Ben­e­fits of glob­al­i­sa­tion should reach the poor

For real in­te­gra­tion, pol­i­cy­mak­ers must cre­ate so­cial safety nets that pro­tect the in­evitable losers

Khaleej Times - - OPINION - Arvind SubrA­mA­niAn PER­SPEC­TIVE

Most economists wax elo­quent about the ben­e­fits of “real” global in­te­gra­tion — that is, vir­tu­ally un­in­hib­ited cross-bor­der flows of goods, labour, and tech­nol­ogy. They are less cer­tain when it comes to global fi­nan­cial in­te­gra­tion, es­pe­cially short-term flows of so-called hot money. Yet, to­day’s anti-glob­al­i­sa­tion back­lash is fo­cused largely on real in­te­gra­tion — and al­most en­tirely spares its fi­nan­cial coun­ter­part.

The back­lash against real in­te­gra­tion has, most re­cently, spurred US Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion to re­sort to uni­lat­eral trade pro­tec­tion­ism, tar­get­ing China in par­tic­u­lar. In both the United States and Eu­rope, bar­ri­ers against mi­gra­tion are be­ing raised. Many govern­ments are mov­ing to im­pose new taxes on tech­nol­ogy com­pa­nies deemed to be too large or in­flu­en­tial.

In this con­text, the ab­sence of even a whiff of protest against fi­nan­cial in­te­gra­tion is strange. Af­ter all, fi­nan­cial flows have reg­u­larly wreaked havoc on rich and poor economies alike over the last 40 years. And that dam­age is no se­cret: in­sti­tu­tions like the In­ter­na­tional Mon­e­tary Fund have high­lighted it, adding caveats to their pre­vi­ously un­fet­tered sup­port for fi­nan­cial open­ness.

The lack of re­sis­tance to fi­nan­cial in­te­gra­tion may re­flect the salience of the prob­lem — or, per­haps more ac­cu­rately, the nar­ra­tive. When it comes to real global in­te­gra­tion, it is easy to iden­tify per­pe­tra­tors and vic­tims; with fi­nan­cial in­te­gra­tion, it is not.

Con­sider free trade. While it is ben­e­fi­cial over­all, its ad­verse dis­tri­bu­tional ef­fects are un­de­ni­able, and it is easy to say who gets hurt (for ex­am­ple, ad­vanced-coun­try work­ers in lower-value-added in­dus­tries like steel) and who is do­ing the dam­age (de­vel­op­ing coun­tries that can pro­duce and ex­port the rel­e­vant good more cheaply). The losers may be a mi­nor­ity, but they can band to­gether to am­plify their voice and max­imise their bar­gain­ing power, es­pe­cially if they are ge­o­graph­i­cally con­cen­trated. With a clear tar­get, their out­rage ac­quires force and le­git­i­macy.

Like­wise, mi­gra­tion brings both ma­jor gains and, in the eyes of many, sig­nif­i­cant losses. Ap­par­ent losers may in­clude do­mes­tic work­ers who are (or be­lieve they are) af­fected by com­pe­ti­tion from mi­grants, or cit­i­zens who feel that their way of life or even iden­tity is be­ing threat­ened. It does not mat­ter whether these claims are em­pir­i­cally true; they fit into a clear and com­pelling nar­ra­tive, in which im­mi­grants are por­trayed as vil­lains. Such a nar­ra­tive, as we have seen, is a very ef­fec­tive mo­bil­i­sa­tion tool in the hands of cyn­i­cal politi­cians.

Of course, fi­nan­cial crises — such as those in Latin Amer­ica in the early 1980s, in East Asia in the late 1990s, in Eastern Eu­rope in the late 2000s, and in Eu­rope in the 2010s — also have clear vic­tims: those who lose their jobs, houses, or re­tire­ment sav­ings. But it is not nearly as easy to ap­por­tion blame.

In the past, go­ing back to the Mid­dle Ages, in fact, the fin­ger has of­ten been pointed at banks. But the sources of to­day’s “hot money” flows are not read­ily iden­ti­fi­able. Hedge funds, mu­tual funds, as­set-man­age­ment com­pa­nies, pen­sion funds, and sovereign wealth funds op­er­ate from all across the globe, in le­git­i­mate ju­ris­dic­tions and in what W Som­er­set Maugham once de­scribed as “sunny places for shady peo­ple.”

Even if the lenders could be read­ily iden­ti­fied, they could not be as­signed all of the blame. Fi­nan­cial trans­ac­tions al­ways in­volve bor­row­ers as well, and, un­like laid-off steel work­ers, de­fault­ing bor­row­ers (in­di­vid­u­als or coun­tries) are rarely in­no­cent vic­tims. In many cases, large bor­row­ers have ob­tained their loans by de­ceiv­ing the lenders or us­ing po­lit­i­cal con­nec­tions, as for­mer In­done­sian Pres­i­dent Suharto’s cronies fa­mously did.

When it comes to real global in­te­gra­tion, it is easy to iden­tify per­pe­tra­tors and vic­tims; with fi­nan­cial in­te­gra­tion, it is not

While salient nar­ra­tives fea­tur­ing spe­cific and read­ily iden­ti­fi­able vil­lains make real in­te­gra­tion — de­spite its tan­gi­ble over­all ben­e­fits — dif­fi­cult to sus­tain, the ab­sence of com­pa­ra­ble nar­ra­tives is al­low­ing fi­nan­cial in­te­gra­tion to con­tinue un­abated. This places the world on track for a lot less of the good kind of in­te­gra­tion, and more of the ques­tion­able kind.

Al­ter­ing this tra­jec­tory calls for two types of re­sponse. To sup­port real in­te­gra­tion, pol­i­cy­mak­ers must cre­ate am­bi­tious, even rad­i­cally so, so­cial safety nets that pro­tect the in­evitable losers, while high­light­ing the over­all ben­e­fits that such in­te­gra­tion af­fords. Ac­tions against per­pe­tra­tors — for ex­am­ple, firms and coun­tries that brazenly steal in­tel­lec­tual prop­erty — may also be needed, de­spite the po­ten­tial costs.

Mean­while, pol­i­cy­mak­ers will need to do a bet­ter job of man­ag­ing fi­nan­cial in­te­gra­tion, a task that may be all the more chal­leng­ing, be­cause no po­lit­i­cal con­stituency is re­ally de­mand­ing it. Given fi­nance’s neb­u­lous, al­most phan­tom-like na­ture, which eludes easy nar­ra­tive-build­ing, the task of tam­ing it will be dif­fi­cult. But tame it we must. —Project Syn­di­cate

Arvind Subra­ma­nian is Chief Eco­nomic Ad­viser to the Gov­ern­ment of In­dia

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