over full employment.

Globalisation still has a place in Stigliz's wide-ranging disapproval: he also calls for rules to 'tame globalisation' and argues against trade agreements like the Trans-Pacific Partnership, because the rules embodied in these agreements reflect the interests of 'Big Business'. 

Bernie Sanders shares this belief that Big Business has subverted the rules on international trade in its own interests, describing the TPP as 'a disastrous trade agreement designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy.' 

Certainly, the 2007-08 financial crisis raised the public's hackles due to the way the financial sector was bailed out with little penalty for misdeeds and mistakes. But the connection with globalisation is indirect. Branko Milanovic's Global Inequality: a New Approach in the age of Globalization spells out the detailed global story, with technology (rather than globalisation as such) playing a central role in income distribution.

While it is not usually associated with of the anti-globalisation debate, the feeble recovery from the 2007-08 crisis should be a central part of the story of discontents. Olivier Blanchard, Larry Summers and now the IMF are making the case for greater efforts to stimulate growth, particularly with fiscal policy, which was actually in reverse during the first four years of the recovery. 

In this weak and prolonged recovery, some workers who lost their jobs in the recession stopped looking for work, permanently lowering potential output. Few of those who left the labour force in this way are happy with the outcome, but the blame should be placed on the lacklustre recovery, not globalisation.

Once globalisation has become the accepted punching bag, everyone can proffer their favoured nostrums, some of which make little sense. Jared Bernstein and Lori Wallach offer a 'progressive' response; stipulating that there should be rules covering everything from currency manipulation to international rules on labour and environmental conditions, and that countries that didn't play by said rules should be ostracised. Some of their criticisms are valid; trade deals like the TPP should be negotiated for general benefit rather than vested interests. But it is still a rag-bag collection of ideas.

This debate still has a long way to run. Here is some tentative guidance on how to evaluate the multitude of suggestions:

  • It makes no sense to inhibit globalisation or technological progress; these are the source of higher productivity and better living standards. Undoubtedly there are losers in this general progress, who should be compensated. But import tariffs are always a bad idea.
  • Countries aiming to emulate the success of South Korea's industrialisation strategy should require subsidised industries to be export-oriented. That way, the product has to survive in international competition.
  • Subsidies to assist workers displaced by international competition are clearly needed, but these should be designed to keep workers connected to the labour force (retraining, mobility subsidies, income-related benefits) rather than encouraging workers to drop out of it.
  • Global trade needs rules, just as domestic trade is surrounded by a panoply of rules and regulations. Ideally these rules should be multilateral, written with the global economy in mind. But until the WTO gets its act together, plurilateral trade deals may be the only way to make progress. In making these rules, the overriding principle should be the same: these should be developed with all participants in mind, not just the vested interests of the strongest participant.
  • While full economic integration along the lines of the European Union involves free flows of goods, services, capital and people, the last two are just too difficult at the global level for the foreseeable future. Defenders of globalisation should focus on keeping the first two flows open.
  • If economic policy-makers could avoid financial crises and promote a sturdy pace of economic growth, the current discontent in the advanced economies still suffering from the after-effects of 2007-08 would be ameliorated.

This is just a small start towards a rational response to anti-globalisation. What other suggestions are there?

Photo: Getty Images/Olivier Douliery

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