Sharing the Gains from Globalization

Martin Wolf's column this week is about how to share the benefits of globalization:

Share gains with globalisation’s losers, by Martin Wolf , Commentary, Financial Times: Globalisation remains the great economic story of our era. It is also the great political story. The big question remains how likely is a reversal of our era’s move towards a more integrated global economy. History suggests, alas, that the onward march towards integration is not inevitable: economics may propose, but politics dispose.

This was the issue raised by Ben Bernanke ... in his address to this year’s ... symposium ... at Jackson Hole, Wyoming. ...Mr Bernanke argued that “the social and political opposition to openness can be strong. Although this opposition has many sources... much of it arises because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall”. The need, he suggests, is to ensure that the benefits of integration are sufficiently widely shared. ...

The need is to find a way of ensuring a broad sharing of the gains. This can be done by subsidising retraining, subsidising the wages of the unskilled or subsidising goods and services that are particularly important for the futures of the unskilled (health and education services being obvious examples).

The political challenge is to secure consent to changes that should benefit almost everyone in the long run. The answers will be different in different countries. But answers must be found. Globalisation offers big potential benefits. Policy must ensure that this potential is realised. July’s failure of the Doha trade negotiations suggests that policymakers still fail to recognise its urgency.

This is an entry in Martin Wolf's Forum. Brad DeLong comments:

Brad DeLong: Ben Bernanke said that the world will move forward with globalization only if policy makers "ensure that the benefits of integration are sufficiently widely shared." He is wrong: just making the benefits of integration widely shared isn't enough. After all, the benefits of globalization and increased economic integration are widely shared today--and yet forward progress on further globalization still hangs in the balance for politico-economic and politico-security reasons.

In the United States, at least, the problem is that most beneficiaries from globalization don't really know that they are beneficiaries, or how much they benefit. Feckless congressmen and congresswomen don't understand that the American economy is cushioned from their fiscal policy stupidities by the ability of the U.S. government to sell bonds internationally on a jaw-droppingly unbelievable scale. Home sellers in California don't realize that they got such a good price because of financing from across the Pacific. Walmart shoppers see the "made in China" stickers, but don't understand what a good deal they are getting because the rulers of the PRC are desperate to sell the products that their workers make at always low prices in order to stay as close as possible to full employment.

The task is primarily one of making perceptions agree with reality, and only secondarily one of changing reality.

Martin Wolf responds:

Martin Wolf: Brad is right, of course. The question is how to do this. There are four points here. First, as Mancur Olson would have said, ignorance is rational for the individual voter. Putting in the effort required to understand how trade and capital flows work is hard. Second, as Olson would also have said, there are concentrated interests against globalisation, while the interests in favour of it are generally more diffuse. Third, the adverse effects of job losses are visible, while the benefits of greater trade are not. Finally, patriotism is the last refuge of the scoundrel and the first refuge of the protectionist.

So perceptions do matter. They are also difficult to shift. But if the government were seen to be concerned about the fate of apparent losers from this process, globalisation might also be politically more palatable. This, too, is a matter of perceptions.

I agree with Brad that the benefits are diverse and could be better understood. But I also agree with Martin. I think a big part of the problem is that the government seems unconcerned with the fortunes of workers affected by globalization. True or not, workers perceive policy as siding with business interests over their own. That's something that can be changed. And I would hope that the government does more than just try to "seen to be concerned about the fate of apparent losers" and actually does something to help.

Update: One more comment from the Forum:

O von Rein: Basically, globalisation increases returns on capital (in the developed countries) and gains are thus channeled towards shareholders. This readily ties back into recent studies showing the growing wedge in income growth between top earners and the average population in the US. If we then feel the need to "share the gains with globalisation’s losers", I wonder what remedy follows? Here your commentary falls silent. Was that because you dare not mention the 'T' word? Progressive taxation almost imposes itself. Somewhat counter to the policies implemented by the present US administration.

Comments

[donna]

I don't buy anything made in China anymore. Saves me a ton of money, actually, since everything seems to be made there now. ;^)

[Tom Geraghty]

Are any of the benefits that DeLong talks about - huge government deficits, sky-high house prices (and what about the peolple who have to buy those houses?), consumption far in excess of production - sustainable in the long run?
If not, to what extent should they really be considered "benefits?" Shouldn't we at least try to consider the potential long-run associated costs?

[bakho]

How is the redistribution supposed to happen in a political environment full of complaints about "soak the rich" and "class warfare" and politicians that pander to the wealthy telling them "It's your money."?? Redistribution won't happen because the Republicans will block it politically. The resulting blowback will be restrictions on trade.

If someone tried to force Grover Norquist to choose between free trade with redistribution of wealth and trade restriction with no redistribution, he would choose no redistribution. If the only way to force redistribution is to dynamite free trade, then free trade will die. Anti-tax and libertarians pursue policy mixtures that make it impossible to govern. I guess that is the idea.

[save_the_rustbelt]

"...First, as Mancur Olson would have said, ignorance is rational for the individual voter..."

I've been waiting for the "workers are stupid" argument. Only the elites are smart. Most people don't spend their days with macro books.

Most people don't have time to study econ and blogs all day, they are busy making a living.

When they have a job of course.

It is amazing how many really smart people think that shopping at Wal-Mart makes up for declining real incomes and benefit cuts.

The benefits of trade have created a major trickle up economy.

[jamzo]

a more transparent and balanced "globalization" initiative would have been the result of a different
political coalition

the current winners and losers in globalization are just that

the current winners and losers

i personally think the winners got their win cheap and that the cost to others may outweigh the common good

example - nafta was held up for everyone as a great triumph of international cooperation and hailed as an achievement for the common good and the net result

at this point in 2006 the economic and social structures upon which millions of mexican, and central american peasants relied has been destroyed and millions are migrating to the united states for survival

and similar economic migrations seem to be happening in
eastern europe and africa

the irish talk of the hardworking "poles" that have migrated to ireland in much the same way as americans talk of the hardworking "mexicans" who have migrated to the united states

saddest part of it is that while the president speaks of "the clash of civilizations" and promises to protect us from islamic political movements, he is unable to stem the flow of people who are invading his country

[dryfly]

I agree with Tom G - the 'benefits' Brad D points too (cheap debt & inexpensive consumable crap) at the expense of a future where we lose our ability to produce treadeables... isn't a benefit.

Its like a heroin addict stumbling on a cheap source of smack & thanking his lucky stars as they haul him to the ER suffering from an overdose.

Call me naive but I believe it IS possible to maintain some reasonable standard of living here (although it might slip in terms of relative global purchasing power) and at the same time still see China, India, Africa, etc. rise from poverty. But it will not happen by gutting our tradeables sector entirely for the maybe returns from of some ephemeral 'dark matter'.

The sooner folks making policy understand that both parties in a transaction have to produce to provide a good if there is to be real trade the faster we get to sustainable globalization.

You know Chinese workers deserve to buy stuff with their hard earned labor too. What are they getting from us? Anyone reading the fine print?

[Lord]

It is amazing how many really smart people think that shopping at Wal-Mart makes up for declining real incomes and benefit cuts.

I doubt they shop there.

The problem isn't free trade; it is the free lunch that promoters of free trade are addicted to.

[nyuk]

In an economy touted as being "strong and growing stronger", it just amazes me that real median income has decreased. Workers have to pay more for their insurance, if they have any at all. And the government has to borrow to pay the bills.

I remember one time I felt like I was financially strong. I had just paid off my college loans, I had no other debt of any kind, I was employed, I was single, and I had over $5000 in my savings account. It's one of those points in my life that I often wish I could go back to.

[baileyman]

Sure, you can redistribute the monetary gains from globalization. But it's not the US in the 30s. The new global elite harvests gains from everywhere, and the elite live everywhere, and through Davos they are organized. What chance is there of a global counterbalance among the countries to coordinate tax policy to accomplish the redistribution? Do I have to answer that? This is a slippery slope, and I for one see no chance the ordinary family will get a break in the distribution.

[spencer]

When the textile and shoes industries moved out of New England in the 1930s-50s it was the type of adjustment that we talk about with globilization and what the Mid-West is going through now. But from around 1930 to 1950-60 real per capita income in New England fell from over 150% of the national average to around 125%-130% of the national average. For years the New England economy stagnated and most of the people who lost their jobs in those industries never got a good job again.

The New England economy did not really start doing well until the 1970s-80s when the high tech boom emerged that provided high paying jobs to the children and grandchildren of the textile and shoe workers that has lost their jobs a generation or two earlier.
New England is now much better off because our leading industries are technology, education, finance and medicine and the death of the old textile and shoe industries probably was a precondition for the emergence of these new industries just as theory suggest. But we saw a huge gap between the loses of the textile and shoe workers before the gains of new high wage industries became wide spread.

Theory and the current debate alsways seems to assume that the costs and benefits of globalization occur concurrently and that is seldom the case.

[anne]

Spencer:

"New England is now much better off because our leading industries are technology, education, finance and medicine and the death of the old textile and shoe industries probably was a precondition for the emergence of these new industries just as theory suggest. But we saw a huge gap between the loses of the textile and shoe workers before the gains of new high wage industries became wide spread.

"Theory and the current debate alsways seems to assume that the costs and benefits of globalization occur concurrently and that is seldom the case."

Precisely; then offer better worker protection as in western Europe, and ease and facilitate transition as will continually be necessary.

[Alan]

If anyone missed it, I recommend Bard Setser's comments on the issue. http://www.rgemonitor.com/blog/setser/144955/
He argues that pro-trade forces are not so diffuse, and anti-trade forces are not so concentrated, as DeLong and Wolf maintain.

[Movie Guy]

save the rustbelt - "I've been waiting for the "workers are stupid" argument. Only the elites are smart."

If the "elites" were smart, they wouldn't have so many
problems trying to package and repackage the floundering pro-globalization-at-all-costs argument into a marketable strategy. Obviously, they lack business smarts and common sense.

The pro-globalization-at-all-costs economic church services pitch is a failed message at this point. As such, the prime pushers have moved on and initiated the "dummies" campaign.

[reason]

o von Rein got it right. 100% spot on.

But none-the-less noone has picked on the "does the international financial system work properly or is it broken" meme. I think it is broken and that is the problem, not that globalisation itself is an evil thing. We need an international financial system that responds smoothly and accurately to reality, not manipulated casino finance. There is no doubt in my mind that all parties would be better off if developing countries had somewhat more expensive currencies and developed countries somewhat cheaper ones (the real income of the poor world would be improved and the rich world would keep more productive industry).

[Jake Summers]

If you increase the supply of labor it drops wages. So they add 2 billion people from Asia, which means we have to sift through them before we can have jobs return to the US. Or we drop the economy and do what China does by running their currency into the ground, except that the world economy depends on our dollar.

I learned the hard way, education won’t work. My computer degree is worthless in America and there is no way I can compete with people of same skill payed 50 cents an hour. Not only that they have lot of talented people to sift through for the best and brightest and are more willing to work in adverse conditions. Add to it that many people living in such standards of survival are ruthless and probably think nothing of harming the person next to them to get ahead in the game. And that is exactly what the international corporations love as they sell products back to us for what the market will bear, but not really that cheap.

I often think of globalization as a gum ball machine for the rich. They put in 50 cents and get back 100 bucks. And all day long they keep standing their putting in 50 cents which lands in China and India. So if you notice, American labor has nothing to do with it. The only thing they need Americans for is to be gum balls that return the 100 bucks from our evil consumer society. Even worse if these people don't be become consumers soon we are all headed into the dumpster.

There are a huge amount of negatives of globalization for X-Gen and beyond. We can't live on the Baby Boomers wealth forever. Maybe though in 25 years, if the economy doesn’t drop, things will finally start to balance out. Of course I might have committed suicide, lived on the street or have gone through a world war before then. Right now not much point in trying to live on $12,000 a year. So either I need to add a few more jobs and get my hours up to 80+ or I need to find some way on top of the pyramid scheme. Or I find something illegal like smuggling prescription drugs over the boarder and play this game against these rich bastards but end up a criminal though ethically superior.

My suggestion for anyone suffering from globalization is to find a way to sit on top. With large amounts of labor the money will trickle up and only up. Surplus labor means people will work cheap, even Americans will be forced down towards 50 cents per hour to compete. Or worse, if slavery returns you get to be a slave. They wouldn’t even have to treat slaves well because there are so many people they can cycle through.

Either get on top quick, or expect to live in poverty. The rich won’t share anything and this has been proven through out history. The only thing you will receive from many of the wealthy is finally seeing their true colors bearing their ruthless disregard for anyone or anything else that isn’t serving them as they see fit. Remember that anytime you hear a politician like Hilary Clinton or corporate executives complain about lazy Americans as they gain a larger share of the global pie.