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Tuesday, May 13, 2008

"The Canary in the Mine?"

I have a hard time picturing Larry Summers as a canary:

Is Larry Summers the canary in the mine?, by By Devesh Kapur, Pratap Mehta and Arvind Subramanian, Commentary, Financial Times: Is a liberal international economic order losing intellectual support? Should developing economies be worried? If Larry Summers is the canary in the intellectual mine, his two columns in the Financial Times suggest that the answers to both questions are yes.

The liberal economic order of the last several decades was premised on two assumptions. First, that the proliferation of prosperity across countries was a good thing. Second, there would be winners and losers but, on balance, a majority of people in both developing and developed countries would benefit. Mr Summers now appears to be questioning both assumptions ..., his columns ... suggest that globalisation creates competition for America.

This is an obvious fact. For the first time since the 17th century the west’s economic pre-eminence is being seriously challenged. But he goes on to draw the disturbing conclusion that the process of globalisation should be attenuated, precisely because it poses potential threats to the US. In doing so he, perhaps unwittingly, presents the rise of the poorer parts of the world ... more as a threat than an opportunity to the US. In effect, globalisation is justified only when it serves American interests.

This apparently nationalist argument is couched in appealing distributional terms. The losers in the process are US workers. The structure of globalisation is such that their bargaining power is considerably weakened, while mobile capital reaps all the benefits.

Mr Summers is right to worry that US workers have not benefited as much from globalisation... He is also right to assert that globalisation requires democratic legitimation.

But the ... terms of what constitutes just globalisation cannot be determined unilaterally from the standpoint of the gains and losses within the US. It has to be determined co-operatively, involving discussions over the costs and benefits to all, especially those least able to defend their interests in both rich and poor countries. ...

That globalisation needs appropriate regulation is hardly in doubt. But blaming globalisation preponderantly for the ills of American workers runs the risk of providing an alibi for the sins of omission in domestic policy that have had a much bigger impact.

It is undeniable that the best line of defence for protecting workers has to be overwhelmingly domestic – through progressive taxation, improving education, strengthening the bargaining position of labour and improving the safety nets. Since the Ronald Reagan years, the headlong embrace of market solutions has systematically undermined each of these policy responses.

One reading is that Mr Summers’ angst about globalisation is motivated by desire to maintain the environment for the continuing spread of prosperity: a need to tweak the rules – through regulatory harmonisation – to bolster the fraying consensus among the US middle class in favour of globalisation.

But the manner in which his position is framed, the inconsistencies of the arguments across time, the inappropriate transferring of the burden of any response from domestic actions to international ones, and the susceptibility of the proposed remedies to protectionist misuse point to a more alarming prospect for developing countries. The ground is shifting under their feet. They would do well to take notice.

    Posted by on Tuesday, May 13, 2008 at 05:04 PM in Economics, Income Distribution, International Trade | Permalink  TrackBack (0)  Comments (36)

          

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