Glob­al­i­sa­tion and its New Dis­con­tents

Financial Mirror (Cyprus) - - FRONT PAGE -

Now, glob­al­i­sa­tion’s op­po­nents in the emerg­ing mar­kets and de­vel­op­ing coun­tries have been joined by tens of mil­lions in the ad­vanced coun­tries.

Opin­ion polls, in­clud­ing a care­ful study by Stan­ley Green­berg and his as­so­ciates for the Roo­sevelt In­sti­tute, show that trade is among the ma­jor sources of dis­con­tent for a large share of Amer­i­cans. Sim­i­lar views are ap­par­ent in Europe.

How can some­thing that our po­lit­i­cal lead­ers – and many an economist – said would make every­one bet­ter off be so re­viled?

One an­swer oc­ca­sion­ally heard from the ne­olib­eral econ­o­mists who ad­vo­cated for these poli­cies is that peo­ple are bet­ter off. They just don’t know it. Their dis­con­tent is a mat­ter for psy­chi­a­trists, not econ­o­mists.

But in­come data sug­gest that it is the ne­olib­er­als who may ben­e­fit from ther­apy. Large seg­ments of the pop­u­la­tion in ad­vanced coun­tries have not been do­ing well: in the US, the bot­tom 90% has en­dured in­come stag­na­tion for a third of a cen­tury. Me­dian in­come for full-time male work­ers is ac­tu­ally lower in real (in­fla­tion-ad­justed) terms than it was 42 years ago. At the bot­tom, real wages are com­pa­ra­ble to their level 60 years ago.

The ef­fects of the eco­nomic pain and dis­lo­ca­tion that many Amer­i­cans are experiencing are even show­ing up in health statis­tics. For ex­am­ple, the econ­o­mists Anne Case and An­gus Deaton, this year’s No­bel lau­re­ate, have shown that life ex­pectancy among seg­ments of white Amer­i­cans is de­clin­ing.

Things are a lit­tle bet­ter in Europe – but only a lit­tle bet­ter.

Branko Mi­lanovic’s

new

book

pro­vides some vi­tal in­sights, look­ing at the big win­ners and losers in terms of in­come over the two decades from 1988 to 2008. Among the big win­ners were the global 1%, the world’s plu­to­crats, but also the mid­dle class in newly emerg­ing economies. Among the big losers – those who gained lit­tle or noth­ing – were those at the bot­tom and the mid­dle and work­ing classes in the ad­vanced coun­tries. Glob­al­i­sa­tion is not the only rea­son, but it is one of the rea­sons.

Un­der the as­sump­tion of per­fect mar­kets (which un­der­lies most ne­olib­eral eco­nomic analy­ses) free trade equalises the wages of un­skilled work­ers around the world. Trade in goods is a sub­sti­tute for the move­ment of peo­ple. Im­port­ing goods from China – goods that re­quire a lot of un­skilled work­ers to pro­duce – re­duces the de­mand for un­skilled work­ers in Europe and the US.

This force is so strong that

if there were no trans­porta­tion costs, and if the US and Europe had no other source of com­pet­i­tive ad­van­tage, such as in tech­nol­ogy, even­tu­ally it would be as if Chinese work­ers con­tin­ued to mi­grate to the US and Europe un­til wage dif­fer­ences had been elim­i­nated en­tirely. Not sur­pris­ingly, the ne­olib­er­als never ad­ver­tised this con­se­quence of trade lib­er­al­i­sa­tion, as they claimed – one could say lied – that all would ben­e­fit.

The fail­ure of glob­al­i­sa­tion to de­liver on the prom­ises of main­stream politi­cians has surely un­der­mined trust and con­fi­dence in the “es­tab­lish­ment.” And governments’ of­fers of gen­er­ous bailouts for the banks that had brought on the 2008 fi­nan­cial cri­sis, while leav­ing or­di­nary cit­i­zens largely to fend for them­selves, re­in­forced the view that this fail­ure was not merely a mat­ter of eco­nomic mis­judg­ments.

In the US, Con­gres­sional Repub­li­cans even op­posed as­sis­tance to those who were di­rectly hurt by glob­al­i­sa­tion. More gen­er­ally, ne­olib­er­als, ap­par­ently wor­ried about ad­verse in­cen­tive ef­fects, have op­posed wel­fare mea­sures losers.

But they can’t have it both ways: if glob­al­i­sa­tion is to ben­e­fit most mem­bers of so­ci­ety, strong so­cial-pro­tec­tion mea­sures must be in place. The Scan­di­na­vians fig­ured this out long ago; it was part of the so­cial con­tract that main­tained an open so­ci­ety – open to glob­al­i­sa­tion and changes in tech­nol­ogy. Ne­olib­er­als else­where have not – and now, in elec­tions in the US and Europe, they are hav­ing their come­up­pance.

Glob­al­i­sa­tion is, of course, only one part of what is go­ing on; tech­no­log­i­cal in­no­va­tion is another part. But all of this open­ness and dis­rup­tion were sup­posed to make us richer, and the ad­vanced coun­tries could have in­tro­duced poli­cies to en­sure that the gains were widely shared.

In­stead, they pushed for poli­cies that re­struc­tured mar­kets in ways that in­creased in­equal­ity and un­der­mined over­all eco­nomic per­for­mance; growth ac­tu­ally slowed as the rules of the game were rewrit­ten to ad­vance the in­ter­ests of banks and cor­po­ra­tions – the

that

would

have

pro­tected

the rich and pow­er­ful every­one else.

Work­ers’ bar­gain­ing power was weak­ened; in the US, at least, com­pe­ti­tion laws didn’t keep up with the times; and ex­ist­ing laws were in­ad­e­quately en­forced. Fi­nan­cial­i­sa­tion con­tin­ued apace and cor­po­rate gov­er­nance wors­ened.

Now, as I point out in my re­cent book Rewrit­ing the Rules of the Amer­i­can Econ­omy, the rules of the game need to be changed again – and this must in­clude mea­sures to tame glob­al­iza­tion. The two new large agree­ments that Pres­i­dent Barack Obama has been push­ing – the Trans-Pa­cific Part­ner­ship be­tween the US and 11 Pa­cific Rim coun­tries, and the Transat­lantic Trade and In­vest­ment Part­ner­ship be­tween the EU and the US – are moves in the wrong di­rec­tion.

The main mes­sage of Glob­al­iza­tion and its Dis­con­tents was that the prob­lem was not glob­al­i­sa­tion, but how the process was be­ing man­aged. Un­for­tu­nately, the man­age­ment didn’t change. Fif­teen years later, the new dis­con­tents have brought that mes­sage home to the ad­vanced economies.

at

the

ex­pense

of

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