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Sunday, May 04, 2008

"A Strategy to Promote Healthy Globalisation"

Larry Summers continues his conversation on how to promote broad based support for globalization:

A strategy to promote healthy globalisation, by Lawrence Summers, Commentary, Financial Times: Last week, in this column,... I suggested that opposition to ... economic internationalism ... reflected a growing recognition by workers that what is good for the global economy and its business champions was not necessarily good for them, and that there were reasonable grounds for this belief. ...

This ... was ... emphasised years ago by Robert Reich... The normal argument is that a more rapidly growing global economy benefits workers and companies in an individual country by expanding the market for exports. This is a valid consideration. But it is also true that the success of other countries, and greater global integration, places more competitive pressure on an individual economy. Workers are likely disproportionately to bear the brunt of this pressure. ...

In ... an open economy where investments in innovation, brands, a strong corporate culture or even in certain kinds of equipment can be combined with labour from anywhere in the world. Workers no longer have the same stake in productive investment by companies as it becomes easier for corporations to combine their capital with lower priced labour overseas. Companies, in turn, come to have less of a stake in the quality of the workforce and infrastructure in their home country... Moreover businesses can use the threat of relocating as a lever to extract concessions regarding tax policy, regulations and specific subsidies. Inevitably the cost of these concessions is borne by labour.

The public policy response of withdrawing from the global economy, or reducing the pace of integration,is ultimately untenable. It would generate resentment abroad on a dangerous scale, hurt the economy as other countries retaliated, and make us less competitive as companies in rival countries continue to integrate ... with developing countries. ...

The domestic component of a strategy to promote healthy globalisation must rely on strengthening efforts to reduce inequality and insecurity. The international component must focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global ­corporations.

First, the US should take the lead in promoting global co-operation in the international tax arena. There has been a race to the bottom in the taxation of corporate income as nations lower their rates to entice business to ... invest in their jurisdictions. Closely related is the problem of tax havens that seek to lure wealthy citizens... It might be inevitable that globalisation leads to some increases in inequality; it is not necessary that it also compromise the possibility of progressive taxation.

Second,... prevent harmful regulatory competition. ... Financial regulation is only one example of where the mantra of needing to be “internationally competitive” has been invoked too often as a reason to cut back on regulation. There has not been enough serious consideration of the alternative – global co-operation to raise standards. While labour standards arguments have at times been invoked as a cover for protectionism, and this must be avoided, it is entirely appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights.

To benefit the interests of US citizens and command broad political support, US international economic policy will need to focus on the issues in which the largest number of Americans have the greatest stake. A decoupling of the interests of businesses and nations may be inevitable; a decoupling of international economic policies and the interests of American workers is not.

    Posted by on Sunday, May 4, 2008 at 01:08 PM in Economics, International Trade, Regulation, Social Insurance, Taxes | Permalink  TrackBack (0)  Comments (44)


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