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.